-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nq6QpwZlRmOXvevgprfZQGBsDdFg92gx7heYyvx7LUq2hnrabSpAUzvFCdwMUHtG P/0rXjpiXEEM/dJ7sFmV3w== 0000950123-99-002913.txt : 19990414 0000950123-99-002913.hdr.sgml : 19990414 ACCESSION NUMBER: 0000950123-99-002913 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990413 GROUP MEMBERS: GILBERT L DROZDOW GROUP MEMBERS: JAY A MARTUS GROUP MEMBERS: LEWIS D GOLD GROUP MEMBERS: MICHAEL F SCHUNDLER GROUP MEMBERS: MITCHELL EISENBERG GROUP MEMBERS: ROBERT J COWARD GROUP MEMBERS: SHERIDAN HEALTHCARE INC GROUP MEMBERS: VESTAR SHERIDAN INC GROUP MEMBERS: VESTAR/SHERIDAN HOLDINGS INC GROUP MEMBERS: VESTAR/SHERIDAN INVESTRS LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SHERIDAN HEALTHCARE INC CENTRAL INDEX KEY: 0000946489 STANDARD INDUSTRIAL CLASSIFICATION: 8093 IRS NUMBER: 043252967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-45587 FILM NUMBER: 99583820 BUSINESS ADDRESS: STREET 1: 4651 SHERIDAN ST STREET 2: STE 400 CITY: HOLLYWOOD STATE: FL ZIP: 33021 BUSINESS PHONE: 3059875822 MAIL ADDRESS: STREET 1: 4651 SHERIDAN STREET STREET 2: SUITE 400 CITY: HOLLYWOOD STATE: FL ZIP: 33021 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: VESTAR SHERIDAN INC CENTRAL INDEX KEY: 0001083085 STANDARD INDUSTRIAL CLASSIFICATION: STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 245 PARK AVENUE STREET 2: 41ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10167 BUSINESS PHONE: 2123511600 MAIL ADDRESS: STREET 1: 245 PARK AVENUE STREET 2: 41ST FL CITY: NEW YORK STATE: NY ZIP: 10167 SC 13E3 1 SCHEDULE 13E3 RE: SHERIDAN HEALTHCARE, INC. 1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 13E-3 RULE 13e-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) SHERIDAN HEALTHCARE, INC. (NAME OF THE ISSUER) VESTAR/SHERIDAN, INC. VESTAR/SHERIDAN HOLDINGS, INC. VESTAR/SHERIDAN INVESTORS, LLC SHERIDAN HEALTHCARE, INC. MITCHELL EISENBERG LEWIS D. GOLD MICHAEL F. SCHUNDLER GILBERT L. DROZDOW JAY A. MARTUS ROBERT J. COWARD (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, PAR VALUE $0.01 PER SHARE CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLES OF CLASSES OF SECURITIES) COMMON STOCK 823781109 CLASS A COMMON STOCK 823781208 (CUSIP NUMBER OF CLASSES OF SECURITIES) JAMES L. ELROD, JR. MITCHELL EISENBERG, M.D. VESTAR/SHERIDAN INVESTORS, LLC SHERIDAN HEALTHCARE, INC. 245 PARK AVENUE, 41ST FLOOR 4651 SHERIDAN STREET, SUITE 400 NEW YORK, NY 10167 HOLLYWOOD, FL 33021 (212) 351-1600 (954) 964-2611
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) COPIES TO: PETER J. GORDON, ESQ. STEPHEN K. RODDENBERRY, ESQ. SIMPSON THACHER & BARTLETT AKERMAN, SENTERFITT, EIDSON, P.A. 425 LEXINGTON AVENUE ONE SOUTHEAST THIRD AVENUE NEW YORK, NEW YORK 10017 28TH FLOOR (212) 455-2000 MIAMI, FLORIDA 33131
This statement is filed in connection with (check the appropriate box): a. [ ] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [X] A tender offer. d. [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [ ] CALCULATION OF FILING FEE
- - ------------------------------------------------------------------------------------------------ Transaction Valuation* $73,719,530.75 Amount of Filing Fee $14,743.91 - - ------------------------------------------------------------------------------------------------
*For purposes of calculation of the filing fee only. The "Transaction Valuation" amount referred to above is the sum of the product of 6,586,816, the number of outstanding shares of Common Stock, par value $0.01 per share, and Class A Common Stock, par value $0.01 per share (collectively the "Shares"), and options to purchase 1,382,863 shares of Common Stock, outstanding of Sheridan Healthcare, Inc. as of March 28, 1999 and $9.25, the cash price per Share to be paid in the Offer (as defined herein). In accordance with Rule 0-11 under the Securities Exchange Act of 1934, the filing fee is determined by multiplying the amount calculated pursuant to the preceding sentence by 1/50th of one percent. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $14,743.91 Form or Registration No.: 14D-1 Filing Party: Vestar/Sheridan, Inc., Vestar/Sheridan Holdings, Inc., Vestar/Sheridan Investors, LLC Date Filed: March 31, 1999 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 This Rule 13E-3 Transaction Statement relates to a tender offer by Vestar/Sheridan, Inc., a Delaware corporation (formerly known as Vestar/Calvary, Inc.) (the "Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation (formerly known as Vestar/Calvary Holdings, Inc.) ("Holdings") and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company (formerly known as Vestar/Calvary Investors, LLC) ("Parent"), to purchase all of the outstanding shares of Common Stock, par value $0.01 per share (the "Common Stock"), and Class A Common Stock, par value $0.01 per share (the "Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a price of $9.25 per Share net to the seller in cash and without interest thereon, on the terms and subject to the conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer to Purchase") and in the related Letters of Transmittal (which, together with the Offer to Purchase, constitute the "Offer"), copies of which are filed as Exhibits (d)(1) and (d)(2) hereto. The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") filed by the Purchaser with the Securities and Exchange Commission on the date hereof of the information required to be included in response to the items of this Statement. The information in the Schedule 14D-1 which is attached hereto as Exhibit (g), including all exhibits thereto, is hereby expressly incorporated herein by reference and the responses to each item are qualified in their entirety by the provisions of the Schedule 14D-1. CROSS-REFERENCE SHEET
WHERE LOCATED IN ITEM IN SCHEDULE 13E-3 SCHEDULE 14D-1 - - ---------------------- ---------------- Item 1(a)............................................ Item 1(a) Item 1(b)............................................ Item 1(b) Item 1(c)............................................ Item 1(c) Item 1(d)............................................ * Item 1(e)............................................ * Item 1(f)............................................ * Item 2(a)............................................ Item 2(a) Item 2(b)............................................ Item 2(b) Item 2(c)............................................ Item 2(c) Item 2(d)............................................ Item 2(d) Item 2(e)............................................ Item 2(e) Item 2(f)............................................ Item 2(f) Item 2(g)............................................ Item 2(g) Item 3(a)............................................ Item 3(a) Item 3(b)............................................ Item 3(b) Item 4............................................... * Item 5............................................... Item 5 Item 6(a)............................................ Item 4(a) Item 6(b)............................................ * Item 6(c)............................................ Item 4(b) Item 6(d)............................................ Item 4(c) Item 7(a)............................................ Item 5 Item 7(b)............................................ * Item 7(c)............................................ * Item 7(d)............................................ *
i 3
WHERE LOCATED IN ITEM IN SCHEDULE 13E-3 SCHEDULE 14D-1 - - ---------------------- ---------------- Item 8............................................... * Item 9............................................... * Item 10(a)........................................... Item 6(a) Item 10(b)........................................... Item 6(b) Item 11.............................................. Item 7 Item 12(a)........................................... * Item 12(b)........................................... * Item 13.............................................. * Item 14(a)........................................... * Item 14(b)........................................... * Item 15(a)........................................... * Item 15(b)........................................... Item 8 Item 16.............................................. Item 10(f) Item 17(a)........................................... Item 11(b) Item 17(b)........................................... * Item 17(c)........................................... Item 11(c) Item 17(d)........................................... Item 11(a) Item 17(e)........................................... * Item 17(f)........................................... Item 11(f)
- - --------------- * There is no applicable item contained in Schedule 14D-1. ii 4 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The name of the issuer is Sheridan Healthcare, Inc., a Delaware corporation, and the address of its principal executive offices is 4651 Sheridan Street, Suite 400, Hollywood, Florida 33021. The answer to Item 1(a) of the Schedule 14D-1 is incorporated herein by reference. (b) The exact title of each class of equity securities to which this statement relates is as follows: (i) Common Stock, par value $0.01 per share, of which 6,290,178 shares were outstanding and held by 46 holders of record, in each case, as of March 30, 1999, and (ii) Class A Common Stock, par value $0.01 per share, of which 296,638 shares were outstanding and held by one holder of record, in each case, as of March 30, 1999. The information set forth in the "INTRODUCTION" and in "SPECIAL FACTORS -- Effect of the Offer on the Markets for the Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is incorporated herein by reference. The answer to Item 1(b) of the Schedule 14D-1 is incorporated herein by reference. (c) The information set forth in "THE TENDER OFFER -- Section 5" ("Price Range of Shares; Dividends"), "THE TENDER OFFER -- Section 8" ("Dividends and Distributions") and "SPECIAL FACTORS -- Financing of the Transactions" of the Offer to Purchase is incorporated herein by reference. The answer to Item 1(c) of the Schedule 14D-1 is incorporated herein by reference. (d) In 1997 and 1998, the issuer did not pay dividends to any holders of its Common Stock or Class A Common Stock. The Company's existing credit facility with NationsBank N.A. and the other lenders parties thereto prohibits the payment of cash dividends prior to the repayment of the outstanding balance in full. The information set forth in "THE TENDER OFFER -- Section 5" ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. (e) Not applicable. (f) Except as set forth herein, since January 1, 1997, neither the issuer nor any affiliate thereof has made any purchases of shares. Under its Stock Repurchase Program, the Company repurchased a total of 424,000 shares of its Common Stock on the open market during the period July 1 though December 31, 1998, which shares were subsequently retired. Except as described below, the Company has not repurchased any shares of its Common Stock on the open market under its Stock Repurchase Program or otherwise since December 31, 1998. The average per share purchase price for these shares was $10.10 and $7.60 for the third and fourth quarters of 1998, respectively. From January 1, 1999 through March 24, 1999, the Company has purchased 1,275,046 shares of its Common Stock, given as consideration to the former shareholders of certain acquired practices, which shares have been or will be retired as well. The shares were purchased at prices ranging from $11.50 to 13.89 per share. The average price per share paid for these shares was $12.22. 885,000 of such shares were repurchased pursuant to the terms of purchase option agreements dated as of March 4, 1998 between the Company and various selling shareholders, as amended on May 6, 1998. Pursuant to certain guarantees made by the Company in such purchase option agreements, the Company is obligated to make payments to such selling shareholders on July 15, 1999 in the aggregate amount of $6.1 million. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d), (g) This Statement is filed by Holdings, Parent, Purchaser, the Company, Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler, Gilbert L. Drozdow, Jay A. Martus and Robert J. Coward. The information set forth in the "INTRODUCTION", "THE TENDER OFFER -- Section 6" ("Certain Information Concerning the Company") and "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of and Schedules II and III to the Offer to Purchase is incorporated herein by reference. The answer to Item 2 of Schedule 14D-1 is incorporated herein by reference. (e)-(f) None of the Company, Mitchell Eisenberg, Lewis Gold, Michael Schundler, Gilbert Drozdow, Jay Martus, Robert Coward, Holdings, Parent, Purchaser, Vestar Capital Partners III, L.P., a Delaware limited partnership ("Vestar"), Vestar Associates III, L.P., a Delaware limited partnership ("VA III"), and 1 5 Vestar Associates Corporation III, a Delaware corporation ("VAC III"), or, to their best knowledge, any of the persons listed in Schedules II or III to the Offer to Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body or competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. The answer to Item 2 of Schedule 14D-1 is incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)-(b) The information set forth in the "INTRODUCTION", "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions" of the Offer to Purchase is incorporated herein by reference. Except as set forth herein, since January 1, 1997 there have been no contacts, negotiations or transactions required to be set forth in this item. The answer to Item 3 of Schedule 14D-1 is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the "INTRODUCTION", "SPECIAL FACTORS - - -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement" and "THE TENDER OFFER" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the "INTRODUCTION", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions" and "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement" of the Offer to Purchase is incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(e) The information set forth in the "INTRODUCTION", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "THE TENDER OFFER - - -- Section 6" (Certain Information Concerning the Company"), "THE TENDER OFFER - - -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings"), "SPECIAL FACTORS -- Financing of the Transactions" and "THE TENDER OFFER -- Section 8" ("Dividends and Distributions") of the Offer to Purchase is incorporated herein by reference. Except as set forth therein, there are no plans or proposals required to be set forth in this Item. The answer to Item 5 of the Schedule 14D-1 is incorporated herein by reference. (f)-(g) The information set forth in "SPECIAL FACTORS -- Certain Effects of the Transactions" and "SPECIAL FACTORS -- Effect of the Offer on the Markets for the Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is incorporated herein by reference. The answer to Item 5 of the Schedule 14D-1 is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a), (c) The information set forth in the "INTRODUCTION" and "SPECIAL FACTORS -- Financing of the Transactions" of the Offer to Purchase is incorporated herein by reference. The answer to Item 4 of the Schedule 14D-1 is incorporated herein by reference. (b) The information set forth in "THE TENDER OFFER -- Section 11" ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. 2 6 ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of the Transactions", "SPECIAL FACTORS -- Opinions of the Financial Advisors", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "SPECIAL FACTORS -- Purpose and Structure of the Transactions" and "SPECIAL FACTORS -- Future Plans in Addition to the Merger" of the Offer to Purchase is incorporated herein by reference. The answer to Item 5 of the Schedule 14D-1 is incorporated herein by reference. (b)-(d) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of the Transactions", "SPECIAL FACTORS -- Opinions of the Financial Advisors", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "SPECIAL FACTORS -- Certain Effects of the Transactions", "SPECIAL FACTORS -- Certain Federal Income Tax Consequences" and "SPECIAL FACTORS -- Effect of the Offer on the Markets for the Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(f) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of the Transactions", "SPECIAL FACTORS -- Opinions of the Financial Advisors", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", and "SPECIAL FACTORS -- Future Plans in Addition to the Merger" of the Offer to Purchase is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(c) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of the Transactions", "SPECIAL FACTORS -- Opinions of the Financial Advisors", "SPECIAL FACTORS -- Purpose and Structure of the Transactions" of the Offer to Purchase and in Exhibits (b)(1), (2), (3) and (4) of this Schedule 13E-3 is incorporated herein by reference. The reports, opinions or appraisals mentioned in the foregoing information incorporated by reference hereto are available for inspection and copying during normal business hours at Sheridan Healthcare, Inc., 4651 Sheridan Street, Suite 400, Hollywood, Florida 33021. A copy of any such material will also be transmitted by the Company to any interested holder of shares of Company Common Stock or Class A Common Stock (or his representative designated in writing), upon written request and at the expense of such stockholder. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) The information concerning the ownership of and transactions in Shares set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions", "THE TENDER OFFER -- Section 6" (Certain Information Concerning the Company"), and "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase and in Exhibits (c)(1)-(13) of this Schedule 13E-3 is incorporated herein by reference. The answer to Item 6 of the Schedule 14D-1 is incorporated herein by reference. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information in the "INTRODUCTION," "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions", "SPECIAL FACTORS -- Financing of the Transactions" and "THE 3 7 TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase and in Exhibits (c)(2)-(c)(12) of this Schedule 13E-3 is incorporated herein by reference. The answer to Item 7 of the Schedule 14D-1 is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a)-(b) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Recommendation of the Board of Directors; Fairness of the Transactions" and "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions" of the Offer to Purchase is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTIONS. (a) The information set forth in the "INTRODUCTION", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger" and Schedule IV of the Offer to Purchase is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a)-(b) The information set forth in "THE TENDER OFFER -- Section 6" ("Certain Information Concerning the Company") of and Schedule I to the Offer to Purchase is incorporated herein by reference. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The information set forth in "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- Purpose and Structure of the Transactions", "SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions", "SPECIAL FACTORS -- Financing of the Transactions" and "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in "THE TENDER OFFER -- Section 11" ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. The answer to Item 8 of the Schedule 14D-1 is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. The information set forth in the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (d)(1) and (d)(2), is incorporated herein by reference. The answer to Item 10(f) of the Schedule 14D-1 is incorporated herein by reference. 4 8 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Commitment Letter, dated March 24, 1999 to Vestar Capital Partners III, L.P. from NationsBank, N.A. and NationsBanc Montgomery Securities LLC. (b)(1) Fairness Opinion of Salomon Smith Barney Inc., dated March 24, 1999 (included as Annex A to Exhibit (d)(1)). (b)(2) Fairness Opinion of Bowles Hollowell Conner, dated March 24, 1999 (included as Annex B to Exhibit (d)(1)). (b)(3) Presentation to the Company's Board of Directors by Salomon Smith Barney Inc. dated March 24, 1999. (b)(4) Presentation to the Company's Board of Directors by Bowles Hollowell Conner dated March 24, 1999. (c)(1) Agreement and Plan of Merger, dated as of March 24, 1999, among Parent, Purchaser and the Company (included as Schedule V to Exhibit (d)(1)). (c)(2) Employment Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and the Company. (c)(3) Employment Agreement, dated as of March 24, 1999, between Lewis Gold and the Company. (c)(4) Employment Agreement, dated as of March 24, 1999, between Michael Schundler and the Company. (c)(5) Employment Agreement, dated as of March 24, 1999, between Jay Martus and the Company. (c)(6) Stockholders Agreement, dated as of March 24, 1999, among Parent, the Company, Holdings, Gilbert Drozdow, Jay Martus, Michael Schundler, Lewis Gold and Mitchell Eisenberg. (c)(7) Subscription and Tender Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and Parent. (c)(8) Subscription and Tender Agreement, dated as of March 24, 1999, between Lewis Gold and Parent. (c)(9) Subscription and Tender Agreement, dated as of March 24, 1999, between Jay Martus and Parent. (c)(10) Subscription and Tender Agreement, dated as of March 24, 1999, between Michael Schundler and Parent. (c)(11) Subscription and Tender Agreement, dated as of March 24, 1999, between Gilbert Drozdow and Parent. (c)(12) Tender Agreement, dated as of March 24, 1999, between Robert Coward and Parent. (c)(13) Guaranty Agreement dated as of March 24, 1999, between Vestar Capital Partners III, L.P. and the Company. (d)(1) Offer to Purchase dated March 31, 1999. (d)(2) Letter of Transmittal. (d)(3) Notice of Guaranteed Delivery. (d)(4) Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (d)(6) Joint Press Release dated March 25, 1999. (d)(7) Summary Advertisement dated March 31, 1999. (d)(8) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (e) Section 262 of the Delaware General Corporation Law (included as Schedule IV to Exhibit (d)(1)). (f) Not applicable. (g) Tender Offer Statement on Schedule 14D-1 filed by Holdings, Parent and Purchaser on March 31, 1999.
5 9 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. VESTAR/SHERIDAN INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., ------------------------------------ its Sole Member By: VESTAR ASSOCIATES III, L.P., ------------------------------------ its General Partner By: VESTAR ASSOCIATES CORPORATION III ------------------------------------ its General Partner By: JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: Vice President VESTAR/SHERIDAN HOLDINGS, INC. By: JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: President VESTAR/SHERIDAN, INC. By: JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: President SHERIDAN HEALTHCARE, INC. By: JAY A. MARTUS ------------------------------------ Name: Jay A. Martus Title: Vice President and General Counsel MITCHELL EISENBERG -------------------------------------- Mitchell Eisenberg 6 10 LEWIS D. GOLD -------------------------------------- Lewis D. Gold MICHAEL F. SCHUNDLER -------------------------------------- Michael F. Schundler GILBERT L. DROZDOW -------------------------------------- Gilbert L. Drozdow JAY A. MARTUS -------------------------------------- Jay A. Martus ROBERT J. COWARD -------------------------------------- Robert J. Coward March 31, 1999 7 11 EXHIBIT INDEX (a)(1) Commitment Letter, dated March 24, 1999 to Vestar Capital Partners III, L.P. from NationsBank, N.A. and NationsBanc Montgomery Securities LLC. (b)(1) Fairness Opinion of Salomon Smith Barney Inc., dated March 24, 1999 (included as Annex A to Exhibit (d)(1). (b)(2) Fairness Opinion of Bowles Hollowell Conner, dated March 24, 1999 (included as Annex B to Exhibit (d)(1). (b)(3) Presentation to the Company's Board of Directors by Salomon Smith Barney, Inc. dated March 24, 1999. (b)(4) Presentation to the Company's Board of Directors by Bowles Hollowell Conner dated March 24, 1999. (c)(1) Agreement and Plan of Merger, dated as of March 24, 1999 among Parent, Purchaser and the Company (included as Exhibit (V) to Exhibit (d)(1)). (c)(2) Employment Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and the Company. (c)(3) Employment Agreement, dated as of March 24, 1999, between Lewis Gold and the Company. (c)(4) Employment Agreement, dated as of March 24, 1999, between Michael Schundler and the Company. (c)(5) Employment Agreement, dated as of March 24, 1999, between Jay Martus and the Company. (c)(6) Stockholders Agreement, dated as of March 24, 1999, among Parent, the Company, Holdings, Gilbert Drozdow, Jay Martus, Michael Schundler, Lewis Gold, Mitchell Eisenberg. (c)(7) Subscription and Tender Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and Parent. (c)(8) Subscription and Tender Agreement, dated as of March 24, 1999, between Lewis Gold and Parent. (c)(9) Subscription and Tender Agreement, dated as of March 24, 1999, between Jay Martus and Parent. (c)(10) Subscription and Tender Agreement, dated as of March 24, 1999, between Michael Schundler and Parent. (c)(11) Subscription and Tender Agreement, dated as of March 24, 1999, between Parent and Gilbert Drozdow. (c)(12) Tender Agreement, dated as of March 24, 1999 between Parent and Robert Coward. (c)(13) Guaranty Agreement, dated as of March 24, 1999, between Vestar Capital Partners III, L.P. and the Company. (d)(1) Offer to Purchase dated March 31, 1999. (d)(2) Letter of Transmittal. (d)(3) Notice of Guaranteed Delivery. (d)(4) Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (d)(6) Joint Press Release dated March 25, 1999. (d)(7) Summary Advertisement dated March 31, 1999. (d)(8) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (e) Section 262 of the Delaware General Corporation Law. (f) Not applicable. (g) Tender Offer Statement on Schedule 14D-1 filed by Holdings, Parent and Purchaser on March 31, 1999.
EX-99.A.1 2 COMMITMENT LETTER 1 NATIONSBANK, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 NATIONSBANC MONTGOMERY SECURITIES LLC NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 March 24, 1999 Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, New York Attention: Mr.Jim Elrod RE: Acquisition Financing Dear Jim: You have advised us that Vestar Capital Partners III, L.P. (together with its affiliates, the "Sponsor") intends to form an acquisition company (the "Acquisition Company") which will (i) acquire (the "Acquisition") outstanding common stock of Sheridan Healthcare, Inc. (the "Target") pursuant to a tender offer (the "Tender Offer"), (ii) following the consummation of the Tender Offer, merge itself into the Target, with the Target being the surviving entity (the "Merger") and (iii) contemporaneously with consummation of the Merger, refinance all existing funded indebtedness of the Target (the "Refinancing"). The Acquisition Company will be the wholly-owned subsidiary of a holding company (the "Parent") formed by the Sponsor. You have advised us that the sum required to consummate the Tender Offer, the Acquisition, the Merger and the Refinancing (including payment of transaction fees and expenses in an amount not to exceed $12.0 million) is approximately $165 million (before giving effect to any acquisitions by the Target reasonably acceptable to us after the date hereof). The Tender Offer, the Acquisition, the Merger, the Refinancing and the payment of transaction fees and expenses in connection therewith are collectively referred to herein as the "Transaction". You have advised us that up to $33.2 million of a senior tender offer facility will be required to finance the Tender Offer and that up to $125.0 million (of which amount $75.0 million will be drawn at closing) in permanent senior debt financing will be required in order to refinance the tender offer financing, to close the Merger, to pay the cost and expenses related to the Tender Offer, the Acquisition, the Merger and the Refinancing and provide for ongoing general working capital and corporate purposes after completion of the Merger. Prior to the Merger, the 2 Vestar Capital Partners III, L.P. March 24, 1999 Page 2 Acquisition Company will be the "Borrower" and, subsequent to the Merger, the Target (into which the Acquisition Company shall have been merged) will be the "Borrower." You have further advised us that that no external debt financing other than the financing described herein and the $20.0 million junior subordinated debt financing referred to in the term sheet attached hereto (the "Junior Subordinated Debt") will be required in connection with the Transaction. You have further advised us that in connection with the Transaction a common equity investment in cash of no less than $60.1 million will be contributed by the Sponsor to the Parent (and concurrently contributed by the Parent to the Borrower) and no less than $3.0 million of common equity in cash will be further contributed by certain members of the Target's existing management team. The Sponsor may make a cash investment of $20.0 million in common or preferred stock of the Borrower (or, at the option of the Sponsor, the Parent (in which case, the proceeds of such contribution shall be concurrently contributed by the Parent to the Borrower)) in lieu of providing the Junior Subordinated Debt. You have also advised us that you intend to pursue a $90 million senior subordinated financing (the "Senior Subordinated Debt") in conjunction with the Permanent Facilities. We understand that, in the event that you consummate the Senior Subordinated Debt financing concurrently with the closing of the Permanent Facilities, the Junior Subordinated Debt or a $20 million equity investment in lieu thereof will not be required to consummate the Transaction, and you will only require, in addition to the Tender Offer Facility, a $50 million permanent senior secured revolving credit facility (of which $5 million will be drawn at closing of the Permanent Facilities) to provide for ongoing general corporate purposes after completion of the Transaction. The financing arrangements described in this paragraph are referred to herein and in the Term Sheet (as defined below) as the "Alternate Financing Structure." In connection with the foregoing, NationsBank, N.A. ("NationsBank" or the "Agent") is pleased to advise you of its commitment to provide the full principal amount of the $33.2 million senior tender offer facility (the "Tender Offer Facility") and the $125.0 million permanent senior secured credit facilities (the "Permanent Facilities", and together with the Tender Offer Facility, the "Credit Facilities") described in the term sheet attached hereto as Annex I (the "Term Sheet"). NationsBanc Montgomery Securities LLC ("NMS") is pleased to advise you of its commitment to act as Sole Lead Arranger and Sole Book Manager for the Credit Facilities and to form a syndicate of financial institutions (together with NationsBank, the "Lenders") reasonably acceptable to you for the Credit Facilities. No additional agents, arrangers or book managers will be appointed without the prior approval of NationsBank and NMS. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet. The commitments of NationsBank and NMS hereunder are subject to the satisfaction of each of the following conditions precedent in a manner acceptable to NationsBank and NMS in their sole discretion: (a) each of the terms and conditions set forth herein; (b) each of the terms and conditions set forth in the Term Sheet; 3 Vestar Capital Partners III, L.P. March 24, 1999 Page 3 (c) the absence of a material breach of any representation or warranty of the Sponsor set forth herein; (d) execution of the fee letter dated the date hereof among the Sponsor, NationsBank and NMS (the "Fee Letter") prior to or concurrently with the acceptance by the Sponsor of this letter; and (e) there not having occurred and being continuing since the date hereof a material adverse change in the market for syndicated bank credit facilities which NationsBank and NMS determine in their reasonable discretion could have a material adverse effect on the syndication of the Credit Facilities. In addition to the forgoing conditions, the commitments of NationsBank and NMS hereunder are subject to the requirement that the interest rates, maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other terms of the Junior Subordinated Debt or the Senior Subordinated Debt be reasonably satisfactory to the Agent. Furthermore, the commitments of NationsBank and NMS hereunder are based upon the financial and other information regarding the Target and its subsidiaries previously provided to NationsBank and NMS and are subject to the conditions, among others, that (i) NationsBank and NMS shall have completed, with results reasonably satisfactory to them and their counsel, all legal and accounting due diligence with respect to the Target and its subsidiaries and (ii) there shall not have occurred after December 31, 1998 any material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Target and its subsidiaries taken as a whole. If, after the date hereof, NationsBank and NMS become aware of information with respect to the Target and its subsidiaries relating to conditions or events not previously disclosed to NationsBank and NMS or relating to new information or additional developments concerning conditions or events previously disclosed to NationsBank and NMS and which has a material adverse effect on the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Target and its subsidiaries taken as a whole, NationsBank and NMS may suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the proposed financing. You agree to actively assist NationsBank and NMS in achieving a syndication of the Credit Facilities that is satisfactory to NationsBank, NMS and you. Syndication of the Credit Facilities will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of the Sponsor and, to the extent reasonably practicable, the Target, and the proposed Lenders. To assist NationsBank and NMS in the syndication efforts, you hereby agree to (a) provide and cause your advisors to provide NationsBank and NMS and the other Lenders upon request with all information reasonably deemed necessary by NationsBank and NMS to complete syndication, including but not limited to information and evaluations prepared by the Sponsor and the Target and their advisors, or on 4 Vestar Capital Partners III, L.P. March 24, 1999 Page 4 their behalf, relating to the Transaction, (b) assist NationsBank and NMS upon their reasonable request in the preparation of an Information Memorandum to be used in connection with the syndication of the Credit Facilities and (c) otherwise assist NationsBank and NMS in their syndication efforts, including by making available officers and advisors of the Sponsor and, to the extent reasonably practicable, the Target and its subsidiaries from time to time to attend and make presentations regarding the business and prospects of the Target and its subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders. You further agree to refrain from engaging in any additional financings for the Transaction (except as described in this letter and except for the Junior Subordinated Debt or a $20 million equity investment in lieu thereof or, if the Alternate Financing Structure is implemented, the Senior Subordinated Debt) during such syndication process unless otherwise agreed to by NationsBank and NMS. It is understood and agreed that NationsBank and NMS, after consultation with you, will manage and control all aspects of the syndication, including decisions as to the selection of proposed Lenders (which shall be reasonably acceptable to you) and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. It is understood that no Lender participating in the Credit Facilities will receive compensation from you outside the terms contained herein, in the Term Sheet and in the Fee Letter in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of NationsBank and NMS. You hereby represent, warrant and covenant that (i) to your knowledge, all information, other than Projections (as defined below), which has been or is hereafter made available to NationsBank and NMS or the Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information"), when taken as a whole, is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not materially misleading and (ii) all financial projections and estimates concerning the Target and its subsidiaries that have been or are hereafter made available to NationsBank and NMS or the Lenders by you or any of your representatives (the "Projections") have been or will be prepared in good faith based upon assumptions believed by you to be reasonable. You agree to furnish us with such Information and Projections as we may reasonably request and to supplement the Information and the Projections from time to time until closing of the Permanent Facilities so that the representation and warranty in the preceding sentence is correct on the such date. In arranging and syndicating the Credit Facilities, NationsBank and NMS will be using and relying on the Information and the Projections without independent verification thereof. By executing this letter agreement, you agree to reimburse NationsBank and NMS at closing of the Permanent Facilities (or, if the Permanent Facilities are not closed, on the date that the commitment of NationsBank to provide the Permanent Facilities expires in accordance with the terms of this letter agreement) for all reasonable out-of-pocket fees and expenses (including, but not limited to, the reasonable fees, disbursements and other charges of Moore & Van Allen, 5 Vestar Capital Partners III, L.P. March 24, 1999 Page 5 PLLC, as counsel to NationsBank) incurred in connection with this letter and the preparation of the definitive documentation for the Credit Facilities and the other transactions contemplated hereby. In the event that NationsBank or NMS becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this letter, the Sponsor will reimburse NationsBank and NMS for their reasonable legal and other expenses (including the cost of any investigation and preparation) as they are incurred by NationsBank or NMS. The Sponsor also agrees to indemnify and hold harmless NationsBank, NMS and their affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities, joint or several, related to or arising out of any matters contemplated by this letter, to the extent that such losses, claims, damages or liabilities do not result from the gross negligence or willful misconduct of any Indemnified Party. The provisions of the immediately preceding two paragraphs shall remain in full force and effect notwithstanding the termination of this letter agreement or the commitment of NationsBank and NMS hereunder; provided, that they shall terminate upon execution and delivery of definitive financing documentation for the Credit Facilities. As described herein and in the Term Sheet, NMS will act as Sole Lead Arranger and Sole Book Manager for the Credit Facilities. NationsBank reserves the right to allocate, in whole or in part, to NMS certain fees payable to NationsBank in such manner as NationsBank and NMS agree in their sole discretion. You acknowledge and agree that NationsBank may share with any of its affiliates (including specifically NMS) any information relating to the Credit Facilities, the Target, the Sponsor and their subsidiaries and affiliates solely for purposes of performing NationsBank's and NMS's obligations hereunder. This letter agreement may not be assigned by the Sponsor without the prior written consent of NationsBank and NMS. If you are in agreement with the foregoing, please execute and return the enclosed copy of this letter agreement no later than the close of business on March 26, 1999. This letter agreement will become effective upon your delivery to us of executed counterparts of this letter agreement and the Fee Letter. This commitment shall terminate if not so accepted by you prior to that time. Following acceptance by you, this commitment will terminate (i) on May 31, 1999, unless the Tender Offer Facility is closed by such time, and (ii) if the Tender Offer Facility is closed in a timely manner, then on August 31, 1999, unless the Permanent Facilities are closed by such time Except as required by applicable law or court order, this letter and the Fee Letter and the contents hereof and thereof shall not be disclosed by you to any third party (with the exception of the Target and its advisors) without the prior consent of NationsBank and NMS, other than to your attorneys, financial advisors and accountants, in each case to the extent necessary in your reasonable judgment. 6 Vestar Capital Partners III, L.P. March 24, 1999 Page 6 This letter may be executed in counterparts which, taken together, shall constitute an original. This letter, together with the Term Sheet and the Fee Letter, embodies the entire agreement and understanding among NationsBank, NMS and the Sponsor with respect to the specific matters set forth herein and supersedes all prior agreements and understandings relating to the subject matter hereof. No party has been authorized by NationsBank or NMS to make any oral or written statements inconsistent with this letter. Notwithstanding any provision to the contrary contained in this letter or the Fee Letter, the Sponsor shall be deemed released of its obligations under this letter upon the execution of definitive financing documentation for the Credit Facilities. THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Very truly yours, NATIONSBANK, N.A. By: /s/ Elton Vogel ----------------------------------- Title: Managing Director NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Elton Vogel ----------------------------------- Title: Managing Director ACCEPTED AND AGREED TO: VESTAR CAPITAL PARTNERS III, L.P. By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ James Elrod, Jr. Title: Date: 7 ANNEX I SHERIDAN HEALTHCARE, INC. SUMMARY OF TERMS & CONDITIONS March 24, 1999 Unless otherwise defined herein, capitalized terms shall have the definitions assigned to them in the Commitment Letter dated of even date herewith to which this Summary of Terms & Conditions is attached. ============================================================================== BORROWER: A newly formed company (the "Acquisition Company") which will acquire (the "Acquisition") outstanding stock of Sheridan Healthcare, Inc. (the "Target") pursuant to a tender offer (the "Tender Offer"). Subsequent to the Acquisition, the Acquisition Company will be merged with and into the Target, with the Target being the surviving entity (the "Merger") and all then existing funded indebtedness of the Target shall be refinanced (the "Refinancing"). Prior to the Merger, the Acquisition Company will be the Borrower and, subsequent to the Merger, the Target (into which the Acquisition Company shall have been merged) will be the Borrower. The Acquisition Company shall be a subsidiary of a newly formed holding company (the "Parent"). GUARANTORS: Tender Offer Facility: The Tender Offer Facility (hereinafter defined) shall be guaranteed by the Parent. Permanent Facilities: The Permanent Facilities (hereinafter defined) shall be guaranteed by the Parent. and all existing and hereafter acquired direct and indirect domestic subsidiaries of the Borrower upon consummation of the Merger. All guarantees shall be guarantees of payment and not of collection. AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive administrative and collateral agent. As such, NationsBank will negotiate with the Borrower, act as the primary contact for the Borrower and perform all other duties associated with the role of exclusive administrative agent. No other agents or co-agents may be appointed without the prior written consent of NationsBank and NMS. SOLE LEAD ARRANGER & SOLE BOOK MANAGER: NationsBanc Montgomery Securities LLC ("NMS"). LENDERS: A syndicate of financial institutions (including NationsBank) arranged by NMS, which institutions shall be acceptable to the Borrower and the Agent (collectively, the "Lenders"). CREDIT FACILITIES: Tender Offer Facility 8 An aggregate principal amount of up to $33.2 million of a senior tender offer facility (the "Tender Offer Facility") to finance all costs and expenses associated with the purchase by the Acquisition Company of all of the tendered stock and options of the Target up to a tender price of $9.25 per share. Permanent Facilities An aggregate principal amount of up to $125 million of permanent senior secured credit facilities (the "Permanent Facilities", and together with the Tender Offer Facility, the "Credit Facilities") will be available upon consummation of the Merger under the conditions hereinafter set forth and shall consist of: Revolving Credit Facility: A $50 million revolving credit facility, which will include a sublimit for the issuance of standby and commercial letters of credit (each a "Letter of Credit") and a sublimit for the making of swingline loans (each a "Swingline Loans"). Letters of Credit will be issued by NationsBank (in such capacity, the "Fronting Bank"), and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit. Swingline Loans will be made by NationsBank, and each Lender will purchase an irrevocable and unconditional participation in each Swingline Loan. Term Loan Facility: $75 million term loan facility. The Term Loan Facility will not be available if the Alternate Financing Structure is implemented. PURPOSE: Tender Offer Facility: The proceeds of the Tender Offer Facility shall be used to finance the acquisition of tendered shares of the Target ("Shares") upon the completion of the Tender Offer. Permanent Facilities: The proceeds of the Permanent Facilities shall be used (i) to refinance the Tender Offer Facility, (ii) to finance a portion of the Merger and the Refinancing, (iii) to pay fees and expenses incurred in connection with the Tender Offer, the Acquisition, the Merger and the Refinancing in an amount (together with the fees and expenses paid with proceeds of the Tender Offer Facility) not to exceed $12 million and (iv) to provide for ongoing working capital and general corporate purposes of the Borrower and its subsidiaries, including, without limitation, permitted acquisitions; provided that, if the Alternate Financing Structure is implemented, proceeds of the Permanent Facilities may be used to finance permitted acquisitions only during the first three years of the Permanent Facilities. INTEREST RATES: Advances outstanding under the Credit Facilities shall bear interest as set forth on Addendum I hereto. MATURITY: Tender Offer Facility: The Tender Offer Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full on the earlier to occur of the closing of the Merger or on August 31, 1999. 9 Permanent Facilities: The Revolving Credit Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full 5 years from closing of the Permanent Facilities. If the Alternate Financing Structure is implemented, (i) the Revolving Credit Facility shall be permanently reduced 36 months from closing of the Permanent Facilities by an amount equal to all outstanding borrowings (but not the undrawn amount of Letters of Credit) thereunder at such time and (ii) all outstanding advances (but not the undrawn amount of Letters of Credit) under the Revolving Credit Facility made during the first 36-month period following closing of the Permanent Facilities shall be subject to repayment according to the Scheduled Amortization. The Term Loan Facility shall be subject to repayment according to the Scheduled Amortization, with the final payment of all amounts outstanding, plus accrued interest, being due 6 years from closing of the Permanent Facilities. AVAILABILITY: Tender Offer Facility: Loans made under the Tender Offer Facility shall be available in a single borrowing upon the completion of the Tender Offer. Permanent Facilities: Loans under the Revolving Credit Facility may be made, and Letters of Credit may be issued, subject to availability under the aggregate committed amount for the Revolving Credit Facility. Loans made under the Term Loan Facility will be available in a single borrowing at closing of the Permanent Facilities; provided, that the Term Loan Facility will not be available if the Alternate Financing Structure is implemented. SCHEDULED AMORTIZATION: Revolving Credit Facility: If the Alternate Financing Structure is implemented, all advances under the Revolving Credit Facility made during the first 36-month period following closing of the Permanent Facilities will be subject to quarterly amortization of principal commencing in the fourth year from closing of the Permanent Facilities in amount equal to 5% of the aggregate amount all outstanding borrowings (but not the undrawn amount of Letters of Credit) under the Revolving Credit Facility at the end of such 36-month period, with the balance payable at maturity (with respect to the Revolving Credit Facility, the "Scheduled Amortization"). Term Loan Facility: The Term Loan Facility will be subject to quarterly amortization of principal in amounts to be determined (with respect to the Term Loan Facility, the "Scheduled Amortization"). SECURITY: Tender Offer Facility: Concurrently with consummation of the Acquisition, the Agent (on behalf of the Lenders) shall receive a first priority perfected security interest in all of the Shares purchased in connection with the Tender Offer. 10 Permanent Facilities: Concurrently with consummation of the Merger, the Agent (on behalf of the Lenders) shall receive a first priority perfected security interest in (i) 100% of the issued and outstanding capital stock of the Borrower, (ii) 100% of the issued and outstanding capital stock of each of the direct and indirect domestic subsidiaries of the Borrower, (iii) 65% of the issued and outstanding voting capital stock (or such greater percentage which would not result in material adverse tax consequences) and 100% of the issued and outstanding non-voting capital stock of each direct foreign subsidiary of the Borrower or any of its domestic subsidiaries and (iv) substantially all other present and future assets and properties of the Borrower and the Guarantors (including, without limitation, accounts receivable, inventory, real property, machinery, equipment, contracts, trademarks, copyrights, patents, license agreements, and general intangibles, but excluding certain non-material real property to be determined), subject to permitted liens and, in the case of leases of real property, license agreements and other like arrangements requiring the consent of third parties thereto, subject to and only to the extent that any such consents required from such third parties are actually obtained. The foregoing collateral (collectively, the "Collateral") shall ratably secure the Credit Facilities and any interest rate swap/foreign currency swap or similar agreements with a Lender (or an affiliate of a Lender) under the Credit Facilities. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: If at any time, the outstanding principal amount of loans under the Tender Offer Facility exceeds 50% of the value of the Shares pledged to secure such loans, the Borrower immediately shall prepay the Tender Offer Facility in an amount sufficient to eliminate such excess. The Permanent Facilities will be prepaid by an amount equal to (a) 100% of the net cash proceeds of all non-ordinary course asset sales by the Parent, the Borrower or any subsidiary (including stock of subsidiaries), subject to baskets and reinvestment provisions to be agreed upon; (b) if the Alternate Financing Structure is implemented, 50% of Excess Cash Flow (to be defined) pursuant to a cash sweep arrangement commencing after the third anniversary of closing of the Permanent Facilities; (c) 100% of the net cash proceeds from the issuance of any funded debt for borrowed money by the Parent, the Borrower or any subsidiary (other than certain permitted funded debt for borrowed money) and (d) 100% of the net cash proceeds from the issuance of equity (other than sponsor equity) by the Parent, the Borrower or any subsidiary. If the Alternate Financing Structure is not implemented, prepayments shall be applied to reduce the Term Loan Facility, pro rata with respect to each remaining installment of principal; provided, however, that with respect to 11 clause (a) above, any prepayment shall be applied to reduce ratably the Term Loan and the commitments under the Revolving Credit Facility. If the Alternate Financing Structure is implemented, (i) no prepayments shall be required under clauses (b), (c) and (d) above prior to the third anniversary of closing of the Permanent Facilities and (ii) any prepayment shall be applied to reduce the commitments under the Revolving Credit Facility. OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS: The Credit Facilities may be prepaid (and commitments thereunder may be permanently reduced) voluntarily in whole or in part at any time without penalty, subject to reimbursement of the Lenders' breakage and redeployment costs in the case of prepayment of LIBOR borrowings. CONDITIONS PRECEDENT TO CLOSING: The initial borrowings under the Credit Facilities will be subject to satisfaction of the following conditions precedent: (i) The negotiation, execution and delivery of definitive documentation with respect to the Credit Facilities satisfactory to NMS and the Agent. (ii) In the case of the initial borrowings under the Tender Offer Facility, the Agent's satisfactory review of (a) the offer to purchase the Shares and the related documentation entered into in connection with the Tender Offer and (b) the merger agreement (including all schedules and exhibits thereto) regarding the Transaction (the "Merger Agreement") which shall provide for aggregate costs of the Transaction (including all fees and expenses (in an amount not to exceed $12 million) and the repayment in full of all funded debt of the Target and its subsidiaries immediately prior to the Merger) not in excess of $165 million (before giving effect to any acquisitions by the Target reasonably acceptable to the Agent after the date hereof). (iii) In the case of the initial borrowings under the Tender Offer Facility, the Agent's satisfaction that (a) the Tender Offer shall have been consummated upon satisfaction of any material conditions specified therein and at least a majority of the voting power (on a fully diluted basis), on the date of purchase, of all securities of the Target entitled to vote generally in the election of directors or in a merger shall have been purchased in connection with the Tender Offer (or shall be purchased with such initial borrowings under the Tender Offer Facility), and (b) no more than $9.25 shall have been paid for any 12 Share and the purchase price for 100% of the Shares (on a fully diluted basis) in connection with the Merger will not exceed $66.3 million. (iv) In the case of the initial borrowings under the Permanent Facilities, the Merger and the Refinancing (a) shall have been consummated in all material respects in accordance with the terms of the Merger Agreement and in compliance with applicable law and regulatory approvals, and all conditions precedent to the obligations of the buyer thereunder shall have been satisfied and (b) the Merger Agreement shall not have been altered, amended or otherwise changed or supplemented in any material respect or any material condition therein waived, without the prior written consent of the Agent. (v) The corporate capital and ownership structure (including articles and by-laws), equityholder agreements and management of the Parent, the Borrower, the Target and their respective subsidiaries (after giving effect to the Acquisition and Merger), including without limitation employment contracts, equity ownership interests and key man life insurance with key executives, shall be reasonably satisfactory to the Agent. Without limiting the generality of the above, the Agent shall be satisfied that the Borrower shall have received (a) in the case of the initial borrowings under the Tender Offer Facility, a cash capital contribution to the Parent (which shall be concurrently contributed by the Parent to the Borrower) from the Sponsor and existing management of an amount equal to the sum of (1) 50% of the value of the Shares purchased pursuant to the Tender Offer plus (2) all expenses incurred in connection with the Tender Offer and (b) in the case of the initial borrowings under the Permanent Facilities, (1) a cash capital contribution to the Parent (which shall be concurrently contributed by the Parent to the Borrower) from the Sponsor and existing management of, together with the cash capital contribution referred to in the immediately clause (a), approximately $63.1 million in common equity (at least $60.1 million of which shall be contributed by the Sponsor) and (2) unless the Alternate Financing Structure is to be implemented, at least $20 million from the issuance by the Borrower (or, at the option of the Sponsor, the Parent) to the Sponsor of the Junior Subordinated Debt or common or preferred equity in the Borrower (or, at the option of the Sponsor, the Parent), in either case under terms satisfactory to the Agent in its reasonable discretion (it being understood that if such Junior Subordinated Debt or common or preferred equity is issued by the Parent, the proceeds thereof shall be concurrently contributed by the Parent to the 13 Borrower). If the Alternate Financing Structure is implemented, the terms of the Senior Subordinated Debt shall be satisfactory to the Agent in its reasonable discretion. (vi) The Agent shall have received and, in each case, be reasonably satisfied with (a) interim monthly financial statements for each fiscal month of the Target after December 31, 1998, (b) in the case of the initial borrowings under the Permanent Facilities, a pro forma consolidated balance sheet of the Borrower as of closing of the Permanent Facilities giving effect to the Merger and the financings and other transactions contemplated hereby and reflecting estimated purchase accounting adjustments, prepared by independent public accountants of recognized national standing, and (c) such other information relating to the Target and its subsidiaries or the Transaction as the Agent may reasonably require. (vii) There shall not have occurred a material adverse change since December 31, 1998 in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries or in the facts and information regarding such entities as represented to date. (viii) In the case of the initial borrowings under the Permanent Facilities, the Agent shall have received a satisfactory certificate from the chief financial officer of the Borrower as to the financial condition and solvency of each of the Borrower and the Guarantors (after giving effect to the Acquisition and Merger and the incurrence of indebtedness related thereto). (ix) The Agent shall have received (a) satisfactory opinions of counsel to the Borrower and the Guarantors (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Credit Facilities) and such resolutions, certificates and other documents as the Agent shall reasonably require and (b) satisfactory evidence that, upon completion of the Merger, the Agent (on behalf of the Lenders) holds or will hold a perfected, first priority lien in all collateral for the Credit Facilities, subject to no other liens except for permitted liens to be determined. (x) (a) In the case of borrowing under the Tender Offer Facility, receipt of all governmental, equityholder and third party consents (including Hart-Scott-Rodino clearance and the consent, if necessary, of any existing lenders and/or bondholders of the Target to the extent that indebtedness owing to such lenders and/or bondholders is to remain in place after the Tender Offer) and approvals necessary in connection with the Tender Offer and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods 14 without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Acquisition Company, the Target and its subsidiaries taken as a whole, the Tender Offer or such related financings or other such transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Agent could have such effect and (b) in the case of the initial borrowings under the Permanent Facilities, receipt of all material governmental, shareholder and third party consents and approvals necessary or, in the reasonable discretion of the Agent, desirable in connection with the consummation of the Merger and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Borrower and its subsidiaries taken as a whole, the Merger or such related financings or other transactions, and no law or regulation shall be applicable which in the reasonable judgment of the Agent could have such effect. (xi) The absence of any action, suit, investigation or proceeding pending in any court or before any arbitrator or governmental authority that could reasonably be expected to have a material adverse effect on the financial condition of the Borrower and its subsidiaries taken as a whole or any transaction contemplated hereby or on the ability of the Borrower and the Guarantors taken as a whole to perform their respective obligations under the documents to be executed in connection with the Credit Facilities. (xii) The Target and its subsidiaries shall be in compliance with all existing material financial obligations (after giving effect to the Acquisition and Merger). (xiii) In the case of the initial borrowings under the Permanent Facilities, the Agent shall be reasonably satisfied that the amount of committed financing available to the Borrower shall be sufficient to meet the ongoing financing needs of the Borrower and its subsidiaries after giving effect to the Transaction and, immediately after giving effect to the Acquisition and the Merger and the related borrowings under the Revolving Credit Facility, availability under the Revolving Credit Facility shall be no less than (a) if the Alternate Financing Structure is not implemented, $50 million or (b) if the Alternate Financing Structure is implemented, $45 million. (xiv) The Borrower shall have paid to the Lenders and the Agent all fees and expenses due and payable at closing of the Permanent Facilities. 15 REPRESENTATIONS & WARRANTIES: Tender Offer Facility: Usual and customary for senior tender offer facilities of this type. Permanent Facilities: Usual and customary for permanent senior secured credit facilities of this type (subject to appropriate materiality and reasonableness limitations), to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation; (v) correctness of specified financial statements and no material adverse change since December 31, 1998; (vi) no required governmental or third party approvals; (vii) use of proceeds/compliance with margin regulations; (viii) status under Investment Company Act; (ix) ERISA; (x) environmental matters; (xi) perfected liens and security interests; (xii) payment of taxes, (xiii) consummation of the Transaction and (xiv) Year 2000 assurances. COVENANTS: Tender Offer Facility: Usual and customary for senior tender offer facilities of this type. Permanent Facilities: Usual and customary for permanent senior secured credit facilities of this type (subject to materiality limitations, baskets and carve-outs to be negotiated), to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance certificates: (iii) delivery of notices of default, material litigation and material governmental and environmental proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on liens and negative pledges; (viii) limitations on mergers, consolidations and sales of assets; (ix) limitations on incurrence of debt (specifically excluding the Junior Subordinated Debt, if any (and subordinated guarantees thereof by the Guarantors), and, if the Alternate Financing Structure is implemented, the Senior Subordinated Debt (and subordinated guarantees thereof by the Guarantors), whether entered into at closing of the Permanent Facilities or thereafter); (x) limitations on cash dividends and stock redemptions and the redemption and/or prepayment of other debt; (xi) limitations on investments and acquisitions (including the satisfaction of the incurrence covenants set forth below); (xii) ERISA; (xiii) limitation on transactions with affiliates (specifically excluding sponsor fees in amounts to be determined); (xiv) limitation on capital expenditures; and (xv) upon completion of the Merger, delivery of collateral documentation and opinions as to the perfected security interest of the Agent in the Collateral. Financial covenants under the Permanent Facilities to include (but not limited to): (i) if the Alternate Financing Structure is not implemented: o Maintenance on a rolling four quarter basis of a Maximum Senior Leverage Ratio (total funded senior debt/EBITDA) 16 not to exceed 4.0 to 1.0 with step-downs to be determined beginning on the third anniversary of closing of the Permanent Facilities, o Maintenance on a rolling four quarter basis of a Minimum Fixed Charge Coverage Ratio (EBITDA less capital expenditures less cash taxes)/(interest expense + scheduled principal repayments) with step-ups to be determined beginning on the third anniversary of closing of the Permanent Facilities, and o Maintenance on a rolling four quarter basis of a Minimum Interest Coverage Ratio (EBITDA/interest expense) with step-ups to be determined beginning on the third anniversary of closing of the Permanent Facilities. (ii) if the Alternate Financing Structure is implemented: o Maintenance on a rolling four quarter basis of a Maximum Senior Leverage Ratio not to exceed 3.5 to 1.0 with step-downs to be determined beginning on the third anniversary of closing of the Permanent Facilities, o Maintenance on a rolling four quarter basis of a Maximum Total Leverage Ratio (total funded debt/EBITDA) not to exceed 5.0 to 1.0 with step-downs to be determined beginning on the third anniversary of closing of the Permanent Facilities, and o Maintenance on a rolling four quarter basis of a Minimum Interest Coverage Ratio with step-ups to be determined beginning on the third anniversary of closing of the Permanent Facilities. Incurrence covenants for permitted acquisitions under the Permanent Facilities (calculated on a pro forma basis giving effect to such acquisition) to include (but not limited to): (i) if the Alternate Financing Structure is not implemented: o Maximum Senior Leverage Ratio not to exceed 3.5 to 1.0, and o Minimum Interest Coverage Ratio to be determined. (ii) if the Alternate Financing Structure is implemented: o Maximum Senior Leverage Ratio not to exceed 3.0 to 1.0, and o Maximum Total Leverage Ratio not to exceed 4.5 to 1.0. The Parent shall have agreed that it will not engage in any business, activity or operation other than owning and holding the capital stock of the Borrower, 17 guaranteeing the Credit Facilities and pledging its assets (including the capital stock of the Borrower) as security therefor, and activities directly related thereto. The Parent shall not be permitted to merge with or into any other person. EVENTS OF DEFAULT: Tender Offer Facility: Usual and customary for senior tender offer facilities of this type. Permanent Facilities: Usual and customary for permanent senior secured credit facilities of this type (subject to materiality and grace periods to be negotiated), and to include, without limitation, (i) nonpayment of principal, interest, fees or other amounts, (ii) violation of covenants, (iii) material inaccuracy of representations and warranties, (iii) cross-default to other material agreements and indebtedness, (iv) bankruptcy or insolvency, (v) material judgments, (vi) ERISA, (vii) actual or asserted invalidity of any loan documents or security interests, or (viii) Change in Control. ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments in minimum amounts of $5 million to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, reduction in rate and extension of maturity date. An assignment fee of $3,500 is payable by the Lender to the Agent upon any such assignment occurring (including, but not limited to an assignment by a Lender to another Lender). WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the loan agreement and other definitive credit documentation will require the approval of Lenders holding loans and commitments representing more than 50% of the aggregate amount of loans and commitments under the Credit Facilities, except that the consent of all the Lenders affected thereby shall be required with respect to (i) increases in commitment amounts, (ii) reductions of principal, interest, or fees, (iii) extensions of final maturities, (iv) releases of all or substantially all collateral and (v) releases of all or substantially all guarantors. INDEMNIFICATION: In the definitive documentation for the Credit Facilities, the Borrower shall indemnify the Lenders from and against all losses, liabilities, claims, damages or expenses relating to their loans, the Borrower's use of loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlement costs, but only to the extent that such losses, liabilities, claims, damages or expenses do not result primarily from the gross negligence or willful misconduct of the indemnified party. CLOSING: With respect to the Tender Offer Facility, on or before May 31, 1999, and with respect to the Permanent Facilities, on or before August 31, 1999. 18 GOVERNING LAW: New York. FEES/EXPENSES: As outlined in ADDENDUM I. OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Credit Facilities contemplated hereby. Each of the Borrower, the Guarantors, the Agent and the Lenders shall waive its right to a trial by jury. EX-99.B.3 3 PRESENTATION TO COMPANY'S BOARD OF DIRECTORS 1 Confidential Presentation to: Board of Directors of Sheridan Healthcare, Inc. FAIRNESS OPINION March 24, 1999 SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 2 SHERIDAN HEALTHCARE Confidential Material Presented to the Board of Directors The following pages contain material provided to the Board of Directors of Sheridan Healthcare, Inc. ("Sheridan" or the "Company") in the context of a meeting of the Board of Directors held to consider the proposed acquisition of the Company by Vestar Capital Partners III, L.P. ("Vestar") in a cash offer. The accompanying material was compiled or prepared on a confidential basis solely for use by the Board of Directors and not with a view toward public disclosure under state or federal securities laws or otherwise. The basic information utilized in preparing this presentation was obtained from the Company and other public sources. Any estimates and projections for the Company contained herein have been prepared by management, or are based upon such estimates and projections, and involve numerous and significant subjective determinations, which may or may not prove to be correct. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Because this material was prepared for use in the context of an oral presentation to the Board of Directors, which is familiar with the business and the affairs of the Company, neither the Company nor Salomon Smith Barney nor any of their respective legal advisors or accountants take any responsibility for the accuracy or completeness of any of the material if used by persons other than the Board of Directors of the Company. Neither the Company nor Salomon Smith Barney undertakes any obligation to update or otherwise revise the accompanying materials. SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 3 SHERIDAN HEALTHCARE Table of Contents 1 EXECUTIVE SUMMARY 2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW 3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS 4 SUMMARY VALUATION ANALYSIS APPENDIX A. COMPARABLE PUBLICLY TRADED COMPANIES B. PRECEDENT PPM TRANSACTIONS C. WACC ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 4 SHERIDAN HEALTHCARE 1 EXECUTIVE SUMMARY SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 5 SHERIDAN HEALTHCARE Introduction GENESIS OF THE TRANSACTION o Salomon Smith Barney and Bowles Hollowell Conner have been engaged by Sheridan Healthcare, Inc. to evaluate strategic alternatives, including a possible sale of the Company. o Salomon Smith Barney and Bowles Hollowell Conner initiated an auction process in December 1998, and contacted a wide range of possible strategic and financial buyers. o On February 19, 1999 final bids were received, with Vestar Capital Partners as the winning bidder at $11.50 per share. o After completing further due diligence and focusing on the Company's strategic acquisition plan, Vestar Capital Partners submitted a revised bid of $9.25 per share on March 16, 1999. As part of its engagement, Salomon Smith Barney will render a fairness opinion. HISTORY OF SALOMON SMITH BARNEY'S RELATIONSHIP WITH SHERIDAN o Salomon Smith Barney was Sheridan's lead underwriter for its IPO on October 31, 1995 at $13.00 per share. o Since the IPO, Salomon Smith Barney has maintained a close relationship with Sheridan, but has not executed any further business until this sale process began. SALOMON SMITH BARNEY ---------------------------- 4 A member of citigroup [LOGO] 6 SHERIDAN HEALTHCARE Overview of Transaction Contemplated TRANSACTION STRUCTURE o Cash merger resulting in ownership of 100% of Sheridan stock (excluding management rollover shares) o Effective rollover of Management equity into Vestar equity SHERIDAN'S CURRENT SITUATION o Sheridan does not have access to capital to pursue its acquisition strategy o Current debt of $74 million already exceeds credit facility of $65 million o Exception on credit facility valid only until September o No current access to high-yield or equity markets o The Company has already delayed on several possible acquisitions because of the lack of financing. STRATEGIC BENEFITS o Provides Sheridan with capital support to proceed with its acquisition strategy, a primary driver of growth. o Eliminates Sheridan's dependence on capital markets in the face of uncertainty surrounding the PPM industry. o Provides Sheridan with the base to build out a regional physician network in Texas in the long-term, similar to the current network in Florida. o Gives shareholders the option to cash out at a premium to market. - - -------------------------------------------------------------------------------- Vestar is to acquire Sheridan for $9.25 per share. SALOMON SMITH BARNEY ---------------------------- 5 A member of citigroup [LOGO] 7 SHERIDAN HEALTHCARE Summary of Preliminary Purchase Agreement Terms
- - -------------------------------------------------------------------------------- Feature Comments - - -------------------------------------------------------------------------------- Consideration $9.25 per share in cash - - -------------------------------------------------------------------------------- Structure Tender offer; Newly-formed Vestar subsidiary to own stock - - -------------------------------------------------------------------------------- Selected Conditions Management shares to be tendered and subscriptions for interests in Vestar subsidiary Management Agreements negotiated with key executives - - -------------------------------------------------------------------------------- Board Seats 2 Board Seats for existing Sheridan Management 3 Board Seats for Vestar Employees 2 Board Seats for Outside Directors - - -------------------------------------------------------------------------------- Events of Termination By mutual consent Material adverse change Financing out Break-up fee for topping bids - - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY ---------------------------- 6 A member of citigroup [LOGO] 8 SHERIDAN HEALTHCARE Sources and Uses ($ in millions)
- - -------------------------------------------------------------------------------- Uses - - -------------------------------------------------------------------------------- Equity Value at $9.25 (a) $66.3 Bank Debt $74.0 Texas June Payment 6.1 Est. Remaining Share Price Guarantees at Closing 0.1 Deferred Compensation 1.4 Capital Leases 0.8 Notes Payable 0.3 Mgmt COC Pmt/D&O Tail Policy 2.5 - - -------------------------------------------------------------------------------- Total Debt Consideration $85.1 Transaction Expense 12.0 - - -------------------------------------------------------------------------------- Total Uses $163.3 ================================================================================ - - -------------------------------------------------------------------------------- Sources - - -------------------------------------------------------------------------------- Option Proceeds $4.2 Bank Debt $75.0 Mezzanine $20.0 Vestar Equity Investment 61.1 Mgt. Equity Rollover 3.0 - - -------------------------------------------------------------------------------- Equity Financing $64.1 Total Sources $163.3 ================================================================================
(a) Assumes 7.163 million fully diluted shares, including 0.577 million in-the-money options at the $9.25 purchase as of 3/16/99. SALOMON SMITH BARNEY ---------------------------- 7 A member of citigroup [LOGO] 9 SHERIDAN HEALTHCARE Pro Forma Capitalization ($ in millions)
- - -------------------------------------------------------------------------------- Pro Forma Capitalization - - -------------------------------------------------------------------------------- % of Total Cap --------- Bank Debt $75.0 47.1% Mezzanine 20.0 12.6 Vestar Common Equity $61.1 38.4 Management Common Equity 3.0 1.9 - - -------------------------------------------------------------------------------- Total Common Equity $64.1 40.3% Total Capitalization $159.1 100.0% - - ------------------------------------------------------------------- --------- - - -------------------------------------------------------------------------------- Pro Forma Common Equity Ownership (a) - - -------------------------------------------------------------------------------- Vestar 95.3% Management 4.7 - - -------------------------------------------------------------------------------- Total Common Equity Ownership 100.0%
(a) Before conversion of mezzanine warrants. SALOMON SMITH BARNEY ---------------------------- 8 A member of citigroup [LOGO] 10 SHERIDAN HEALTHCARE Comparative Valuation Multiples
Public Market ==================================================================================================================== Firm Value/LTM Price/Earnings ------------------------- -------------- Revenues EBITDA EBIT 1998A 1999E Sheridan Healthcare 1.2x 7.3x 9.5x 10.6x 8.6x - - ---------------------------------------------------------------------------------------------------------- Multi-Specialty Comparables Median 0.4 4.8 7.1 7.1 7.3 Single Specialty Comparables Median 1.5 6.4 8.5 8.6 7.4 - - ---------------------------------------------------------------------------------------------------------- Private Market ==================================================================================================================== Firm Value/LTM Premium ------------------------- ------------------------- Revenues EBITDA EBIT 1 Day 1 Week 1 Month Vestar Proposed Price - $9.25 (a) 1.3x 7.7x 10.0x 12.1% 12.1% 17.5% - - --------------------------------------------------------------------------------------- ------------------------- Selected Acquisition Multiples (b) Team Health / Madison Dearborn (1/99) 0.7x 6.0x 7.0x NA NA NA Spectrum Emergency Care / Laidlaw (10/97) NA 5.0 NA NA NA NA Health Partners / FPA Medical Management (7/97) 0.8 NM NM NA NA NA - - --------------------------------------------------------------------------------------------------------------------
(a) Premium based on 3/19/99 Sheridan closing price of $8.25. (b) Recent acquisitions which are most comparable to the proposed transaction. SALOMON SMITH BARNEY ---------------------------- 9 A member of citigroup [LOGO] 11 SHERIDAN HEALTHCARE Recent Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED]
Summary Statistics: High Low Average Latest 17.06 6.56 10.34 8.25 407 20 27
- - -------------------------------------------------------------------------------- Sheridan is currently trading at $8.25 per share, a 51.6% discount to its year-to-date high, and a 25.8% premium to its year-to-date low. SALOMON SMITH BARNEY ---------------------------- 10 A member of citigroup [LOGO] 12 SHERIDAN HEALTHCARE Relative Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED]
Summary Statistics: High Low Average Latest 111% 43% 67% 54% 151% 49% 100% 51% 105% 20% 48% 24%
- - -------------------------------------------------------------------------------- Sheridan has under-performed the single specialty PPMs over the last six months. However, that gap has nearly disappeared due to the recent drop in Pediatrix share price. In addition, Sheridan has consistently out-performed multi-specialty PPMs over the last year. SALOMON SMITH BARNEY ---------------------------- 11 A member of citigroup [LOGO] 13 SHERIDAN HEALTHCARE Trading History SHERIDAN HEALTHCARE: PRICES AND VOLUME [GRAPHIC OMITTED]
Weighted Volume Traded/ Average Shares Outstanding $9.89 58.9% $7.65 13.4%
- - -------------------------------------------------------------------------------- Over the last three months, the volume of Sheridan shares traded has largely remained in the range of $7.00 to $8.00 per share. SALOMON SMITH BARNEY ---------------------------- 12 A member of citigroup [LOGO] 14 SHERIDAN HEALTHCARE Valuation Summary [The following table was depicted as a bar chart in the printed material.]
Equity Value Per Share (In Dollars) Current Price-3/19/99 $8.25(a) Private Market Comparable Analysis Valuation $8.00-$13.00 5-Year DCF (without acquisitions) $3.75-$5.50 5-Year DCF (with acquisitions- 7.0x EBITDA purchase price) $4.00-$8.50 5-Year DCF (with acquisitions- 6.0x EBITDA purchase price) $9.50-$14.00 5-Year DCF (with acquisitions- 5.0x EBITDA purchase price) $15.00-$19.50
(a) $9.25 represents Vestar Capital's offer price. Note: Equity value reflects debt and contingencies of $85.2 million, and option proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted shares before treasury method share buy-back. All assumptions as of March 19, 1999. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 13 A member of citigroup [LOGO] 15 SHERIDAN HEALTHCARE Background on Vestar Vestar Capital Partners is a New York-based investment firm specializing in management buyouts and recapitalizations. o Since its founding in 1988, the firm has completed 26 transactions with a total value in excess of $5 billion. o Companies acquired include: Celestial Seasonings, Consolidated Cigar, La Petite Academy, Prestone Products Corporation, Remington Products Company, and Westinghouse Air Brake Company. o Currently manages over $1 billion of equity capital for a number of top tier investors including Harvard University, the Rockefeller Foundation, and the General Motors Pension Fund. SALOMON SMITH BARNEY ---------------------------- 14 A member of citigroup [LOGO] 16 SHERIDAN HEALTHCARE 2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 17 SHERIDAN HEALTHCARE Company Overview BUSINESS DESCRIPTION o Sheridan Healthcare is a physician practice management company currently affiliated with approximately 233 physicians practicing under 55 specialty service contracts at 37 hospitals and 28 office locations o Sheridan Healthcare operates and manages specialist physicians providing services at hospitals and ambulatory surgical facilities in the areas of: o anesthesia o neonatology o pediatrics o emergency services o obstetrics o pain management o Sheridan also owns, operates, or manages office-based physician practices which provide services in the areas of: o gynecology o obstetrics o infertility o perinatology o primary care o general surgery SALOMON SMITH BARNEY ---------------------------- 15 A member of citigroup [LOGO] 18 SHERIDAN HEALTHCARE Company Overview GEOGRAPHICAL LOCATION o Sheridan's hospital affiliations are located in Florida, New York, Ohio, Pennsylvania, Texas, Virginia and West Virginia o Sheridan's office-based group practices are regionally concentrated in Florida and Texas [GRAPHIC OMITTED] Multi-Specialty Group Physician Practices Hospital Outsourcing - - ----------------------------------------- -------------------- 151 Physicians 78 Physicians - - -------------- ------------- o 69 Anesthesiologists o 28 Anesthesiologists o 37 Neonatologists/Pediatricians o 15 Neonatologists/Pediatricians o 34 Obstetricians o 35 Emergency o 4 Surgeons o 4 Gynecological Oncologists o 2 Perinatologists o 1 Infertility Specialist Note: Excludes 4 primary care physicians in 3 locations. SALOMON SMITH BARNEY ---------------------------- 16 A member of citigroup [LOGO] 19 SHERIDAN HEALTHCARE Summary Market Data SHERIDAN HEALTHCARE PUBLIC MARKET STATISTICS Stock Price as of 3/19/99 $8.25 Equity Value (in millions) (a) $57 Firm Value (in millions) (b) $140 ------------------------------------------------------------- 1998 P/E 10.6x 1999E P/E (c) 8.6 ------------------------------------------------------------- Firm Value / 1998 EBITDA 7.3x Firm Value / 1999E EBITDA (d) 5.5 ------------------------------------------------------------- 52-Week High (3/30/98) $17.06 52-Week Low (10/28/98) $6.56 Average Daily Trading Volume (in thousands) (e) 18.2 -------------------------------------------------------------
(a) Assumes 6.916 million fully diluted shares outstanding, before treasury stock method share buy back. (b) Firm Value equals Equity Value plus total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 of capital leases, $0.3 million of notes payable, $2.5 million of management change of control payment and D&O Tail Policy), less options proceeds of $2.0 million. (c) Based on First Call 1999E EPS of $0.96. (d) EBITDA estimates based on equity research median. (e) Average daily trading volume over the last twelve months. SALOMON SMITH BARNEY ---------------------------- 17 A member of citigroup [LOGO] 20 SHERIDAN HEALTHCARE Sheridan's Multi-Specialty Group Physician Practices DEFINITION o "Multi-Specialty Group Physician Practices" is Sheridan's term for the provision of a variety of regionally-based physician services to Sheridan's patients by both: o office-based Sheridan physicians (e.g. obstetricians, gynecologists) and o hospital-based Sheridan physicians (e.g. anesthesiologists, neonatologists) o The term also alludes to the interaction of referrals between Sheridan's office-based and hospital-based physician services. MECHANICS o Sheridan employs or affiliates with office-based obstetricians or gynecologists practicing in a limited geographic area (e.g. in Florida). o Patients who use these office-based physicians for obstetrical or gynecological physician services are often referred to Sheridan's key hospitals where Sheridan's physicians provide neonatology and/or anesthesia physician services. o Revenue synergies are thus created as the introduction of new patients to the Company's office-based practices results in higher revenues (through higher volumes) for hospital-based physician services. - - -------------------------------------------------------------------------------- In November 1996, Sheridan decided to focus its principal growth strategy on operating regionally-focused multi-specialty group physician practices SALOMON SMITH BARNEY ---------------------------- 18 A member of citigroup [LOGO] 21 SHERIDAN HEALTHCARE Sheridan's "Win-Win" Multi-Specialty Model - - -------------------------------------------------------------------------------- Competitors Gate Keeper Model - - -------------------------------------------------------------------------------- Focus o How to cut the pie - - -------------------------------------------------------------------------------- Features o Fixed capitation model o Earnings generated via cost reduction o Encourages a reduction in hospital-care provided to patients - - -------------------------------------------------------------------------------- Results o Patients resentful as physician's earnings are tied to reducing patient care o Divergence of physician / patient care - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Sheridan's "Win-Win" Model - - -------------------------------------------------------------------------------- Focus o How to grow the pie - - -------------------------------------------------------------------------------- Features o Emphasizes physician productivity o Allows Sheridan to pay attractive compensation to physicians o Growth by attracting new patients into the system - - -------------------------------------------------------------------------------- Results o Model creates value for patients, hospitals, physicians and health plans o Alignment of interest between patients and doctors - - -------------------------------------------------------------------------------- SALOMON SMITH BARNEY ---------------------------- 19 A member of citigroup [LOGO] 22 Historical Revenue Mix (Dollars in Thousands) HISTORICAL REVENUE MIX [The following table was depicted as a bar graph in the printed material.]
1996 1997 1998 Multi-Specialty Groups $40,788 $52,923 $76,573 Hospital Outsourcing $24,528 $27,487 $28,653 Priary Care $27,451 $18,206 $ 7,691
- - -------------------------------------------------------------------------------- Since 1996, Sheridan Healthcare has divested most of its higher-risk primary care business, and has instead focused on higher-margin multi-specialty group business. SALOMON SMITH BARNEY ---------------------------- 20 A member of citigroup [LOGO] 23 Physician Mix [The following tables were depicted as pie charts in the printed material.]
Physicians By Division Multi-Specialty 64.8% Primary Care 1.7% Hospital Outsourcing 33.5% Physicians by Specialty Anesthesia 41.7% Infertility 0.4% Perinatology 0.9% Primary care 1.7% Gynecological oncology 1.7% Surgery 1.7% Obstetrics (office based) 13.3% Obstetrics (hospital based) 1.3% Emergency 15.0% Neonatology/Pediatrics 22.6% Total Physicians: 233
SALOMON SMITH BARNEY ---------------------------- 21 A member of citigroup [LOGO] 24 Sheridan's Competitive Advantages o Sheridan is a dominant niche player in a relatively unconsolidated market. o Sheridan is a physician practice management company with the market strategy of forming women's health networks. o Does not face high competition in hiring physicians compared to other single-specialty or national multi-specialty physician practice management companies. o Numerous opportunities to expand on a regional or national scale. o During its 45 years of operation, Sheridan has operated very conservatively and avoided the problems associated with rapid expansion. o One of the most prudent users of its capital and stock in the industry. o The Company is very selective in its acquisitions and continues to actively manage these acquisitions reducing the risks associated with integration. o Sheridan's women's health network provides doctors with a single source delivery platform to satisfy patients, managed care providers and hospitals in numerous markets. o Provides quality, consistent care to women during various stages of their lives. o Produces scale necessary to function with managed care payors. o Simplifies billing and payment for both hospitals and managed care providers. o Hospital based outsourcing operations are not capital intensive and provide continual cash flow necessary to expand the Company's women's health network. o Sheridan is not exposed to capitation risks that plague many other physician practice management companies. o The Company is regionally focused in two of the largest health care markets in the country o Regional focus creates opportunities for synergies and value-added services that are not present in more geographically distributed practices. o The populations of Texas and Florida are currently the 2nd and 4th largest state populations. o These two markets represent the 3rd and 4th largest health care markets in the United States. SALOMON SMITH BARNEY ---------------------------- 22 A member of citigroup [LOGO] 25 SHERIDAN HEALTHCARE Summary Historical Financials - Income Statement ($ in millions)
Actual ----------------------------- 1996(a) 1997 1998 CAGR =============================================================== ====== Internal Revenue $52.9 $55.5 $56.6 3.4% Acquired Revenue 39.8 43.3 56.3 18.9 ======= ======= ======= Total Net Revenue $92.8 $98.7 $113.0 10.4 Growth -- 6.4% 14.4% Gross Margin $23.0 $25.6 $31.0 16.1 % of Revenues 24.8% 26.0% 27.5% EBITDA $11.5 $13.3 $19.1 29.0 % of Revenues 12.4% 13.5% 16.9% EBIT $8.0 $10.5 $14.8 35.9 % of Revenues 8.6% 10.7% 13.1% Net Income $5.2 $5.2 $6.4 10.3 % of Revenues 5.6% 5.3% 5.6% - - -------------------------------------------------------------------------
(a) Excludes write-down of $17.4 million on 11/4/96 related to change in strategic direction away from primary care business and non-strategic office based physician practices. Write down consists of $13.9 million of goodwill, $1.1 million of property and equipment, $0.4 million of intangible assets and $2.0 million in accrued expenses. SALOMON SMITH BARNEY ---------------------------- 23 A member of citigroup [LOGO] 26 SHERIDAN HEALTHCARE Historical Schedule of Sheridan's Acquisitions (1996-1997) (Dollars in thousands)
EBITDA Acquisition Acquired Purchase Practice Name Description Date EBITDA Consideration Multiple - - ----------------------------------------------------------------------------------------------------------------------------- Harold Williams, M.D. Office-Based 2/96 NA $175 NM Internal Medicine Neonatology Certified, Inc. & Hospital-Based 3/96 $2,100 9,600 4.6x Childrens' Hospital Services, Inc. Neonatology & Pediatrics Rubin, Mehta, Davila, P.A. Office-Based 7/96 300 1,335 4.5 Obstetrics and Gynecology Kenneth Blaze, D.O., P.A. Office Based 10/96 175 875 5.0 Internal Medicine West Broward OB/Gyn Office-Based 3/97 600 3,126 5.2 Obstetrics and Gynecology Becerra and Augustino, M.D., Inc. Office-Based 5/97 525 2,000 3.8 Obstetrics and Gynecology Castillo-Plaza and Associates, M.D., Inc. Office-Based 5/97 250 1,025 4.1 Obstetrics and Gynecology Aventura Ob/Gyn Associates & Office-Based 9/97 600 2,400 4.0 Woman to Woman Obstetrics and Gynecology Obstetrics and Gynecology Frederick N. Herman, M.D., Inc. Office-based 11/97 400 2,000 5.0 General Surgery Physicians' Neonatal Group Hospital-Based 12/1/97 145 435 3.0 Neonatology -------------------------------------------------------------------------------- Total (a) $5,095 $22,971 4.5x -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- High $2,100 $9,600 5.2x Mean 566 2,297 4.3 Median 400 1,668 4.5 Low 145 175 3.0 --------------------------------------------------------------------------------
(a) Weighted average multiple. SALOMON SMITH BARNEY ---------------------------- 24 A member of citigroup [LOGO] 27 SHERIDAN HEALTHCARE Historical Schedule of Sheridan's Acquisitions (1998) (Dollars in thousands)
EBITDA Acquisition Acquired Purchase Practice Name Description Date EBITDA Consideration Multiple - - ----------------------------------------------------------------------------------------------------------------------------------- Taranco & Associates Hospital-Based 1/9/98 $1,600 $8,000 5.0x Anesthesiology Comprehentsive Pain Management Hospital-Based & Office-Based 2/1/98 1,800 9,900 5.5 Northwest Florida Anesthesiology Consultants Anesthesiology & Pain Mgt. Gynecology Oncology Associates Office-Based 3/6/98 550 2,200 4.0 Gynecology North Texas Perinatology Hospital-Based 3/4/98 2,500 20,200 8.1 Michael Cavenee, M.D., P.A. Perinatology/Neonatolgy Kenneth Trimmer, M.D., P.A. Gynecology Associates, Dr. Craig Woodard Office-Based 4/24/98 100 300 3.0 Gynecology Dr. Eliezer Livnat Office-Based 5/19/98 100 500 5.0 Infertility Dr. Santiago Triana Office-Based 6/24/98 160 650 4.1 General Surgery Dr. Odalis Sijin Office Based 7/1/98 140 740 5.3 Obstetrics and Gynecology Miami Neonatal Associates Hospital-Based 6/26/98 455 1,500 3.3 Neonatology Dr. Henry Parl Hospital-Based 8/1/98 50 250 5.0 Obstetrics and Gynecology Dr. Rafael Pratts Office Based 8/20/98 450 2,300 5.1 Obstetrics and Gynecology Newman, Schneider, Santos and Semple Office-Based 9/10/98 300 1,500 5.0 Obstetrics and Gynecology ----------------------------------------------------------------------------------- Total (a) $8,205 $ 48,040 5.9x ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- High $2,500 $ 20,200 8.1x Mean 684 4,003 4.9 Median 375 1,500 5.0 Low 50 250 3.0 -----------------------------------------------------------------------------------
(a) Weighted average multiple. - - -------------------------------------------------------------------------------- Although Sheridan's mean acquisition multiple for 1998 was 5.0x, it paid substantially higher multiples for larger transactions, raising its weighted average multiple for 1998 to 5.9x SALOMON SMITH BARNEY ---------------------------- 25 A member of citigroup [LOGO] 28 SHERIDAN HEALTHCARE Public Market Values: Sheridan Peer Rankings
------------------------------------------------ Projected 5 Year EPS Growth ------------------------------------------------ 1. Advanced Health 35.0% 2. Pediatrix Medical Group 30.0 3. American Oncology Resources, Inc. 25.0 ------------------------------------------------ 4. Sheridan Healthcare, Inc. 25.0 ------------------------------------------------ 5. PhyMatrix Corporation 22.5 6 American Physician Partners, Inc. 22.5 7. MedPartners, Inc. 20.0 8. AmeriPath, Inc. 20.0 9. Response Oncology, Inc. 20.0 10. ProMedCo Management 19.0 11. PhyCor, Inc. 15.0 ------------------------------------------------ Median 21.3% ------------------------------------------------ ------------------------------------------------ LTM Gross Margin ------------------------------------------------ 1. AmeriPath, Inc. 45.2% 2. American Physician Partners, Inc. 39.0 3. Pediatrix Medical Group 38.4 4. PhyMatrix Corporation 37.4 5. American Oncology Resources, Inc. 31.5 6 Response Oncology, Inc. 30.2 ------------------------------------------------ 7. Sheridan Healthcare, Inc. 27.5 ------------------------------------------------ 8. PhyCor, Inc. 26.4 9. ProMedCo Managment 15.6 10. Advanced Health Corporation 12.0 11. MedPartners, Inc. 4.1 ------------------------------------------------ Median 30.8% ------------------------------------------------ ------------------------------------------------ LTM EBITDA Margin ------------------------------------------------ 1. Pediatrix Medical Group 31.1% 2. AmeriPath, Inc. 29.6 3. American Physician Partners, Inc. 28.0 4. American Oncology Resources, Inc. 18.6 ------------------------------------------------ 5. Sheridan Healthcare, Inc. 16.9 ------------------------------------------------ 6. PhyCor, Inc. 15.6 7. Response Oncology, Inc. 13.9 8. ProMedCo Management 13.1 9. PhyMatrix Corporation 11.9 10. Advanced Health Corporation 0.6 11. MedPartners, Inc. NM ------------------------------------------------ Median 15.6% ------------------------------------------------
(a) Based on First Call Note: Sheridan not included in median calculations Bolded companies are Single Specialty PPMs. SALOMON SMITH BARNEY ---------------------------- 26 A member of citigroup [LOGO] 29 SHERIDAN HEALTHCARE Public Market Values: Sheridan Peer Comparison
Market Value Divided by: Fully Dil. Adj ---------------------------------- Price Market Market Cal. 98 Cal. 99(E) Cal. 00(E) Company Name 3/19/99 Value Value (1) Net Inc. Net Inc. Net Inc. - - --------------------------------- ------- ---------- ---------- -------- ---------- ---------- Multispecialty/ Primary Care PPMs Advanced Health Corporation $3.13 $31,458 $19,529 NM NM NM MedPartners, Inc. (5) $3.38 $671,715 $2,280,915 NM 8.0x 5.5x PhyCor, Inc. $5.25 $399,809 $979,753 7.1x 8.2x 7.2x PhyMatrix Corporation $1.97 $64,990 $156,083 5.3x 4.2x 3.4x ProMedCo Management $4.56 $96,451 $119,574 7.4x 6.5x 5.5x ----------------------------------------------------------------------------------------------- Mean 6.6x 6.7x 5.4x Median 7.1x 7.3x 5.5x ----------------------------------------------------------------------------------------------- Single Specialty PPMs (non-dental) American Oncology Resources (4) $7.78 $770,533 $998,971 12.8x 10.4x 8.0x American Physician Partners (2) $6.00 $119,004 $222,260 8.6x 6.7x 5.2x AmeriPath, Inc. $7.50 $161,693 $270,668 8.4x 7.4x 6.2x Pediatrix Medical Group $22.06 $367,306 $384,572 12.5x 9.9x 8.3x Response Oncology, Inc. $2.50 $30,317 $73,925 6.1x 5.2x 4.3x ----------------------------------------------------------------------------------------------- Mean 9.7x 7.9x 6.4x Median 8.6x 7.4x 6.2x ----------------------------------------------------------------------------------------------- Sheridan Healthcare, Inc. $8.25 $57,053 $140,252 10.6x 8.6x 7.4x ---------------------------------------------------------------------------------------------------------------------------- Premium / (Discount) to Multi Specialty Median 49.1% 18.1% 33.6% Premium / (Discount) to Single Specialty Median 23.4% 16.9% 18.8% ---------------------------------------------------------------------------------------------------------------------------- Adjusted Market Value ----------------------------------------------------------------------- Net Revenue EBITDA EBIT ----------- --------------------- --------------------- Latest Qtr. Latest Qtr. Latest Qtr. Company Name LTM Annualized LTM Annualized LTM Annualized - - --------------------------------- ------ ----------- ------- ---------- ------- ----------- Multispecialty/ Primary Care PPMs Advanced Health Corporation 0.3x 0.4x 41.2x(3) NM NM NM MedPartners, Inc. (5) 0.3x 0.3x NM 7.6x NM 14.4x PhyCor, Inc. 0.7x 0.6x 4.4x 4.4x 7.1x 7.7x PhyMatrix Corporation 0.4x 0.5x 5.4x NM 10.4x NM ProMedCo Management 0.6x 0.5x 4.8x 3.8x 6.4x 5.1x ----------------------------------------------------------------------------------------------- Mean 0.5x 0.5x 4.9x 4.1x 7.9x 6.4x Median 0.4x 0.5x 4.8x 4.1x 7.1x 6.4x ----------------------------------------------------------------------------------------------- Single Specialty PPMs (non-dental) American Oncology Resources (4) 1.3x 1.1x 6.7x 6.0x 9.5x 9.0x American Physician Partners (2) 1.8x 1.6x 6.4x 5.8x 9.2x 8.4x AmeriPath, Inc. 1.5x 1.4x 5.4x 4.9x 6.6x 6.2x Pediatrix Medical Group 2.3x 1.9x 7.3x 6.2x 8.5x 7.4x Response Oncology, Inc. 0.6x 0.6x 4.4x 4.2x 6.3x 6.4x ----------------------------------------------------------------------------------------------- Mean 1.5x 1.3x 6.0x 5.4x 8.0x 7.5x Median 1.5x 1.4x 6.4x 5.8x 8.5x 7.4x ----------------------------------------------------------------------------------------------- Sheridan Healthcare, Inc. 1.2x 1.2x 7.3x 6.9x 9.5x 9.1x ---------------------------------------------------------------------------------------------------------------------------- Premium / (Discount) to Multi Specialty Median 198.7% 156.8% 52.2% 68.8% 33.9% 41.4% Premium / (Discount) to Single Specialty Median (18.7%) (16.2%) 14.3% 18.3% 11.7% 23.1% ----------------------------------------------------------------------------------------------------------------------------
(1) Adjusted Market Value = Fully Diluted Market Value + Debt Outstanding - Cash. (2) Pro forma presentation of analyst model. (3) Outlier not calculated in mean and median. (4) Pro forma for announced acquisition of PHYN. (5) Excluded from EBIT and EBITDA mean and median calulation because of its announced plan to exit the PPM business. SALOMON SMITH BARNEY ---------------------------- 27 A member of citigroup [LOGO] 30 SHERIDAN HEALTHCARE Summary of Equity Research View on Sheridan ANALYST COMMENTARY
- - -------------------------------------------------------------------------------- Firm/ Comments Analyst/ Date - - -------------------------------------------------------------------------------- Wheat First Union "It appears that the company's acquisition Christopher D. McFadden pipeline is very robust, supported by the 4/22/98 company's growing reputation within the hospital-based physician segment as an efficient operator and integrator of physician networks." - - -------------------------------------------------------------------------------- Prudential Securities "Two years ago, Sheridan made a radical change ... Kenneth C. Bohringer with the decision to exit office-based primary 10/27/98 care medicine, where capitated managed contracts were proving extremely onerous; going forward, the focus would be on positioning the company's core hospital-based specialists ... as hubs around which to form "spokes" of office based physicians." - - -------------------------------------------------------------------------------- Salomon Smith Barney "The company continues to meet earnings Geoffrey E. Harris expectations by wisely managing its growth and 10/20/98 capital consumption. There are clearly abundant growth opportunities available to the company through acquisitions/affiliations however the company is currently constrained by the availability of capital to aggressively grow." - - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY ---------------------------- 28 A member of citigroup [LOGO] 31 SHERIDAN HEALTHCARE 3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 32 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry THE RISE OF PHYSICIAN PRACTICE MANAGEMENT There are more than 600,000 physicians in the United States. Physician services represented over $200 billion of total 1997 medical expenditures of nearly $1.2 trillion. Furthermore, physicians control an additional $600 billion through the referral of patients. o Six years ago, the PPM sector did not exist. o Coastal Physician Group and PhyCor were really the only public "Doc" companies, with the combined companies representing less than $500 million in market value in 1992. o The PPM sector has emerged over the past few years through a wave of initial public offerings, driven by one major theme - the acquisition and management of medical practices. o The trend toward more and larger physician groups and membership in independent practice associations has been driven by the following: o Managed Care. A key driver of PPM growth is the entry of managed care into a market. In 1993 and 1994, the power of managed care in health care was rapidly increasing. As a result, many PPM companies, as well as industry leaders, emerged during that period. o Risk management needs. In order to assume the risk associated with an increasingly capitated system, it is necessary for physicians to form groups. This enables them to contract for larger pools of patients, thus diversifying the risk. o Increased competition. Physicians find it advantageous to combine in groups in order to share overhead costs and realize economies of scale. SALOMON SMITH BARNEY ---------------------------- 29 A member of citigroup [LOGO] 33 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry CURRENT TRENDS IN PHYSICIAN PRACTICE MANAGEMENT o At the end of 1997, the industry comprised more than 25 public companies, with a market value of nearly $14 billion. o Major players included MedPartners, PhyCor, PhyMatrix and FPA Medical Management. o Since the end of 1997, however, the market value of the PPM sector has dropped by more than 50%, with companies such as MedPartners, FPA, PhyCor and Pediatrix losing value in their stock prices. o This dramatic decline in valuations and company performance is due to a variety of reasons including: o Lowered earnings expectations for some companies, o Accounting changes that have taken place in the industry, o Recent bankruptcies that have been announced, and o The speed at which this industry has moved out of favor (both from a stock performance standpoint and a physician satisfaction standpoint, in some instances). - - -------------------------------------------------------------------------------- Due to a variety of reasons including a changed industry environment and several execution failures, the Physician Practice Management industry is out of favor with investors. SALOMON SMITH BARNEY ---------------------------- 30 A member of citigroup [LOGO] 34 SHERIDAN HEALTHCARE PPM Market Performance WEEKLY DATA -- 1/5/96 THROUGH 3/19/99 [GRAPHIC OMITTED]
Summary Statistics: High Low Average Latest 210% 97% 145% 210% 129% 29% 84% 29%
- - -------------------------------------------------------------------------------- The PPM sector has significantly under-performed the S&P 500 Index since October 1997. SALOMON SMITH BARNEY ---------------------------- 31 A member of citigroup [LOGO] 35 SHERIDAN HEALTHCARE Sheridan vs. Pediatrix Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED]
Summary Statistics: High Low Average Latest 111% 43% 67% 54% 148% 44% 100% 50%
- - -------------------------------------------------------------------------------- Pediatrix, Sheridan's leading local competitor, lost approximately half of its value when it restated its earnings in early February due to an accounting change. SALOMON SMITH BARNEY ---------------------------- 32 A member of citigroup [LOGO] 36 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry CONCLUSION o Market Exit. One of the conclusions reached by several companies in this area was to get out of the PPM business, and focus on more prosperous, profitable and growing product lines. o The biggest example of this decision came through MedPartners, which announced broad PPM market exit with its September, 1998 Q3 results, reported in early November of this past year. o In addition, PhyMatrix also sought to get out of their physician organization structures. o Restricted Access to Capital. The decline in the PPM sector's valuation will restrict its access to capital. o Growth in the PPM sector is based on access to large amounts of capital for the consolidation of doctors and investments in systems. o The decline in the access to capital should continue to drive an accelerated shake-out in the industry, as those companies that use high-multiple stock to create earnings growth are differentiated from the companies that truly add value to the practices under management. SALOMON SMITH BARNEY ---------------------------- 33 A member of citigroup [LOGO] 37 SHERIDAN HEALTHCARE 4 SUMMARY VALUATION ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 38 SHERIDAN HEALTHCARE Overview of Methodologies We used several methodologies to determine a summary valuation range(a) : o Public Market Valuation o Discounted Cash Flow Valuation: o At Management's assumption of 5.0x EBITDA for acquisitions o Sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions o No acquisitions o Private Market Valuation - - -------- (a) These summary valuations do not take into account any additional strategic value or synergies that a buyer may realize. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 34 A member of citigroup [LOGO] 39 SHERIDAN HEALTHCARE Valuation Summary [The following table was depicted as a bar chart in the printed material.]
Equity Value Per Share (In Dollars) Current Price-3/19/99 $8.25(a) Private Market Comparable Analysis Valuation $8.00-$13.00 5-Year DCF (without acquisitions) $3.75-$5.50 5-Year DCF (with acquisitions- 7.0x EBITDA purchase price) $4.00-$8.50 5-Year DCF (with acquisitions- 6.0x EBITDA purchase price) $9.50-$14.00 5-Year DCF (with acquisitions- 5.0x EBITDA purchase price) $15.00-$19.50
(a) $9.25 represents Vestar Capital's offer price. Note: Equity value reflects debt and contingencies of $85.2 million, and option proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted shares before treasury method share buy-back. All assumptions as of March 19, 1999. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 35 A member of citigroup [LOGO] 40 SHERIDAN HEALTHCARE Discounted Cash Flow Analysis OVERVIEW o Salomon Smith Barney has performed a DCF analysis of Sheridan looking at four cases: o Case 1: Including management's projected acquisitions (at management's projected 5.0x EBITDA purchase price) o Case 2: Including management's projected acquisitions (at a 6.0x EBITDA purchase price) o Case 3: Including management's projected acquisitions (at a 7.0x EBITDA purchase price) o Case 4: Excluding projected acquisitions KEY ASSUMPTIONS o Sheridan projections based on 1999-2003 forecasts provided by the Company's management o Valuations as of March 22, 1999 o Total debt and shares outstanding balances as of March 16, 1999 o Excess cash is not available o No acquisition expenditures occur in the first quarter of 1999 VALUATION PARAMETERS o WACC rate range of 10.00% - 11.00% o Midpoint EBITDA multiples: o 6.0x for cases 1 - 3 (with acquisitions) o 4.5x for case 4 (without acquisitions) Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 36 A member of citigroup [LOGO] 41 SHERIDAN HEALTHCARE Financial Projections - Income Statement (Management's Base Case) ($ in millions)
Projected --------------------------------------------------- 1999 2000 2001 2002 2003 CAGR ============================================================================== ====== Net Revenue $172.8 $216.4 $264.6 $313.5 $380.0 21.8% Growth NM 25.3% 22.3% 18.5% 21.2% EBITDA $32.1 $40.6 $52.7 $67.0 $82.9 26.8 % of Revenues 18.6% 18.8% 19.9% 21.4% 21.8% EBIT $24.4 $30.8 $40.7 $52.5 $66.3 28.4 % of Revenues 14.1% 14.2% 15.4% 16.8% 17.4% Net Income $9.9 $12.4 17.2 $22.8 $28.8 30.7 % of Revenues 5.7% 5.7% 6.5% 7.3% 7.6% - - ------------------------------------------------------------------------------ Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0 Acquisition Expenditure 60.0 35.0 40.0 50.0 65.0 - - ------------------------------------------------------------------------------
SALOMON SMITH BARNEY ---------------------------- 37 A member of citigroup [LOGO] 42 SHERIDAN HEALTHCARE Financial Projections - Income Statement (Without Acquisitions) ($ in millions)
Projected --------------------------------------------------- 1999 2000 2001 2002 2003 CAGR ================================================================================ ====== Net Revenue $122.2 $136.7 $152.6 $162.4 $178.6 10.0% Growth NM 11.9% 11.6% 6.4% 10.0% % of Base Case Revenues 70.7% 63.2 57.7 51.8 47.0 EBITDA $19.5 $21.2 $25.6 $27.1 $29.7 11.1 % of Revenues 16.0% 15.5% 16.8% 16.7% 16.6% % of Base Case EBITDA 60.7 52.1 48.6 40.4 35.8 EBIT $14.0 $14.9 $18.8 $19.8 $22.8 13.0 % of Revenues 11.4% 10.9% 12.3% 12.2% 12.8% % of Base Case EBIT 57.3 48.4 46.2 37.6 34.4 Net Income $4.7 $5.5 $8.2 $7.3 $8.7 16.4 % of Revenues 3.9% 4.0% 5.4% 4.5% 4.9% % of Base Case Net Income 48.0 44.0 47.8 32.0 30.3 - - -------------------------------------------------------------------------------- Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0 Acquisition Expenditure 0.0 0.0 0.0 0.0 0.0 - - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY ---------------------------- 38 A member of citigroup [LOGO] 43 SHERIDAN HEALTHCARE Case 1: Management Projections With Acquisitions (5.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 5.0x EBITDA purchase price, generates a valuation range of approximately $15.00-$19.50 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 9.61x 10.33x 11.05x 11.77x 12.49x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $182 $195 $208 $222 $235 10.0% $99 $112 $125 $138 $152 ----------------------------------------- ------------------------------- 10.3% 179 192 205 218 231 10.3% 96 109 122 135 148 10.5% 177 190 203 215 228 10.5% 94 106 119 132 145 10.8% 174 187 200 212 225 10.8% 91 104 116 129 142 ----------------------------------------- ------------------------------- 11.0% 172 184 197 209 222 11.0% 88 101 114 126 139 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 2.0% 2.4% 2.7% 2.9% 3.2% 10.0% $14.31 $16.21 $18.11 $20.02 $21.92 ----------------------------------------- ------------------------------- 10.3% 2.3 2.6 2.9 3.2 3.4 10.3% 13.92 15.80 17.68 19.56 21.44 10.5% 2.5 2.8 3.1 3.4 3.7 10.5% 13.53 15.39 17.26 19.12 20.98 10.8% 2.7 3.1 3.4 3.6 3.9 10.8% 13.15 14.99 16.83 18.68 20.52 ----------------------------------------- ------------------------------- 11.0% 3.0 3.3 3.6 3.9 4.1 11.0% 12.78 14.60 16.42 18.24 20.06 - - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 39 A member of citigroup [LOGO] 44 SHERIDAN HEALTHCARE Case 2: Management Projections With Acquisitions (6.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 6.0x EBITDA purchase price, generates a valuation range of approximately $9.50-$14.00 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 8.79x 9.61x 10.43x 11.25x 12.07x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $144 $157 $170 $183 $196 10.0% $60 $74 $87 $100 $113 ----------------------------------------- ------------------------------- 10.3% 141 154 167 180 193 10.3% 58 71 84 97 110 10.5% 139 152 164 177 190 10.5% 55 68 81 94 107 10.8% 136 149 162 174 187 10.8% 53 66 78 91 104 ----------------------------------------- ------------------------------- 11.0% 134 146 159 172 184 11.0% 51 63 76 88 101 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 1.9% 2.2% 2.5% 2.8% 3.1% 10.0% $8.74 $10.64 $12.54 $14.44 $16.35 ----------------------------------------- ------------------------------- 10.3% 2.1 2.4 2.7 3.0 3.3 10.3% 8.38 10.26 12.14 14.02 15.90 10.5% 2.3 2.7 3.0 3.3 3.5 10.5% 8.02 9.88 11.74 13.60 15.46 10.8% 2.6 2.9 3.2 3.5 3.8 10.8% 7.66 9.50 11.35 13.19 15.03 ----------------------------------------- ------------------------------- 11.0% 2.8 3.1 3.4 3.7 4.0 11.0% 7.32 9.14 10.96 12.78 14.60 - - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 40 A member of citigroup [LOGO] 45 SHERIDAN HEALTHCARE Case 3: Management Projections With Acquisitions (7.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 7.0x EBITDA purchase price, generates a valuation range of approximately $4.00-$8.50 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 7.71x 8.66x 9.62x 10.57x 11.52x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $105 $118 $131 $145 $158 10.0% $22 $35 $48 $61 $75 ------------------------------- ------------------------------- 10.3% 103 116 129 142 155 10.3% 20 33 46 59 72 10.5% 101 113 126 139 152 10.5% 17 30 43 56 69 10.8% 98 111 124 136 149 10.8% 15 28 40 53 66 ------------------------------- ------------------------------- 11.0% 96 109 121 134 146 11.0% 13 25 38 51 63 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 1.7% 2.1% 2.4% 2.7% 2.9% 10.0% $3.17 $5.07 $6.97 $8.87 $10.78 ------------------------------- ------------------------------- 10.3% 2.0 2.3 2.6 2.9 3.2 10.3% 2.83 4.71 6.60 8.48 10.36 10.5% 2.2 2.5 2.8 3.1 3.4 10.5% 2.50 4.36 6.22 8.08 9.94 10.8% 2.4 2.8 3.1 3.4 3.6 10.8% 2.17 4.02 5.86 7.70 9.54 ------------------------------- ------------------------------- 11.0% 2.7 3.0 3.3 3.6 3.9 11.0% 1.85 3.67 5.49 7.32 9.14 - - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 41 A member of citigroup [LOGO] 46 SHERIDAN HEALTHCARE Case 4: Management Projections Without Acquisitions o A DCF valuation of unlevered free cash flows, which excludes projected acquisitions, generates a valuation range of approximately $3.75-$5.50 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 4.00x 4.25x 4.50x 4.75x 5.00x 4.00x 4.25x 4.50x 4.75x 5.00x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $119 $126 $134 $141 $148 9.54x 10.39x 11.24x 12.10x 12.95x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $108 $113 $118 $122 $127 10.0% $25 $30 $34 $39 $44 ------------------------------- ------------------------------- 10.3% 107 112 116 121 126 10.3% 24 29 33 38 43 10.5% 106 111 115 120 125 10.5% 23 28 32 37 41 10.8% 105 110 114 119 123 10.8% 22 26 31 36 40 ------------------------------- ------------------------------- 11.0% 104 109 113 118 122 11.0% 21 25 30 34 39 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 2.4% 2.8% 3.2% 3.5% 3.8% 10.0% $3.60 $4.28 $4.96 $5.64 $6.32 ------------------------------- ------------------------------- 10.3% 2.6 3.0 3.4 3.7 4.0 10.3% 3.45 4.13 4.80 5.47 6.15 10.5% 2.8 3.2 3.6 4.0 4.3 10.5% 3.31 3.98 4.64 5.31 5.98 10.8% 3.1 3.5 3.9 4.2 4.5 10.8% 3.17 3.83 4.49 5.15 5.81 ------------------------------- ------------------------------- 11.0% 3.3 3.7 4.1 4.4 4.7 11.0% 3.03 3.68 4.34 4.99 5.64 - - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 42 A member of citigroup [LOGO] 47 SHERIDAN HEALTHCARE Private Market Valuation Summary
Implied Equity Private Market Comparables Implied Firm Implied Equity Value per Multiple Range Value Range Value(a) Share(b) Sheridan -------------- ---------------- --------------- --------------- (Dollars in millions, Except per Share Data) Data Low High Low High Low High Low High ======================================================= ============== ================ =============== =============== Firm Value/ 1998 Revenues $113.0 1.2x 1.5x $135.6 $169.5 $52.4 $86.3 $7.58 $12.48 1998 EBITDA $19.1 6.0x 9.0x $114.9 $172.3 $31.7 $89.1 $4.58 $12.89 - - ----------------------------------------------------------------------------------------------------------------------------------- ============================================== Sheridan Valuation Range $8.00 $13.00 ============================================== ===================================================================================================================================
Note: Equity Value equals Firm Value less total debt and contingencies, plus cash and options and warrants proceeds. (a) Equity Value reflects net debt and other items of $85.2 million, and Option Proceeds of $2.0 million. (b) Equity Value per share reflects 6.916 million diluted shares, before treasury stock method share buyback. SALOMON SMITH BARNEY ---------------------------- 43 A member of citigroup [LOGO] 48 SHERIDAN HEALTHCARE Private Market Values: Selected Acquisition Transactions (Dollars in thousands) MULTIPLES ANALYSIS
Multiples of Transaction Value ------------------------------- Date Transaction LTM LTM LTM Announced Target / Acquiror Value Revenues EBITDA EBIT - - --------- ------------------------------------------- ----------- -------- ------ ------ Jan-99 Team Health (subsidiary of MedPartners) (a) $341,400 0.7x 6.0x 7.0x Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network 690,874 1.8 9.7 14.5 American Oncology Resources (b) Oct-97 Spectrum Emergency Care Inc. (c) NA NA 5.0 NA Laidlaw Inc. Jul-97 Health Partners, Inc. (d) 114,000 0.8 NM NM FPA Medical Management, Inc. Jul-97 EmCare Holdings, Inc. (d) 379,500 1.8 15.7 19.6 Laidlaw Inc. Apr-97 OccuSystems (d) 581,623 3.3 18.6 24.5 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. (d) 563,300 1.2 14.6 17.0 MedPartners Inc. Nov-96 American Ophthalmic Inc. (d) 122,100 2.0 13.3 21.1 Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. (d) 109,600 0.9 NM NM FPA Medical Management, Inc. -------------------------------------------------------- Low 0.7x 5.0x 7.0x Median 1.5 6.0 10.8 Mean 1.6 6.9 10.8 High 3.3 18.6 24.5 --------------------------------------------------------
Note: This list excludes PPMs which focus on primary care or dental. (a) Based on Salomon Smith Barney estimates. (b) Based on American Oncology Resources closing market price of $13.00 on 12/11/98. (c) Terms of the transaction not disclosed. Source of EBITDA multiple: 10/6/97 press release. (d) Transactions which occurred before October 1997 are excluded from LTM EBITDA and EBIT transaction multiple median and mean calculations. - - -------------------------------------------------------------------------------- The recent acquisition of Team Health by Cornerstone Equity/Madison Dearborn is the most comparable recent precedent transaction. SALOMON SMITH BARNEY ---------------------------- 44 A member of citigroup [LOGO] 49 SHERIDAN HEALTHCARE Private Market Values: Selected Acquisition Transactions (cont.) PREMIUM ANALYSIS
Stock Price Premium Paid Prior to Announcement Date Purchase -------------------------------- Announced Target / Acquiror Price (a) 1 Day 1 Week 1 Month - - --------- ------------------------------------------- ----------- -------- ------ ------- Jan-99 Team Health (subsidiary of MedPartners) (b) -- NA NA NA Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network $12.22 6.3% 17.8% 24.1% American Oncology Resources (c) Oct-97 Spectrum Emergency Care Inc. (b) -- NA NA NA Laidlaw Inc. Jul-97 Health Partners, Inc. (b) -- NA NA NA FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. (c) 38.00 NM NM NM Laidlaw Inc. Apr-97 OccuSystems 21.21 10.9 10.9 NM CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. 26.38 7.1 28.7 46.5 MedPartners Inc. Nov-96 American Ophthalmic Inc. (b) -- NA NA NA Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. 8.75 20.7 45.8 34.6 FPA Medical Management, Inc. --------------------------------------------------------- Low 6.3% 10.9% 24.1% Median 9.0% 23.2% 34.6% Mean 11.2% 25.8% 35.1% High 20.7% 45.8% 46.5% ---------------------------------------------------------
Note: This list excludes PPMs which focus on primary care or dental. (a) Price per share at date of announcement. (b) Target is private company. (c) Offer represents a 63% premium to EmCare's closing price on 2/12/97, when the company announced an agreement to pay the U.S. government $8 million to settle allegations of false billing. (d) Median price of collar. SALOMON SMITH BARNEY ---------------------------- 45 A member of citigroup [LOGO] 50 SHERIDAN HEALTHCARE APPENDIX SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 51 SHERIDAN HEALTHCARE A. COMPARABLE PUBLICLY TRADED COMPANIES SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 52 SHERIDAN HEALTHCARE Overview of Major PPM's SINGLE SPECIALITY (Dollars in Millions)
Market Name Value(1) Business Focus/Description - - --------------------------------- -------- ------------------------------- American Oncology Resources, Inc. $770.5 American Oncology Resources is a multi-state physician practice management company focusing exclusively on oncology. The Company's physician practices provide a broad range of medical services to cancer patients, integrating the specialties of medical and gynecological oncology, hematology, radiation oncology, stem cell transplantation and diagnostic radiology. - - -------------------------------------------------------------------------------- American Physician Partners, Inc. $119.0 American Physician Partners is a leading provider of physician practice management services to radiology practices. The Company develops, consolidates and manages integrated radiology and imaging service systems. - - -------------------------------------------------------------------------------- AmeriPath, Inc. $161.7 AmeriPath is the leading physician practice management company focused on anatomic pathology services. - - -------------------------------------------------------------------------------- Pediatrix Medical Group $367.3 Pediatrix is a leading national provider of physician management services to hospital-based neonatal intensive care units, pediatric intensive care units and to pediatrics departments in hospitals. - - -------------------------------------------------------------------------------- Response Oncology, Inc. $30.3 Response Oncology is a comprehensive cancer management company. The Company provides advanced cancer treatment services through outpatient facilities, manages the practices of oncologists with whom the Company has affiliated and conducts clinical cancer research on behalf of pharmaceutical manufacturers. - - --------------------------------------------------------------------------------
- - -------- (1) Fully diluted market value based on closing price at March 19, 1999. SALOMON SMITH BARNEY ---------------------------- 46 A member of citigroup [LOGO] 53 SHERIDAN HEALTHCARE Overview of Major PPM's MULTI SPECIALTY (Dollars in Millions)
Market Name Value(1) Business Focus/Description - - --------------------------------- -------- ------------------------------- Advanced Health Corporation $31.5 Advanced Health Corporation provides physician services through the management of multi-specialty and single-specialty physician group practices and networks. The Company focuses its management efforts on high-cost, high-volume disease specialties, such as cardiology, oncology and orthopedics. - - -------------------------------------------------------------------------------- MedPartners, Inc. $671.7 MedPartners is the nation's largest physician practice management company. Through the Company's network of affiliated group and IPA physicians, MedPartners provides primary and specialty health care services to prepaid physician practices in 25 states. - - -------------------------------------------------------------------------------- PhyCor, Inc. $399.8 PhyCor is the second largest physician practice management company. The Company acquires and operates multi-specialty medical clinics and develops and manages independent practice associations. - - -------------------------------------------------------------------------------- PhyMatrix Corporation $65.0 PhyMatrix corporation is a comprehensive health care company focused on creating physician-based health care networks within specific markets. The Company provides management services to disease-specific and primary care physicians and supports these physicians through certain medical support services in selected markets. - - -------------------------------------------------------------------------------- ProMedCo Management $96.5 ProMedCo is a physician practice management company that consolidates its affiliated physician groups into primary-care-driven multi-specialty networks. Additionally, their services include clinical quality assessment, enrollment and patient registration, capitation and processing payment, utilization and case management. - - --------------------------------------------------------------------------------
- - -------- (1) Fully diluted market value based on closing price at March 19, 1999. SALOMON SMITH BARNEY ---------------------------- 47 A member of citigroup [LOGO] 54 SHERIDAN HEALTHCARE B. PRECEDENT PPM TRANSACTIONS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 55 SHERIDAN HEALTHCARE Private Market Values: Acquisition Transactions (dollars in thousands)
Date Equity Transaction Announced Target / Acquiror Segment Value Value - - --------- ---------------------------------------------- ---------------- -------- ----------- Jan-99 Team Health (subsidiary of MedPartners) (a) Emergency NA $341,400 Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network Single Specialty $642,784 690,874 American Oncology Resources (b) Sept-98 Valley Forge Dental Associates Dental $18,000 60,000 Monarch Dental Corporation Mar-98 Medcath Single Specialty 384,598 440,000 KKR, Welsh Carson Anderson & Stowe Mar-98 First Physician Care Primary/ 73,999 81,252 PhyCor, Inc. Multispecialty Oct-97 Spectrum Emergency Care Inc. (c) Emergency NA NA Laidlaw Inc. Aug-97 Talbert Medical Management Primary/ 200,300 145,300 MedPartners Inc. Multispecialty July-97 Health Partners, Inc. IPA 119,000 114,000 FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. Emergency 333,300 379,500 Laidlaw Inc. Apr-97 OccuSystems Single Specialty 504,033 581,623 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. Emergency 493,700 563,300 MedPartners Inc. Nov-96 American Ophthalmic Inc. Single Specialty 68,200 122,100 Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. IPA 129,800 109,600 FPA Medical Management, Inc. Nov-96 STAT Healthcare Emergency 120,905 125,703 American Medical Response July-96 Foundation Health Clinics Primary/ 105,000 197,000 FPA Medical Management, Inc. Multispecialty May-96 PCA Clinics (Florida) Primary/ 25,718 22,000 FPA Medical Management, Inc. Multispecialty Multiples of Transaction Value ---------------------------------- Purchase Date LTM LTM LTM Price / LTM Forward Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E - - --------- ---------------------------------------------- ---------- ------ ----- ----------- ------- Jan-99 Team Health (subsidiary of MedPartners) (a) 0.7x 6.0x 7.0x NA NA Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network 1.8 9.7 14.5 23.7x 18.2x American Oncology Resources (b) Sept-98 Valley Forge Dental Associates 1.0 NA NA NA NA Monarch Dental Corporation Mar-98 Medcath 4.0 15.3 27.8 55.3 29.2 KKR, Welsh Carson Anderson & Stowe Mar-98 First Physician Care 1.4 NM NM NM NA PhyCor, Inc. Oct-97 Spectrum Emergency Care Inc. (c) NA 5.0 NA NA NA Laidlaw Inc. Aug-97 Talbert Medical Management 0.3 NM NM NM NM MedPartners Inc. July-97 Health Partners, Inc. 0.8 NM NM NM NA FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. 1.8 15.7 19.6 29.8 24.5 Laidlaw Inc. Apr-97 OccuSystems 3.3 18.6 24.5 37.8 17.3 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. 1.2 14.6 17.0 27.9 21.4 MedPartners Inc. Nov-96 American Ophthalmic Inc. 2.0 13.3 21.1 NM NA Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. 0.9 NM NM NM NM FPA Medical Management, Inc. Nov-96 STAT Healthcare 3.7 20.7 22.0 28.4 31.8 American Medical Response July-96 Foundation Health Clinics 1.3 NM NM NM NA FPA Medical Management, Inc. May-96 PCA Clinics (Florida) 0.5 9.4 44.5 70.6 NA FPA Medical Management, Inc.
(CONTINUED ON NEXT PAGE) SALOMON SMITH BARNEY ---------------------------- 48 A member of citigroup [LOGO] 56 SHERIDAN HEALTHCARE Private Market Values: Acquisition Transactions (cont.) (dollars in thousands)
Date Equity Transaction Announced Target / Acquiror Segment Value Value - - --------- ---------------------------------------------- ---------------- ---------- ----------- May-96 Caremark International Primary/ $2,464,167 $2,844,367 MedPartners/Mullikin Inc. Multispecialt May-96 Sterling Healthcare Group Inc. Emergency 199,888 211,288 FPA Medical Management, Inc. Mar-96 EyeCorp, Inc. (d) Single Specialty 139,100 162,200 Physicians Resource Group Inc. Dec-95 Pacific Physician Services Primary/ 322,617 317,619 MedPartners/Mullikin Inc. Multispecialty Aug-95 Mullikin Medical Enterprises (e) Primary/ 345,000 339,343 MedPartners Inc. Multispecialty Apr-95 Salick Healthcare Single Specialty 223,236 204,000 Zeneca Pharmaceuticals Aug-94 Friendly Hills Healthcare Primary/ 150,000 221,000 Caremark International Multispecialty Jul-94 Thomas-Davis Medical Center Primary/ 465,600 474,200 Foundation Health Corp. Multispecialty Multiples of Transaction Value ---------------------------------- Purchase Date LTM LTM LTM Price / LTM Forward Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E - - --------- ---------------------------------------------- ---------- ------ ----- ----------- ------- May-96 Caremark International 1.2x 18.3x 22.5x 32.8x 20.2x MedPartners/Mullikin Inc. May-96 Sterling Healthcare Group Inc. 1.7 18.4 24.0 37.7 NA FPA Medical Management, Inc. Mar-96 EyeCorp, Inc. (d) 2.4 12.8 19.1 35.7 NA Physicians Resource Group Inc. Dec-95 Pacific Physician Services 0.8 10.6 16.8 31.4 19.8 MedPartners/Mullikin Inc. Aug-95 Mullikin Medical Enterprises (e) 0.8 14.6 22.9 39.1 NA MedPartners Inc. Apr-95 Salick Healthcare 2.8 14.8 21.9 39.6 NA Zeneca Pharmaceuticals Aug-94 Friendly Hills Healthcare 1.1 8.8 NA NA NA Caremark International Jul-94 Thomas-Davis Medical Center 1.0 14.3 17.6 NM NA Foundation Health Corp. ----------------------------------------------------------------------------- Mean 1.6x 13.4x 21.4x 37.7x 22.8x Median 1.2 14.5 21.5 35.7 20.8 High 4.0 20.7 44.5 70.6 31.8 Low 0.3 5.0 7.0 23.7 17.3 -----------------------------------------------------------------------------
- - ---------- (a) Based on Salomon Smith Barney estimates. (b) Based on American Oncology Resources closing market price of $13.00 on 12/11/98. (c) Terms of the transaction not disclosed. (d) FYE 1995E net income. (e) LTM December 1995. SALOMON SMITH BARNEY ---------------------------- 49 A member of citigroup [LOGO] 57 SHERIDAN HEALTHCARE C. WACC ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 58 WACC Analysis
Comparable Companies Debt Equity Cost of Market Total Preferred Debt / Unlevered (Dollars in Millions) Beta Beta(a) Equity(b) Cap. Debt Stock Cap.(Mkt) (Asset) Beta(c) =============================================================================================================================== American Oncology Resources, Inc. 0.00 1.07 13.6% $771 $239 $0 23.6% 0.90 MedPartners 0.00 1.41 16.1 672 1,751 0 72.3 0.54 Pediatrix Medical Group Inc. 0.00 1.18 14.4 367 18 0 4.6 1.15 PhyCor 0.00 1.41 16.1 400 623 0 60.9 0.72 PhyMatrix 0.00 1.14 14.1 65 124 0 65.6 0.53 Physician Reliance Network, Inc. 0.00 0.91 12.4 418 60 0 12.6 0.84 - - ------------------------------------------------------------------------------------------------------------------------------- Median -- 1.16 14.26 -- -- -- 42.27 0.78 Mean 1.19 14.46 -- -- -- 39.94 0.78 - - ------------------------------------------------------------------------------------------------------------------------------- Assumptions ========================================== Tax Rate for Companies 39.0% Tax Rate for Target 39.0% Risk-Free Rate (30-Year TSY) 5.6% Pretax Cost of Debt (e) 8.0% Equity Risk Premium (f) 7.5% Political Risk Premium 0.0% Debt Beta for Target 0.00 - - ------------------------------------------ Weighted Average Cost of Capital(d) ========================================= Debt / Capitalization (Market) Unlevered ----------------------------------------- (Asset) Beta 30% 35% 40% 45% 50% =========================================================== 0.70 10.0% 9.9% 9.7% 9.6% 9.4% ------------------------ 0.75 10.3% 10.2% 10.0% 9.9% 9.7% 0.80 10.7% 10.5% 10.4% 10.2% 10.1% 0.85 11.0% 10.8% 10.7% 10.5% 10.4% ------------------------ 0.90 11.3% 11.2% 11.0% 10.8% 10.7% - - -----------------------------------------------------------
(a) Source: Bloomberg's estimate using Value Line's estimation methodology using returns vs. the S&P 500 as of 3/16/99. (b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta(beta)(E) * Equity Risk Premium (R(M) - R(F)). (c) (beta)(A) = (beta)(E) [%E/[%E +%D * (1 - T)] + (beta)(D) * [%D * (1 - T)/%D * (1 - t) + %E]] (d) WACC = [(R(F) + (beta)(E) * (R(M) - R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D]. Assumes pretax cost of debt remains constant. (e) Any political risk premium (R(P)) is included in the pretax cost of debt (K(D)). (f) Source: Ibbotson Associates. Based on data from 1926 - 1996. - - -------------------------------------------------------------------------------- An analysis of the cost of capital using the capital asset pricing model implies a median cost of equity of 14.0%, and a weighted average cost of capital of 10.4%. SALOMON SMITH BARNEY ---------------------------- 50 A member of citigroup [LOGO] EX-99.C.2 4 EMPLOYMENT AGREEMENT WITH MITCHELL EISENBERG 1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"), between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and Mitchell Eisenberg (the "Executive"). PRELIMINARY STATEMENTS WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"), Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Acquisition will merge into the Company (the "Merger"), with the Company constituting the surviving corporation; WHEREAS, Acquisition and the Company desire that, effective upon the purchase by Acquisition of shares of the Company's common stock pursuant to the Offer (as defined in the Merger Agreement), the Company employ the Executive and enter into an agreement embodying the terms of such employment and the Executive desires to accept such employment with the Company and enter into such an agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: AGREEMENT 1. Effectiveness of Agreement/Prior Agreements. (a) Notwithstanding any other provision of this Agreement, this Agreement shall constitute a binding obligation of the parties hereto as of the date hereof but shall become effective only upon the date of Acquisition's purchase of shares of the Company's common stock pursuant to the Offer (such date being hereinafter referred to as the "Commencement Date"); provided, however, that for this Agreement to continue to be effective after the ninetieth day following the Merger, Holdings shall, within ninety (90) days following the Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If the Shareholder Approval is not obtained or the Merger Agreement is terminated for any reason without shares of the Company's common stock being purchased pursuant to the Offer, this Agreement shall, at such time, be terminated without further obligation or liability of either party. (b) Effective as of the Commencement Date, this Agreement shall supercede all prior agreements and understandings (including verbal agreements) between the Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and its affiliates including, without limitation, the Executive Employment Agreement dated as of December 1, 1994 with the Company (f/k/a SAMA Holdings, Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management Associates), as amended 2 2 (the "Prior Employment Agreement" and together with such other prior agreements and understandings, collectively, the "Prior Agreements"); provided that this Agreement shall not supercede the Executive's rights to expense reimbursement or benefits under the Company's employee benefits plans, programs and arrangements. It is expressly agreed that from and after the Commencement Date the Company and its affiliates shall have no further obligations under, and the Executive shall have no further rights under, the Prior Employment Agreement including, without limitation, any severance, termination, or change of control related benefits. 2. Employment. Subject to the provisions of this Agreement, the Company shall employ the Executive, and the Executive agrees that he will be so employed, upon the terms and conditions hereinafter set forth. 3. Term of Employment. Subject to the provisions of this Agreement, unless earlier terminated pursuant to Section 7, the term of Executive's employment pursuant to this Agreement (the "Term of Employment") shall remain effective until the fifth anniversary of the Commencement Date (the "Scheduled Expiration Date"). Notwithstanding the preceding sentence, commencing with the Scheduled Expiration Date and on each anniversary of the Scheduled Expiration Date thereafter (each an "Extension Date"), the Term of Employment shall be automatically extended for an additional one-year period, unless the Company or the Executive provides the other party hereto six (6) months' prior written notice before the next Extension Date that the Term of Employment shall not be so extended. For the avoidance of doubt, the term "Term of Employment" shall include any extension that becomes applicable pursuant to the preceding sentence. 4. Duties. (a) During the Term of Employment, beginning on the Commencement Date the Executive (i) shall continue to serve as the President and Chief Executive Officer of the Company or in a position carrying an equivalent or more senior title, as reasonably determined by the Board of Directors, (ii) shall perform such duties and responsibilities as may be determined by the Board of Directors of the Company consistent with the Executive's title and position as an executive officer of the Company pursuant to the preceding clause (i), (iii) upon request of the Board of Directors of the Company, shall serve as an officer and/or director of the Company and any of its subsidiaries and (iv) shall render all services reasonably incident to the foregoing. The Executive agrees to use the Executive's best efforts in, and shall devote the Executive's full working time, attention, skill and energies to, the advancement of the interests of the Company and/or its Subsidiaries and the performance of the Executive's duties and responsibilities hereunder, except for (x) vacation time and absence for sickness or similar disability and (y) to the extent that it does not interfere with the performance of the Executive's duties hereunder, (A) such reasonable time as may be devoted to service on the boards of directors of other corporations and entities, subject to the provisions of Section 8, on which the Executive currently serves and which are disclosed on Exhibit A hereto or any other boards of directors on which the Executive may serve in the future, subject to the consent of the Company's Board of Directors (not to be unreasonably withheld), and the fulfillment of civic responsibilities and (B) such reasonable time as may necessary from time to time for personal financial matters. 3 3 (b) In performing the Executive's duties under this Agreement, the Executive shall use reasonable good faith efforts to comply with and follow all written policies, standards, rules and regulations established by the Company from time to time and shall be bound by and comply with the terms and conditions of other written agreements to which the Company is a party, or to which it may become a party during the Term of Employment, that are applicable to executive officers of the Company in their capacity as such and not in their capacity as physicians, in any case under this Section 4(b), provided Executive has knowledge of such policies, standards, rules, regulations or agreements, as the case may be. (c) During and subsequent to the Term of Employment, the Executive agrees that the Executive shall immediately notify the Company of any and all notices of claims made or threats thereof of which the Executive has knowledge arising out of the Executive's services during or prior to the Term of Employment as soon as the Executive becomes aware of this information and shall cooperate in any investigation and in the defense of any claims made or threats thereof. (d) During and subsequent to the Term of Employment, the Executive shall assign, account and pay to the Company all accounts receivable, compensation and any other form of remuneration due from or paid by any source other than the Company that is paid to the Executive and is attributable to services he has rendered in the Executive's professional capacity on behalf of the Company during the Term of Employment or sums which come into the Executive's possession which are attributable to the services of other employees of the Company on behalf of the Company. 5. Compensation. (a) During the Term of Employment, the Company shall pay the Executive as compensation for the performance of the Executive's duties under this Agreement, a salary at an annual rate of $375,000 per annum from the Commencement Date (as such base salary may be increased from time to time, the "Base Salary"). Such salary shall be subject to such increases, if any (but not decreases), as may be determined in the sole discretion of the compensation committee of the Company's Board of Directors. Executive's salary shall be subject to withholding under applicable law and shall be payable in periodic installments in accordance with the Company's usual practice for its senior executives, as in effect from time to time. (b) During the Term of Employment, the Company shall maintain an annual incentive compensation plan (the "Annual Bonus Plan") for its senior executives in which the Executive shall be entitled to participate in accordance with the terms thereof as in effect from time to time, at a level commensurate with the Executive's position and duties with the Company. During the Term of Employment, the Executive shall be eligible to receive an annual target bonus equal to 50% of the Base Salary pursuant to the Annual Bonus Plan, based upon the satisfaction of performance targets established by the Company's Board of Directors in its sole discretion. It is the Company's intention that its Board of Directors shall use its best commercial efforts to establish such performance targets during the first 120 days of each fiscal year. 4 4 (c) Upon the occurrence of the Effective Time (as defined in the Merger Agreement), the Company shall pay the Executive a cash bonus in the amount of $650,000. 6. Benefits. (a) During the Term of Employment, the Executive shall be entitled to participate in any and all pension, profit sharing, medical, dental and/or life insurance plans (collectively, the "Benefits") as may be in effect from time to time for senior executives of the Company. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) policies of the Company generally applicable to senior executives and (iii) the discretion of the Board of Directors of the Company or any administrative or other committee provided for in or contemplated by such plans, including discretion with respect to creation, maintenance and continuation of particular benefits, plans and arrangements. Notwithstanding anything to the contrary contained herein, the Executive shall at any time be entitled to at least those Benefits that are equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally. (b) The Company shall promptly reimburse the Executive for all reasonable business expenses (including business travel and entertainment expenses) incurred by the Executive during the Term of Employment in accordance with the Company's practices for senior executives of the Company, as in effect from time to time. (c) During the Term of Employment, the Executive shall be entitled to five (5) weeks paid vacation time during each calendar year the Executive is employed under this Agreement (pro-rated for the final partial calendar year of the Term of Employment). Vacation time shall be used within the calendar in which they accrue, and vacation time shall only be used at the times and intervals mutually agreed upon between Executive and the Company. The Executive shall not be entitled to any additional compensation for unused vacation days. (d) During the Term of Employment the Executive shall receive a car allowance of $500 per month and the Executive shall provide an automobile which shall be available at all times for the purpose of performing the Executive's duties under this Agreement and for carrying on the business activities of the Company. The Executive shall adequately insure such automobile and the Executive, in accordance with all applicable laws and regulations, against claims for bodily injury, death or property damage occurring as a result of the use of the automobile and all other automobiles used by the Executive in connection with the Executive's employment under this Agreement. (e) During the Term of Employment, the Company shall pay the Executive's applicable hospital medical staff fees and professional license fees as reasonably requested by the Executive. (f) During the Term of Employment, the Company shall reimburse the Executive for dues and fees for the period of membership covering such Term of Employment for any of the following professional associations which are paid by the Executive during the Executive's Term of Employment: (i) American Medical Association; (ii) Florida Medical Association; (iii) 5 5 American Society of Anesthesiologists; (iv) Florida Society of Anesthesiologists; and (v) an applicable County Medical Association. Reimbursement shall be made after Executive's presentation of an expense statement and paid receipt and any other supporting information the Company may reasonably request. 7. Termination of Employment of the Executive. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern the Executive's rights under this Agreement upon a termination of the Executive's employment with the Company and its affiliates. Notwithstanding the foregoing, the Executive shall be entitled to receive such expense reimbursement and benefits accrued under any plan, policy or program of the Company in accordance with the terms of such plan, policy or program, including, without limitation, reimbursement for reasonable business expenses incurred. During the Term of Employment, this Agreement and the Executive's employment hereunder may be terminated as follows under subparagraph (a) through (h) inclusive: (a) At any time by the mutual consent of the Executive and the Company. Upon termination pursuant to this Section 7(a), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), to the extent applicable. (b) At any time for "cause" by the Company upon written notice of termination to the Executive, which notice specifies in reasonable detail the facts and circumstances claimed to give rise to the Company's right to terminate the Executive's employment for cause; provided that, for any termination for cause to be effective, the Executive and his counsel must be permitted to attend a meeting of the Board of Directors within 30 days (and the Board may insist within 20 days) after delivery to the Executive of such notice of termination pursuant to this Section 7(b) to explain why the Executive should not be terminated for cause (a "Cause Meeting") and, following any such explanation, the Board of Directors must confirm that the Company has cause to terminate the Executive's employment; provided further that (i) if the Executive declines or fails to attend the Cause Meeting, such termination shall be effective immediately upon such declination or failure and (ii) the Company may require the Executive to cease performing further duties to the Company until the conclusion of the Cause Meeting without constituting grounds for the Executive's termination of employment pursuant to Section 7(f). For purposes of this Agreement, a termination shall be for "cause" if the Board of Directors of the Company reasonably determines that: (i) the Executive has committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or its affiliates or felony involving the business, assets or customers or clients of the Company or its affiliates or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; or (ii) the Executive has committed a material breach of any of the covenants, terms or provisions of Sections 8, 9 or 12 hereof; or 6 6 (iii) the Executive substantially has failed to perform the Executive's duties hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof (other than pursuant to Sections 8, 9, or 12), which failure or breach has not been remedied within a reasonable time specified by the Company that is not less than thirty (30) days after delivery to the Executive by the Company of written notice thereof; or (iv) the Executive has breached the Executive's obligation contained in Section 13 of this Agreement. Upon termination for cause as provided in this Section 7(b), (A) all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), to the extent applicable, and (B) the Company shall have any and all rights and remedies under this Agreement and applicable law. (c) Upon the Executive's death or upon the Executive's permanent disability (as defined below) continuing for a period of one hundred eighty (180) days. Upon termination in the event of death or permanent disability as provided in this Section 7(c), such termination will be treated as a termination by the Company without Cause and the rights and obligations of the parties shall be as set forth in Section 7(e), provided that in the case of the death of the Executive, any payments shall be made to the Executive's estate. As used herein, the term "permanent disability" or "permanently disabled" is hereby defined as the inability of the Executive, by reason of injury, illness or other similar cause, to perform a major part of the duties and responsibilities which the Executive had been performing pursuant to this Agreement prior to the date of disability in connection with the conduct of the business and affairs of the Company. (d) At any time by the Executive upon ninety (90) days' prior written notice to the Company. Upon termination by the Executive as provided in this Section 7(d), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) hereof for any previously completed fiscal year and professional liability insurance as provided in Section 10(c), to the extent applicable. (e) At any time without "cause" (as defined in Section 7(b)) by the Company upon written notice to the Executive of not less than thirty (30) days. In the event of termination of the Executive by the Company pursuant to this Section 7(e), the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, (i) pay to the Executive an amount equal to twice the Executive's Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices, (ii) continue the Executive's benefits, car allowance and reimbursements as provided in Section 6 hereof from the effective date of termination through the date that is twelve (12) months from the date of such termination, (iii) pay to the Executive the Executive's pro rata 7 7 portion (based on the number of days the Executive is employed during the applicable year as compared to 365 days) of the bonus that the Executive would have been eligible to receive pursuant to Section 5(b) hereof if he had been employed pursuant to this Agreement for the whole year based upon the Company's actual financial performance for the applicable year as measured against the performance objectives for such year, determined and calculated in accordance with the terms of the Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are generally paid to the Company's senior executives and (iv) any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year. In addition, in the event such termination of the Executive's employment by the Company without cause occurs within one year following the occurrence of a Change of Control, then, in addition to the amounts described in clauses (i), (ii), (iii) and (iv) above, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive a lump sum cash payment on the first anniversary of the date of the Executive's termination of employment in an amount equal to the excess, if any, of (A) the greater of (1) $1 million or (2) twice the sum of (x) Executive's Base Salary as in effect on the date of termination and (y) the bonus he received in respect of the year prior to the year of the Executive's termination over (B) the amounts paid pursuant to (i) above. Notwithstanding the foregoing provisions of this Section 7(e), if the Executive terminates the Executive's employment pursuant to Section 7(f) following any reduction in the Base Salary, the Base Salary amount applicable under this Section 7(e) shall be the amount in effect prior to any reduction thereof. Upon termination by the Company without cause as provided in this Section 7(e), except for the compensation and benefits expressly provided in this Section 7(e), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), if applicable. For purposes of this Agreement, "Change of Control" shall mean Change of Control as defined in the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. (f) Upon written notice by the Executive upon the continuation of any of the following (without the Executive's written consent) after written notice (the "Good Reason Notice") by the Executive to the Company describing in reasonable detail the occurrence of one or more of the following events and the failure by the Company to remedy such event(s) within thirty (30) days after receipt of the Good Reason Notice: (i) the Company has failed to pay the Executive the Base Salary (or any installment thereof) provided for in Section 5(a) or (if applicable) the annual incentive bonus, if any, payable under Section 5(b) upon such date as payment is due in accordance with Section 5(a) or (if applicable) Section 5(b), (ii) the Company fails to make available to the Executive any benefit plan or compensation plan (including any pension, profit sharing, life insurance, health, accidental death or dismemberment or disability plan) that has been made available generally to the senior executives of the Company (subject to applicable eligibility and waiting periods applicable to senior executives generally) or reduces the Benefits to which the Executive is entitled so that they are not at least equivalent in nature to those Benefits available at such time to the employees or executives of the 8 8 Company generally, provided that nothing in this Section 7(f) shall be construed to mean that the Company shall be constrained in any manner from amending or eliminating any benefit or compensation plan as such is applied to the Executive and the other senior executives of the Company generally, (iii) the principal offices of the Company are moved to a location more than 30 miles from the Company's current headquarters in Broward County in the State of Florida, or (iv) the Company has substantially failed to perform any of its obligations hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof, by a demotion in Executive's titles from those contemplated by this Agreement or by assigning to the Executive duties representing a diminution from those contemplated by this Agreement. The Executive shall have no right of termination under this Section 7(f) in the event the relevant default described in the Good Reason Notice is cured within the 30 day period following the Company's receipt of the Good Reason Notice. In the event of the Executive's termination of employment pursuant to this Section 7(f), such termination shall be treated for purposes of this Agreement as a termination by the Company without "cause" and the provisions of Section 7(e) shall apply, including if the Executive's termination of employment pursuant to this Section 7(f) occurs within the one year period following a Change of Control, the provisions of Section 7(e) concerning the rights and obligations of the parties in the event of the Executive's termination by the Company without cause following a Change of Control. (g) Upon the expiration of the Term of Employment due to the Executive's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Executive as provided in this Section 7(g), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year, the Pro-Rata Bonus for the year in which such termination occurs and professional liability insurance as provided in Section 10(c), to the extent applicable. (h) Upon the expiration of the Term of Employment due to the Company's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Company as provided in this Section 7(h), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year, the Pro-Rata Bonus for the year in which such 9 9 termination occurs, and professional liability insurance as provided in Section 10(c), to the extent applicable. In addition, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive an amount equal to twice the Executive's annual Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices. In the event of any termination of this Agreement as provided in this Section 7, the Executive shall immediately resign from, and surrender, all medical staff and other privileges ("Privileges"), at any hospital, ambulatory surgical center or other facility where the Company provides services and Executive waives any and all due claims of any kind whatsoever, including due process claims, the Executive or the Executive's estate may have against the Company and all other parties with respect to the termination of the Executive's Privileges. Unless the Company and the Executive otherwise agree in writing, continuation of the Executive's employment with the Company beyond the expiration or termination of the Term of Employment shall be deemed an employment at will and shall not be deemed to extend any of the provisions of this Agreement and the Executive's employment may thereafter be terminated at will by either the Executive or the Company. 8. Non-Competition. (a) Except as provided below, during the Term of Employment and for the Non-Competition Period, the Executive shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Executive may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the outstanding equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of the Company or any Subsidiary of the Company or any Controlled Entity, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with the Company or any Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of the Company or any Subsidiary of the Company or any Controlled Entity, and diverting to any Person any client or business opportunity of the Company, or any Subsidiary of the Company or Controlled Entity. (b) The term "Non-Competition Period" shall mean the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment or, in the event the Executive fails to commence employment with the Company as of the Commencement Date, until the first anniversary of the Commencement Date. (c) For purposes of this Section 8: 10 10 "Affiliate" shall mean, as to any Person, (i) each direct or indirect Subsidiary of such Person, (ii) each other Person of which such Person is a direct or indirect Subsidiary, and (iii) each other direct or indirect Subsidiary of such other Person. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Executive's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Controlled Entity" shall have the meaning ascribed thereto in the Merger Agreement. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of the Company or any Controlled Entity on a full or part-time basis as an independent contractor or consultant. "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, 11 11 directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. (d) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, subject to Section 4, the Executive shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of the Company. 9. Business Opportunities. The Executive agrees, while he is employed by the Company, to offer or otherwise make known or available to the Company or any subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 10. Professional Liability Insurance. During the Term of Employment, if the Executive's duties hereunder include provision of medical services, the following will apply: (a) the Company shall make all reasonable efforts to obtain (and if obtained, shall pay the cost of) adequate professional liability insurance coverage (subject to availability) at commercially reasonable rates to provide protection for the Executive and the Company for the Executive's provision of medical services while acting in the scope of the Executive's employment pursuant to the terms and conditions of this Agreement, as determined and approved by the Company's Board of Directors, in its absolute sole discretion; (b) the Company may, in its absolute discretion, cancel, modify, change, replace or substitute any professional liability insurance coverage for the Executive and/or the Company for the Executive's provision of medical services while acting in the scope of the Executive's employment pursuant to the terms and conditions of this Agreement which was obtained by the Company pursuant to its obligations under this Section 10; provided, however, that if any such cancellation, modification, change, replacement or substitution results in the reduction of the coverage limits below one million dollars ($1,000,000) per occurrence and three million dollars ($3,000,000) in the annual aggregate, then not less than ninety (90) days prior to the effectiveness of such reduction, the Company will provide written notice thereof to the Executive and, in the Executive's sole discretion, the Executive may elect not less than thirty (30) days after such notice to terminate the Term of Employment under this Agreement in accordance with Section 7(d), provided that the notice period with respect to such termination shall be reduced to sixty (60) days and the notice provided for in Section 7(d) shall (i) indicate that such termination is being effected in accordance with the provisions of this Section 10(b), and (ii) describe the cancellation, modification, change, replacement or substitution, and state that the Executive has determined in good faith that the resulting coverage constitutes inadequate liability protection for the Executive for the Executive's provision of medical services pursuant to this Agreement; 12 12 (c) upon termination of the Term of Employment under this Agreement for any reason other than in connection with the reduction of professional liability insurance coverage limits as contemplated in Section 10(b), the Company shall, at the Company's expense, continue to cover the Executive, from the date of termination through the expiration of all applicable statutes of limitation, for medical malpractice claims arising out of the Executive's employment under this Agreement by, at the Company's option and subject to availability at commercially reasonable rates: (i) continuing the continuous claims made professional liability insurance policy in effect on the last day of the Term of Employment; (ii) purchasing a replacement continuous claims made professional liability insurance policy with retroactive coverage that does not create any lapse in coverage; or, (iii) purchasing an appropriate extended reporting endorsement ("tail coverage"); (d) upon termination of the Term of Employment under this Agreement in connection with the reduction of professional liability insurance coverage limits as contemplated in Section 10(b), the Company shall reimburse the Executive in an aggregate amount of up to Ten Thousand Dollars ($10,000) for the costs of the Executive's purchase of appropriate tail coverage for medical malpractice claims arising out of the Executive's employment under this Agreement that are made during the period from the date of termination of the Term of Employment through the second anniversary of such termination, with coverage limits equal to the coverage limits of the professional liability insurance provided by the Company prior to the reduction; (e) the Executive shall immediately execute and deliver, in strict accordance with Company's instructions, all documents and instruments necessary to effectuate the provisions of this Section 10; (f) the Executive agrees to act in full accordance with the terms and conditions of any and all professional liability insurance policies; and (g) each party (i) recognizes that time is of the essence with respect to each of their obligations in this Agreement and (ii) agrees to act as soon as practicable in light of the particular circumstances and use the Executive's or its best efforts in as timely a fashion as possible to maximize the intended benefits of this Agreement. 11. Representations and Warranties of Executive/Indemnification. (a) The Executive represents and warrants to the Company (i) that the Executive (A) is able to enter into and perform all duties under this Agreement, and (B) is in good mental and, except as set forth on Exhibit B hereto, physical health and does not suffer from any illness or disability which could prevent him from fulfilling the Executive's responsibilities under this Agreement; (ii) that the Executive is not a party to or bound by any agreement, arrangement or understanding that would interfere with, hinder or conflict with the performance of the Executive's duties hereunder, and (iii) that none of the representations or warranties made by the Executive in this Agreement or in any interviews, references, resumes or curricula vitae submitted to the Company or in any insurance applications or any staff membership applications submitted to any third party in connection with this Agreement, contains or will contain any 13 13 untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements or provisions therein and in this Agreement not misleading or incomplete. (b) The Executive agrees to immediately notify the Company of any fact or circumstance of which he becomes aware during the Term of Employment, which in itself or with the passage of time and/or the combination with other reasonably anticipated factors known to the Executive does render or will render any of these representations and warranties to be untrue. (c) The Company hereby agrees that it shall indemnify and hold harmless the Executive to the fullest extent permitted by Delaware law from and against any and all liabilities, costs, claims, and expenses, including all costs and expenses incurred in defense of litigation (including attorneys' fees), arising out of the employment of the Executive with the Company. Costs and expenses incurred by the Executive in defense of such litigation (including attorneys' fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of (a) a written request, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expense for which payment is being sought, and (c) an undertaking made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under Delaware law. During the Term of Employment, the Company shall maintain in effect, at its sole expense, directors' and officers' liability insurance policies providing for coverage and reimbursement amounts and policies that are customary and appropriate for companies of similar size and nature to the Company and that cover claims (subject to customary exceptions) arising from facts or events that occur at any time during the period of the Executive's employment with the Company. 12. Confidentiality. (a) The Executive acknowledges that as a result of the Executive's employment with the Company, the Executive has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Executive, is the Company's exclusive property to be held by the Executive in trust and solely for the Company's benefit. Accordingly, except as required by law, by an order of a court having jurisdiction or under subpoena from a government agency, the Executive shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to officers and employees of the Company and other persons who are in a contractual or fiduciary relationship with the Company and except for information which is or becomes of general public knowledge from sources other than the Executive. 14 14 (b) Upon the termination of this Agreement, the Executive shall promptly deliver to the Company all Company property and possessions including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's business which are in the Executive's possession or control. 13. Substance Abuse Policy. It is the Company's policy that none of its employees shall use or abuse any controlled substances at any time or be under the influence of alcohol or be affected by the use of alcohol during the time period required to perform their duties and obligations under any employment agreements. Company and the Executive both acknowledge and agree that the purpose of this policy is for the benefit of the Company, the Executive and the individuals whom they serve. In compliance with this policy, the Executive agrees to submit to random drug testing immediately upon the Company's request in accordance with practices and policies in effect from time to time for physician employees of the Company. Testing may include, but shall not be limited to, the taking of blood and urine samples and utilization of gas chromatography. Unless otherwise provided in the practices and policies in effect from time to time for physician employees of the Company, in the event that a positive test result is reached indicating a violation of the Company's policy, the Executive may, at the Executive's own expense and subject to the supervision and approval of the Company of the manner and testing facilities utilized, elect to have a second drug test performed on a second portion of the same sample. The Company may, in its sole and absolute discretion, terminate the Executive for cause pursuant to Section 7(b) of this Agreement in the event either: (a) a positive test result is received in the initial drug test and the Executive fails to exercise the Executive's option for a second test in the manner provided for in this Section 13 or in accordance with practices and policies in effect from time to time for physician employees of the Company; or (b) positive test results are received from both tests. In the event that the second test result is negative, the Company may, at any time, retest the Executive pursuant to the terms of this Section 13 and the practices and policies in effect from time to time for physician employees of the Company. 14. Specific Performance; Severability. It is specifically understood and agreed that any breach of the provisions of Sections 8, 9 and 12 hereof and the obligations referred to and incorporated therein by the Executive is likely to result in irreparable injury to the Company, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive through both temporary and permanent injunctive relief, and through any other appropriate equitable relief, without the necessity of showing or proving actual damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, including without limitation geographic scope, duration or functional coverage, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. 15 15 15. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 200 Hollywood, FL 33021 Attn: General Counsel (954) 964-2611 Fax: (954) 987-8359 With copies to: Vestar Capital Partners III, L.P. Att: Robert L. Rosner 245 Park Avenue 41st Floor New York, NY 10167 (212) 351-1600 Fax: (212) 808-4922 and, Brian D. Robbins, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 (212) 455-2000 Fax: (212) 455-2502 To the Executive: Mitchell Eisenberg 3321 SW 58th Street Fort Lauderdale, FL 33312 (954) 961-8254 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 16. Miscellaneous. This Agreement shall be governed by and construed under the laws and solely in the courts of the State of Florida without regard to the conflicts of law provisions thereof, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by each of the parties hereto. The failure of any of the parties to 16 16 require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, shall be binding upon the heirs, executors, administrators and legal representatives of the Executive and may not be assigned by the Executive. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof including, without limitation, the Prior Agreements. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to applicable law or regulation. 17. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT. 17 17 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. SHERIDAN HEALTHCARE, INC. By: /s/ Jay A. Martus ----------------------------------- JAY A. MARTUS Vice President EXECUTIVE: /s/ Mitchell Eisenberg ---------------------------------------- MITCHELL EISENBERG EX-99.C.3 5 EMPLOYMENT AGREEMENT WITH LEWIS GOLD 1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"), between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and Lewis Gold (the "Executive"). PRELIMINARY STATEMENTS WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"), Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Acquisition will merge into the Company (the "Merger"), with the Company constituting the surviving corporation; WHEREAS, Acquisition and the Company desire that, effective upon the purchase by Acquisition of shares of the Company's common stock pursuant to the Offer (as defined in the Merger Agreement), the Company employ the Executive and enter into an agreement embodying the terms of such employment and the Executive desires to accept such employment with the Company and enter into such an agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: AGREEMENT 1. Effectiveness of Agreement/Prior Agreements. (a) Notwithstanding any other provision of this Agreement, this Agreement shall constitute a binding obligation of the parties hereto as of the date hereof but shall become effective only upon the date of Acquisition's purchase of shares of the Company's common stock pursuant to the Offer (such date being hereinafter referred to as the "Commencement Date"); provided, however, that for this Agreement to continue to be effective after the ninetieth day following the Merger, Holdings shall, within ninety (90) days following the Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If the Shareholder Approval is not obtained or the Merger Agreement is terminated for any reason without shares of the Company's common stock being purchased pursuant to the Offer, this Agreement shall, at such time, be terminated without further obligation or liability of either party. (b) Effective as of the Commencement Date, this Agreement shall supercede all prior agreements and understandings (including verbal agreements) between the Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and its affiliates including, without limitation, the Executive Employment Agreement dated as of December 1, 1994 with the Company (f/k/a SAMA Holdings, Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management Associates), as amended 2 2 (the "Prior Employment Agreement" and together with such other prior agreements and understandings, collectively, the "Prior Agreements"); provided that this Agreement shall not supercede the Executive's rights to expense reimbursement or benefits under the Company's employee benefits plans, programs and arrangements. It is expressly agreed that from and after the Commencement Date the Company and its affiliates shall have no further obligations under, and the Executive shall have no further rights under, the Prior Employment Agreement including, without limitation, any severance, termination, or change of control related benefits. 2. Employment. Subject to the provisions of this Agreement, the Company shall employ the Executive, and the Executive agrees that he will be so employed, upon the terms and conditions hereinafter set forth. 3. Term of Employment. Subject to the provisions of this Agreement, unless earlier terminated pursuant to Section 7, the term of Executive's employment pursuant to this Agreement (the "Term of Employment") shall remain effective until the fifth anniversary of the Commencement Date (the "Scheduled Expiration Date"). Notwithstanding the preceding sentence, commencing with the Scheduled Expiration Date and on each anniversary of the Scheduled Expiration Date thereafter (each an "Extension Date"), the Term of Employment shall be automatically extended for an additional one-year period, unless the Company or the Executive provides the other party hereto six (6) months' prior written notice before the next Extension Date that the Term of Employment shall not be so extended. For the avoidance of doubt, the term "Term of Employment" shall include any extension that becomes applicable pursuant to the preceding sentence. 4. Duties. (a) During the Term of Employment, beginning on the Commencement Date the Executive (i) shall continue to serve as the Executive Vice President of the Company or in a position carrying an equivalent or more senior title, as reasonably determined by the Board of Directors, (ii) shall perform such duties and responsibilities as may be determined by the Board of Directors of the Company consistent with the Executive's title and position as an executive officer of the Company pursuant to the preceding clause (i), (iii) upon request of the Board of Directors of the Company, shall serve as an officer and/or director of the Company and any of its subsidiaries and (iv) shall render all services reasonably incident to the foregoing. The Executive agrees to use the Executive's best efforts in, and shall devote the Executive's full working time, attention, skill and energies to, the advancement of the interests of the Company and/or its Subsidiaries and the performance of the Executive's duties and responsibilities hereunder, except for (x) vacation time and absence for sickness or similar disability and (y) to the extent that it does not interfere with the performance of the Executive's duties hereunder, (A) such reasonable time as may be devoted to service on the boards of directors of other corporations and entities, subject to the provisions of Section 8, on which the Executive currently serves and which are disclosed on Exhibit A hereto or any other boards of directors on which the Executive may serve in the future, subject to the consent of the Company's Board of Directors (not to be unreasonably withheld), and the fulfillment of civic responsibilities and (B) such reasonable time as may necessary from time to time for personal financial matters. 3 3 (b) In performing the Executive's duties under this Agreement, the Executive shall use reasonable good faith efforts to comply with and follow all written policies, standards, rules and regulations established by the Company from time to time and shall be bound by and comply with the terms and conditions of other written agreements to which the Company is a party, or to which it may become a party during the Term of Employment, that are applicable to executive officers of the Company in their capacity as such and not in their capacity as physicians, in any case under this Section 4(b), provided Executive has knowledge of such policies, standards, rules, regulations or agreements, as the case may be. (c) During and subsequent to the Term of Employment, the Executive agrees that the Executive shall immediately notify the Company of any and all notices of claims made or threats thereof of which the Executive has knowledge arising out of the Executive's services during or prior to the Term of Employment as soon as the Executive becomes aware of this information and shall cooperate in any investigation and in the defense of any claims made or threats thereof. (d) During and subsequent to the Term of Employment, the Executive shall assign, account and pay to the Company all accounts receivable, compensation and any other form of remuneration due from or paid by any source other than the Company that is paid to the Executive and is attributable to services he has rendered in the Executive's professional capacity on behalf of the Company during the Term of Employment or sums which come into the Executive's possession which are attributable to the services of other employees of the Company on behalf of the Company. 5. Compensation. (a) During the Term of Employment, the Company shall pay the Executive as compensation for the performance of the Executive's duties under this Agreement, a salary at an annual rate of $350,000 per annum from the Commencement Date (as such base salary may be increased from time to time, the "Base Salary"). Such salary shall be subject to such increases, if any (but not decreases), as may be determined in the sole discretion of the compensation committee of the Company's Board of Directors. Executive's salary shall be subject to withholding under applicable law and shall be payable in periodic installments in accordance with the Company's usual practice for its senior executives, as in effect from time to time. (b) During the Term of Employment, the Company shall maintain an annual incentive compensation plan (the "Annual Bonus Plan") for its senior executives in which the Executive shall be entitled to participate in accordance with the terms thereof as in effect from time to time, at a level commensurate with the Executive's position and duties with the Company. During the Term of Employment, the Executive shall be eligible to receive an annual target bonus equal to 50% of the Base Salary pursuant to the Annual Bonus Plan, based upon the satisfaction of performance targets established by the Company's Board of Directors in its sole discretion. It is the Company's intention that its Board of Directors shall use its best commercial efforts to establish such performance targets during the first 120 days of each fiscal year. 4 4 (c) Upon the occurrence of the Effective Time (as defined in the Merger Agreement), the Company shall pay the Executive a cash bonus in the amount of $600,000. 6. Benefits. (a) During the Term of Employment, the Executive shall be entitled to participate in any and all pension, profit sharing, medical, dental and/or life insurance plans (collectively, the "Benefits") as may be in effect from time to time for senior executives of the Company. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) policies of the Company generally applicable to senior executives and (iii) the discretion of the Board of Directors of the Company or any administrative or other committee provided for in or contemplated by such plans, including discretion with respect to creation, maintenance and continuation of particular benefits, plans and arrangements. Notwithstanding anything to the contrary contained herein, the Executive shall at any time be entitled to at least those Benefits that are equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally. (b) The Company shall promptly reimburse the Executive for all reasonable business expenses (including business travel and entertainment expenses) incurred by the Executive during the Term of Employment in accordance with the Company's practices for senior executives of the Company, as in effect from time to time. (c) During the Term of Employment, the Executive shall be entitled to five (5) weeks paid vacation time during each calendar year the Executive is employed under this Agreement (pro-rated for the final partial calendar year of the Term of Employment). Vacation time shall be used within the calendar in which they accrue, and vacation time shall only be used at the times and intervals mutually agreed upon between Executive and the Company. The Executive shall not be entitled to any additional compensation for unused vacation days. (d) During the Term of Employment the Executive shall receive a car allowance of $500 per month and the Executive shall provide an automobile which shall be available at all times for the purpose of performing the Executive's duties under this Agreement and for carrying on the business activities of the Company. The Executive shall adequately insure such automobile and the Executive, in accordance with all applicable laws and regulations, against claims for bodily injury, death or property damage occurring as a result of the use of the automobile and all other automobiles used by the Executive in connection with the Executive's employment under this Agreement. (e) During the Term of Employment, the Company shall pay the Executive's applicable hospital medical staff fees and professional license fees as reasonably requested by the Executive. (f) During the Term of Employment, the Company shall reimburse the Executive for dues and fees for the period of membership covering such Term of Employment for any of the following professional associations which are paid by the Executive during the Executive's Term of Employment: (i) American Medical Association; (ii) Florida Medical Association; (iii) 5 5 American Society of Anesthesiologists; (iv) Florida Society of Anesthesiologists; and (v) an applicable County Medical Association. Reimbursement shall be made after Executive's presentation of an expense statement and paid receipt and any other supporting information the Company may reasonably request. 7. Termination of Employment of the Executive. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern the Executive's rights under this Agreement upon a termination of the Executive's employment with the Company and its affiliates. Notwithstanding the foregoing, the Executive shall be entitled to receive such expense reimbursement and benefits accrued under any plan, policy or program of the Company in accordance with the terms of such plan, policy or program, including, without limitation, reimbursement for reasonable business expenses incurred. During the Term of Employment, this Agreement and the Executive's employment hereunder may be terminated as follows under subparagraph (a) through (h) inclusive: (a) At any time by the mutual consent of the Executive and the Company. Upon termination pursuant to this Section 7(a), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), to the extent applicable. (b) At any time for "cause" by the Company upon written notice of termination to the Executive, which notice specifies in reasonable detail the facts and circumstances claimed to give rise to the Company's right to terminate the Executive's employment for cause; provided that, for any termination for cause to be effective, the Executive and his counsel must be permitted to attend a meeting of the Board of Directors within 30 days (and the Board may insist within 20 days) after delivery to the Executive of such notice of termination pursuant to this Section 7(b) to explain why the Executive should not be terminated for cause (a "Cause Meeting") and, following any such explanation, the Board of Directors must confirm that the Company has cause to terminate the Executive's employment; provided further that (i) if the Executive declines or fails to attend the Cause Meeting, such termination shall be effective immediately upon such declination or failure and (ii) the Company may require the Executive to cease performing further duties to the Company until the conclusion of the Cause Meeting without constituting grounds for the Executive's termination of employment pursuant to Section 7(f). For purposes of this Agreement, a termination shall be for "cause" if the Board of Directors of the Company reasonably determines that: (i) the Executive has committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or its affiliates or felony involving the business, assets or customers or clients of the Company or its affiliates or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; or (ii) the Executive has committed a material breach of any of the covenants, terms or provisions of Sections 8, 9 or 12 hereof; or 6 6 (iii) the Executive substantially has failed to perform the Executive's duties hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof (other than pursuant to Sections 8, 9, or 12), which failure or breach has not been remedied within a reasonable time specified by the Company that is not less than thirty (30) days after delivery to the Executive by the Company of written notice thereof; or (iv) the Executive has breached the Executive's obligation contained in Section 13 of this Agreement. Upon termination for cause as provided in this Section 7(b), (A) all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), to the extent applicable, and (B) the Company shall have any and all rights and remedies under this Agreement and applicable law. (c) Upon the Executive's death or upon the Executive's permanent disability (as defined below) continuing for a period of one hundred eighty (180) days. Upon termination in the event of death or permanent disability as provided in this Section 7(c), such termination will be treated as a termination by the Company without Cause and the rights and obligations of the parties shall be as set forth in Section 7(e), provided that in the case of the death of the Executive, any payments shall be made to the Executive's estate. As used herein, the term "permanent disability" or "permanently disabled" is hereby defined as the inability of the Executive, by reason of injury, illness or other similar cause, to perform a major part of the duties and responsibilities which the Executive had been performing pursuant to this Agreement prior to the date of disability in connection with the conduct of the business and affairs of the Company. (d) At any time by the Executive upon ninety (90) days' prior written notice to the Company. Upon termination by the Executive as provided in this Section 7(d), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) hereof for any previously completed fiscal year and professional liability insurance as provided in Section 10(c), to the extent applicable. (e) At any time without "cause" (as defined in Section 7(b)) by the Company upon written notice to the Executive of not less than thirty (30) days. In the event of termination of the Executive by the Company pursuant to this Section 7(e), the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, (i) pay to the Executive an amount equal to twice the Executive's Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices, (ii) continue the Executive's benefits, car allowance and reimbursements as provided in Section 6 hereof from the effective date of termination through the date that is twelve (12) months from the date of such termination, (iii) pay to the Executive the Executive's pro rata 7 7 portion (based on the number of days the Executive is employed during the applicable year as compared to 365 days) of the bonus that the Executive would have been eligible to receive pursuant to Section 5(b) hereof if he had been employed pursuant to this Agreement for the whole year based upon the Company's actual financial performance for the applicable year as measured against the performance objectives for such year, determined and calculated in accordance with the terms of the Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are generally paid to the Company's senior executives and (iv) any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year. In addition, in the event such termination of the Executive's employment by the Company without cause occurs within one year following the occurrence of a Change of Control, then, in addition to the amounts described in clauses (i), (ii), (iii) and (iv) above, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive a lump sum cash payment on the first anniversary of the date of the Executive's termination of employment in an amount equal to the excess, if any, of (A) the greater of (1) $1 million or (2) twice the sum of (x) Executive's Base Salary as in effect on the date of termination and (y) the bonus he received in respect of the year prior to the year of the Executive's termination over (B) the amounts paid pursuant to (i) above. Notwithstanding the foregoing provisions of this Section 7(e), if the Executive terminates the Executive's employment pursuant to Section 7(f) following any reduction in the Base Salary, the Base Salary amount applicable under this Section 7(e) shall be the amount in effect prior to any reduction thereof. Upon termination by the Company without cause as provided in this Section 7(e), except for the compensation and benefits expressly provided in this Section 7(e), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary and professional liability insurance as provided in Section 10(c), if applicable. For purposes of this Agreement, "Change of Control" shall mean Change of Control as defined in the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. (f) Upon written notice by the Executive upon the continuation of any of the following (without the Executive's written consent) after written notice (the "Good Reason Notice") by the Executive to the Company describing in reasonable detail the occurrence of one or more of the following events and the failure by the Company to remedy such event(s) within thirty (30) days after receipt of the Good Reason Notice: (i) the Company has failed to pay the Executive the Base Salary (or any installment thereof) provided for in Section 5(a) or (if applicable) the annual incentive bonus, if any, payable under Section 5(b) upon such date as payment is due in accordance with Section 5(a) or (if applicable) Section 5(b), (ii) the Company fails to make available to the Executive any benefit plan or compensation plan (including any pension, profit sharing, life insurance, health, accidental death or dismemberment or disability plan) that has been made available generally to the senior executives of the Company (subject to applicable eligibility and waiting periods applicable to senior executives generally) or reduces the Benefits to which the Executive is entitled so that they are not at least equivalent in nature to those Benefits available at such time to the employees or executives of the 8 8 Company generally, provided that nothing in this Section 7(f) shall be construed to mean that the Company shall be constrained in any manner from amending or eliminating any benefit or compensation plan as such is applied to the Executive and the other senior executives of the Company generally, (iii) the principal offices of the Company are moved to a location more than 30 miles from the Company's current headquarters in Broward County in the State of Florida, or (iv) the Company has substantially failed to perform any of its obligations hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof, by a demotion in Executive's titles from those contemplated by this Agreement or by assigning to the Executive duties representing a diminution from those contemplated by this Agreement. The Executive shall have no right of termination under this Section 7(f) in the event the relevant default described in the Good Reason Notice is cured within the 30 day period following the Company's receipt of the Good Reason Notice. In the event of the Executive's termination of employment pursuant to this Section 7(f), such termination shall be treated for purposes of this Agreement as a termination by the Company without "cause" and the provisions of Section 7(e) shall apply, including if the Executive's termination of employment pursuant to this Section 7(f) occurs within the one year period following a Change in Control, the provisions of Section 7(e) concerning the rights and obligations of the parties in the event of the Executive's termination by the Company without cause following a Change of Control. (g) Upon the expiration of the Term of Employment due to the Executive's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Executive as provided in this Section 7(g), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year, the Pro-Rata Bonus for the year in which such termination occurs and professional liability insurance as provided in Section 10(c), to the extent applicable. (h) Upon the expiration of the Term of Employment due to the Company's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Company as provided in this Section 7(h), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year, the Pro-Rata Bonus for the year in which such 9 9 termination occurs, and professional liability insurance as provided in Section 10(c), to the extent applicable. In addition, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive an amount equal to twice the Executive's annual Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices. In the event of any termination of this Agreement as provided in this Section 7, the Executive shall immediately resign from, and surrender, all medical staff and other privileges ("Privileges"), at any hospital, ambulatory surgical center or other facility where the Company provides services and Executive waives any and all due claims of any kind whatsoever, including due process claims, the Executive or the Executive's estate may have against the Company and all other parties with respect to the termination of the Executive's Privileges. Unless the Company and the Executive otherwise agree in writing, continuation of the Executive's employment with the Company beyond the expiration or termination of the Term of Employment shall be deemed an employment at will and shall not be deemed to extend any of the provisions of this Agreement and the Executive's employment may thereafter be terminated at will by either the Executive or the Company. 8. Non-Competition. (a) Except as provided below, during the Term of Employment and for the Non-Competition Period, the Executive shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Executive may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the outstanding equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of the Company or any Subsidiary of the Company or any Controlled Entity, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with the Company or any Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of the Company or any Subsidiary of the Company or any Controlled Entity, and diverting to any Person any client or business opportunity of the Company, or any Subsidiary of the Company or Controlled Entity. (b) The term "Non-Competition Period" shall mean the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment or, in the event the Executive fails to commence employment with the Company as of the Commencement Date, until the first anniversary of the Commencement Date. (c) For purposes of this Section 8: 10 10 "Affiliate" shall mean, as to any Person, (i) each direct or indirect Subsidiary of such Person, (ii) each other Person of which such Person is a direct or indirect Subsidiary, and (iii) each other direct or indirect Subsidiary of such other Person. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Executive's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Controlled Entity" shall have the meaning ascribed thereto in the Merger Agreement. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of the Company or any Controlled Entity on a full or part-time basis as an independent contractor or consultant. "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, 11 11 directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. (d) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, subject to Section 4, the Executive shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of the Company. 9. Business Opportunities. The Executive agrees, while he is employed by the Company, to offer or otherwise make known or available to the Company or any subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 10. Professional Liability Insurance. During the Term of Employment, if the Executive's duties hereunder include provision of medical services, the following will apply: (a) the Company shall make all reasonable efforts to obtain (and if obtained, shall pay the cost of) adequate professional liability insurance coverage (subject to availability) at commercially reasonable rates to provide protection for the Executive and the Company for the Executive's provision of medical services while acting in the scope of the Executive's employment pursuant to the terms and conditions of this Agreement, as determined and approved by the Company's Board of Directors, in its absolute sole discretion; (b) the Company may, in its absolute discretion, cancel, modify, change, replace or substitute any professional liability insurance coverage for the Executive and/or the Company for the Executive's provision of medical services while acting in the scope of the Executive's employment pursuant to the terms and conditions of this Agreement which was obtained by the Company pursuant to its obligations under this Section 10; provided, however, that if any such cancellation, modification, change, replacement or substitution results in the reduction of the coverage limits below one million dollars ($1,000,000) per occurrence and three million dollars ($3,000,000) in the annual aggregate, then not less than ninety (90) days prior to the effectiveness of such reduction, the Company will provide written notice thereof to the Executive and, in the Executive's sole discretion, the Executive may elect not less than thirty (30) days after such notice to terminate the Term of Employment under this Agreement in accordance with Section 7(d), provided that the notice period with respect to such termination shall be reduced to sixty (60) days and the notice provided for in Section 7(d) shall (i) indicate that such termination is being effected in accordance with the provisions of this Section 10(b), and (ii) describe the cancellation, modification, change, replacement or substitution, and state that the Executive has determined in good faith that the resulting coverage constitutes inadequate liability protection for the Executive for the Executive's provision of medical services pursuant to this Agreement; 12 12 (c) upon termination of the Term of Employment under this Agreement for any reason other than in connection with the reduction of professional liability insurance coverage limits as contemplated in Section 10(b), the Company shall, at the Company's expense, continue to cover the Executive, from the date of termination through the expiration of all applicable statutes of limitation, for medical malpractice claims arising out of the Executive's employment under this Agreement by, at the Company's option and subject to availability at commercially reasonable rates: (i) continuing the continuous claims made professional liability insurance policy in effect on the last day of the Term of Employment; (ii) purchasing a replacement continuous claims made professional liability insurance policy with retroactive coverage that does not create any lapse in coverage; or, (iii) purchasing an appropriate extended reporting endorsement ("tail coverage"); (d) upon termination of the Term of Employment under this Agreement in connection with the reduction of professional liability insurance coverage limits as contemplated in Section 10(b), the Company shall reimburse the Executive in an aggregate amount of up to Ten Thousand Dollars ($10,000) for the costs of the Executive's purchase of appropriate tail coverage for medical malpractice claims arising out of the Executive's employment under this Agreement that are made during the period from the date of termination of the Term of Employment through the second anniversary of such termination, with coverage limits equal to the coverage limits of the professional liability insurance provided by the Company prior to the reduction; (e) the Executive shall immediately execute and deliver, in strict accordance with Company's instructions, all documents and instruments necessary to effectuate the provisions of this Section 10; (f) the Executive agrees to act in full accordance with the terms and conditions of any and all professional liability insurance policies; and (g) each party (i) recognizes that time is of the essence with respect to each of their obligations in this Agreement and (ii) agrees to act as soon as practicable in light of the particular circumstances and use the Executive's or its best efforts in as timely a fashion as possible to maximize the intended benefits of this Agreement. 11. Representations and Warranties of Executive/Indemnification. (a) The Executive represents and warrants to the Company (i) that the Executive (A) is able to enter into and perform all duties under this Agreement, and (B) is in good mental and, except as set forth on Exhibit B hereto, physical health and does not suffer from any illness or disability which could prevent him from fulfilling the Executive's responsibilities under this Agreement; (ii) that the Executive is not a party to or bound by any agreement, arrangement or understanding that would interfere with, hinder or conflict with the performance of the Executive's duties hereunder, and (iii) that none of the representations or warranties made by the Executive in this Agreement or in any interviews, references, resumes or curricula vitae submitted to the Company or in any insurance applications or any staff membership applications submitted to any third party in connection with this Agreement, contains or will contain any 13 13 untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements or provisions therein and in this Agreement not misleading or incomplete. (b) The Executive agrees to immediately notify the Company of any fact or circumstance of which he becomes aware during the Term of Employment, which in itself or with the passage of time and/or the combination with other reasonably anticipated factors known to the Executive does render or will render any of these representations and warranties to be untrue. (c) The Company hereby agrees that it shall indemnify and hold harmless the Executive to the fullest extent permitted by Delaware law from and against any and all liabilities, costs, claims, and expenses, including all costs and expenses incurred in defense of litigation (including attorneys' fees), arising out of the employment of the Executive with the Company. Costs and expenses incurred by the Executive in defense of such litigation (including attorneys' fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of (a) a written request, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expense for which payment is being sought, and (c) an undertaking made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under Delaware law. During the Term of Employment, the Company shall maintain in effect, at its sole expense, directors' and officers' liability insurance policies providing for coverage and reimbursement amounts and policies that are customary and appropriate for companies of similar size and nature to the Company and that cover claims (subject to customary exceptions) arising from facts or events that occur at any time during the period of the Executive's employment with the Company. 12. Confidentiality. (a) The Executive acknowledges that as a result of the Executive's employment with the Company, the Executive has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Executive, is the Company's exclusive property to be held by the Executive in trust and solely for the Company's benefit. Accordingly, except as required by law, by an order of a court having jurisdiction or under subpoena from a government agency, the Executive shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to officers and employees of the Company and other persons who are in a contractual or fiduciary relationship with the Company and except for information which is or becomes of general public knowledge from sources other than the Executive. 14 14 (b) Upon the termination of this Agreement, the Executive shall promptly deliver to the Company all Company property and possessions including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's business which are in the Executive's possession or control. 13. Substance Abuse Policy. It is the Company's policy that none of its employees shall use or abuse any controlled substances at any time or be under the influence of alcohol or be affected by the use of alcohol during the time period required to perform their duties and obligations under any employment agreements. Company and the Executive both acknowledge and agree that the purpose of this policy is for the benefit of the Company, the Executive and the individuals whom they serve. In compliance with this policy, the Executive agrees to submit to random drug testing immediately upon the Company's request in accordance with practices and policies in effect from time to time for physician employees of the Company. Testing may include, but shall not be limited to, the taking of blood and urine samples and utilization of gas chromatography. Unless otherwise provided in the practices and policies in effect from time to time for physician employees of the Company, in the event that a positive test result is reached indicating a violation of the Company's policy, the Executive may, at the Executive's own expense and subject to the supervision and approval of the Company of the manner and testing facilities utilized, elect to have a second drug test performed on a second portion of the same sample. The Company may, in its sole and absolute discretion, terminate the Executive for cause pursuant to Section 7(b) of this Agreement in the event either: (a) a positive test result is received in the initial drug test and the Executive fails to exercise the Executive's option for a second test in the manner provided for in this Section 13 or in accordance with practices and policies in effect from time to time for physician employees of the Company; or (b) positive test results are received from both tests. In the event that the second test result is negative, the Company may, at any time, retest the Executive pursuant to the terms of this Section 13 and the practices and policies in effect from time to time for physician employees of the Company. 14. Specific Performance; Severability. It is specifically understood and agreed that any breach of the provisions of Sections 8, 9 and 12 hereof and the obligations referred to and incorporated therein by the Executive is likely to result in irreparable injury to the Company, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive through both temporary and permanent injunctive relief, and through any other appropriate equitable relief, without the necessity of showing or proving actual damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, including without limitation geographic scope, duration or functional coverage, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. 15 15 15. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 200 Hollywood, FL 33021 Attn: General Counsel (954) 964-2611 Fax: (954) 987-8359 With copies to: Vestar Capital Partners III, L.P. Att: Robert L. Rosner 245 Park Avenue 41st Floor New York, NY 10167 (212) 351-1600 Fax: (212) 808-4922 and, Brian D. Robbins, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 (212) 455-2000 Fax: (212) 455-2502 To the Executive: Lewis Gold 2512 Princeton Court Weston, FL 33327 (954) 349-0844 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 16. Miscellaneous. This Agreement shall be governed by and construed under the laws and solely in the courts of the State of Florida without regard to the conflicts of law provisions thereof, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by each of the parties hereto. The failure of any of the parties to 16 16 require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, shall be binding upon the heirs, executors, administrators and legal representatives of the Executive and may not be assigned by the Executive. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof including, without limitation, the Prior Agreements. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to applicable law or regulation. 17. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT. 17 17 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg ------------------------- EXECUTIVE: /s/ Lewis Gold ------------------------- LEWIS GOLD EX-99.C.4 6 EMPLOYMENT AGREEMENT WITH MICHAEL SCHUNDLER 1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"), between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and Michael F. Schundler (the "Executive"). PRELIMINARY STATEMENTS WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"), Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Acquisition will merge into the Company (the "Merger"), with the Company constituting the surviving corporation; WHEREAS, Acquisition and the Company desire that, effective upon the purchase by Acquisition of shares of the Company's common stock pursuant to the Offer (as defined in the Merger Agreement), the Company employ the Executive and enter into an agreement embodying the terms of such employment and the Executive desires to accept such employment with the Company and enter into such an agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: AGREEMENT 1. Effectiveness of Agreement/Prior Agreements. (a) Notwithstanding any other provision of this Agreement, this Agreement shall constitute a binding obligation of the parties hereto as of the date hereof but shall become effective only upon the date of Acquisition's purchase of shares of the Company's common stock pursuant to the Offer (such date being hereinafter referred to as the "Commencement Date"); provided, however, that for this Agreement to continue to be effective after the ninetieth day following the Merger, Holdings shall, within ninety (90) days following the Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If the Shareholder Approval is not obtained or the Merger Agreement is terminated for any reason without shares of the Company's common stock being purchased pursuant to the Offer, this Agreement shall, at such time, be terminated without further obligation or liability of either party. (b) Effective as of the Commencement Date, this Agreement shall supercede all prior agreements and understandings (including verbal agreements) between the Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and its affiliates including, without limitation, the Executive Employment Agreement dated as of August 9, 1996 with the Company (f/k/a SAMA Holdings, Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management Associates), as amended 2 2 (the "Prior Employment Agreement" and together with such other prior agreements and understandings, collectively, the "Prior Agreements"); provided that this Agreement shall not supercede the Executive's rights to expense reimbursement or benefits under the Company's employee benefits plans, programs and arrangements. It is expressly agreed that from and after the Commencement Date the Company and its affiliates shall have no further obligations under, and the Executive shall have no further rights under, the Prior Employment Agreement including, without limitation, any severance, termination, or change of control related benefits. 2. Employment. Subject to the provisions of this Agreement, the Company shall employ the Executive, and the Executive agrees that he will be so employed, upon the terms and conditions hereinafter set forth. 3. Term of Employment. Subject to the provisions of this Agreement, unless earlier terminated pursuant to Section 7, the term of Executive's employment pursuant to this Agreement (the "Term of Employment") shall remain effective until the fifth anniversary of the Commencement Date (the "Scheduled Expiration Date"). Notwithstanding the preceding sentence, commencing with the Scheduled Expiration Date and on each anniversary of the Scheduled Expiration Date thereafter (each an "Extension Date"), the Term of Employment shall be automatically extended for an additional one-year period, unless the Company or the Executive provides the other party hereto six (6) months' prior written notice before the next Extension Date that the Term of Employment shall not be so extended. For the avoidance of doubt, the term "Term of Employment" shall include any extension that becomes applicable pursuant to the preceding sentence. 4. Duties. (a) During the Term of Employment, beginning on the Commencement Date the Executive (i) shall continue to serve as the Chief Operating Officer and Chief Financial Officer of the Company or in a position carrying an equivalent or more senior title, as reasonably determined by the Board of Directors, (ii) shall perform such duties and responsibilities as may be determined by the Board of Directors of the Company consistent with the Executive's title and position as an executive officer of the Company pursuant to the preceding clause (i), (iii) upon request of the Board of Directors of the Company, shall serve as an officer and/or director of the Company and any of its subsidiaries and (iv) shall render all services reasonably incident to the foregoing. The Executive agrees to use the Executive's best efforts in, and shall devote the Executive's full working time, attention, skill and energies to, the advancement of the interests of the Company and/or its Subsidiaries and the performance of the Executive's duties and responsibilities hereunder, except for (x) vacation time and absence for sickness or similar disability and (y) to the extent that it does not interfere with the performance of the Executive's duties hereunder, (A) such reasonable time as may be devoted to service on the boards of directors of other corporations and entities, subject to the provisions of Section 8, on which the Executive currently serves and which are disclosed on Exhibit A hereto or any other boards of directors on which the Executive may serve in the future, subject to the consent of the Company's Board of Directors (not to be unreasonably withheld), and the fulfillment of civic responsibilities and (B) such reasonable time as may necessary from time to time for personal financial matters. 3 3 (b) In performing the Executive's duties under this Agreement, the Executive shall use reasonable good faith efforts to comply with and follow all written policies, standards, rules and regulations established by the Company from time to time and shall be bound by and comply with the terms and conditions of other written agreements to which the Company is a party, or to which it may become a party during the Term of Employment, that are applicable to executive officers of the Company in their capacity as such and not in their capacity as physicians, in any case under this Section 4(b), provided Executive has knowledge of such policies, standards, rules, regulations or agreements, as the case may be. (c) During and subsequent to the Term of Employment, the Executive agrees that the Executive shall immediately notify the Company of any and all notices of claims made or threats thereof of which the Executive has knowledge arising out of the Executive's services during or prior to the Term of Employment as soon as the Executive becomes aware of this information and shall cooperate in any investigation and in the defense of any claims made or threats thereof. (d) During and subsequent to the Term of Employment, the Executive shall assign, account and pay to the Company all accounts receivable, compensation and any other form of remuneration due from or paid by any source other than the Company that is paid to the Executive and is attributable to services he has rendered in the Executive's professional capacity on behalf of the Company during the Term of Employment or sums which come into the Executive's possession which are attributable to the services of other employees of the Company on behalf of the Company. 5. Compensation. (a) During the Term of Employment, the Company shall pay the Executive as compensation for the performance of the Executive's duties under this Agreement, a salary at an annual rate of $275,000 per annum from the Commencement Date (as such base salary may be increased from time to time, the "Base Salary"). Such salary shall be subject to such increases, if any (but not decreases), as may be determined in the sole discretion of the compensation committee of the Company's Board of Directors. Executive's salary shall be subject to withholding under applicable law and shall be payable in periodic installments in accordance with the Company's usual practice for its senior executives, as in effect from time to time. (b) During the Term of Employment, the Company shall maintain an annual incentive compensation plan (the "Annual Bonus Plan") for its senior executives in which the Executive shall be entitled to participate in accordance with the terms thereof as in effect from time to time, at a level commensurate with the Executive's position and duties with the Company. During the Term of Employment, the Executive shall be eligible to receive an annual target bonus equal to 25% of the Base Salary pursuant to the Annual Bonus Plan, based upon the satisfaction of performance targets established by the Company's Board of Directors in its sole discretion. It is the Company's intention that its Board of Directors shall use its best commercial efforts to establish such performance targets during the first 120 days of each fiscal year. 4 4 (c) Upon the occurrence of the Effective Time (as defined in the Merger Agreement), the Company shall pay the Executive a cash bonus in the amount of $250,000. 6. Benefits. (a) During the Term of Employment, the Executive shall be entitled to participate in any and all pension, profit sharing, medical, dental and/or life insurance plans (collectively, the "Benefits") as may be in effect from time to time for senior executives of the Company. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) policies of the Company generally applicable to senior executives and (iii) the discretion of the Board of Directors of the Company or any administrative or other committee provided for in or contemplated by such plans, including discretion with respect to creation, maintenance and continuation of particular benefits, plans and arrangements. Notwithstanding anything to the contrary contained herein, the Executive shall at any time be entitled to at least those Benefits that are equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally. (b) The Company shall promptly reimburse the Executive for all reasonable business expenses (including business travel and entertainment expenses) incurred by the Executive during the Term of Employment in accordance with the Company's practices for senior executives of the Company, as in effect from time to time. (c) During the Term of Employment, the Executive shall be entitled to five (5) weeks paid vacation time during each calendar year the Executive is employed under this Agreement (pro-rated for the final partial calendar year of the Term of Employment). Vacation time shall be used within the calendar in which they accrue, and vacation time shall only be used at the times and intervals mutually agreed upon between Executive and the Company. The Executive shall not be entitled to any additional compensation for unused vacation days. 7. Termination of Employment of the Executive. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern the Executive's rights under this Agreement upon a termination of the Executive's employment with the Company and its affiliates. Notwithstanding the foregoing, the Executive shall be entitled to receive such expense reimbursement and benefits accrued under any plan, policy or program of the Company in accordance with the terms of such plan, policy or program, including, without limitation, reimbursement for reasonable business expenses incurred. During the Term of Employment, this Agreement and the Executive's employment hereunder may be terminated as follows under subparagraph (a) through (h) inclusive: (a) At any time by the mutual consent of the Executive and the Company. Upon termination pursuant to this Section 7(a), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than obligations with respect to earned but unpaid Base Salary. (b) At any time for "cause" by the Company upon written notice of termination to the Executive, which notice specifies in reasonable detail the facts and circumstances 5 5 claimed to give rise to the Company's right to terminate the Executive's employment for cause. For purposes of this Agreement, a termination shall be for "cause" if the Board of Directors of the Company reasonably determines that: (i) the Executive has committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or its affiliates or felony involving the business, assets or customers or clients of the Company or its affiliates or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; or (ii) the Executive has committed a material breach of any of the covenants, terms or provisions of Sections 8, 9 or 11 hereof; or (iii) the Executive substantially has failed to perform the Executive's duties hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof (other than pursuant to Sections 8, 9, or 11), which failure or breach has not been remedied within a reasonable time specified by the Company that is not less than thirty (30) days after delivery to the Executive by the Company of written notice thereof; or (iv) the Executive has breached the Executive's obligation contained in Section 12 of this Agreement. Upon termination for cause as provided in this Section 7(b), (A) all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary, and (B) the Company shall have any and all rights and remedies under this Agreement and applicable law. (c) Upon the Executive's death or upon the Executive's permanent disability (as defined below) continuing for a period of one hundred eighty (180) days. Upon termination in the event of death or permanent disability as provided in this Section 7(c), such termination will be treated as a termination by the Company without Cause and the rights and obligations of the parties shall be as set forth in Section 7(e), provided that in the case of the death of the Executive, any payments shall be made to the Executive's estate. As used herein, the term "permanent disability" or "permanently disabled" is hereby defined as the inability of the Executive, by reason of injury, illness or other similar cause, to perform a major part of the duties and responsibilities which the Executive had been performing pursuant to this Agreement prior to the date of disability in connection with the conduct of the business and affairs of the Company. (d) At any time by the Executive upon ninety (90) days' prior written notice to the Company. Upon termination by the Executive as provided in this Section 7(d), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary and any accrued but unpaid incentive bonus in accordance with Section 5(b) hereof for any previously completed fiscal year. 6 6 (e) At any time without "cause" (as defined in Section 7(b)) by the Company upon written notice to the Executive of not less than thirty (30) days. In the event of termination of the Executive by the Company pursuant to this Section 7(e), the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, (i) pay to the Executive an amount equal to the Executive's Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices, (ii) continue the Executive's benefits, car allowance and reimbursements as provided in Section 6 hereof from the effective date of termination through the date that is twelve (12) months from the date of such termination, (iii) pay to the Executive the Executive's pro rata portion (based on the number of days the Executive is employed during the applicable year as compared to 365 days) of the bonus that the Executive would have been eligible to receive pursuant to Section 5(b) hereof if he had been employed pursuant to this Agreement for the whole year based upon the Company's actual financial performance for the applicable year as measured against the performance objectives for such year, determined and calculated in accordance with the terms of the Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are generally paid to the Company's senior executives and (iv) any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year. Notwithstanding the foregoing provisions of this Section 7(e), if the Executive terminates the Executive's employment pursuant to Section 7(f) following any reduction in the Base Salary, the Base Salary amount applicable under this Section 7(e) shall be the amount in effect prior to any reduction thereof. Upon termination by the Company without cause as provided in this Section 7(e), except for the compensation and benefits expressly provided in this Section 7(e), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary. (f) Upon written notice by the Executive upon the continuation of any of the following (without the Executive's written consent) after written notice (the "Good Reason Notice") by the Executive to the Company describing in reasonable detail the occurrence of one or more of the following events and the failure by the Company to remedy such event(s) within thirty (30) days after receipt of the Good Reason Notice: (i) the Company has failed to pay the Executive the Base Salary (or any installment thereof) provided for in Section 5(a) or (if applicable) the annual incentive bonus, if any, payable under Section 5(b) upon such date as payment is due in accordance with Section 5(a) or (if applicable) Section 5(b), (ii) the Company fails to make available to the Executive any benefit plan or compensation plan (including any pension, profit sharing, life insurance, health, accidental death or dismemberment or disability plan) that has been made available generally to the senior executives of the Company (subject to applicable eligibility and waiting periods applicable to senior executives generally) or reduces the Benefits to which the Executive is entitled so that they are not at least equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally, provided that nothing in this Section 7(f) shall be construed to mean that the Company shall be constrained in any manner from amending or eliminating any benefit or compensation plan as such is applied to the Executive and the other senior executives of the Company generally, (iii) the principal offices of the Company are 7 7 moved to a location more than 30 miles from the Company's current headquarters in Broward County in the State of Florida, or (iv) the Company has substantially failed to perform any of its obligations hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof, by a demotion in Executive's titles from those contemplated by this Agreement or by assigning to the Executive duties representing a diminution from those contemplated by this Agreement. The Executive shall have no right of termination under this Section 7(f) in the event the relevant default described in the Good Reason Notice is cured within the 30 day period following the Company's receipt of the Good Reason Notice. In the event of the Executive's termination of employment pursuant to this Section 7(f), such termination shall be treated for purposes of this Agreement as a termination by the Company without "cause" and the provisions of Section 7(e) shall apply. (g) Upon the expiration of the Term of Employment due to the Executive's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Executive as provided in this Section 7(g), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year and the Pro-Rata Bonus for the year in which such termination occurs. (h) Upon the expiration of the Term of Employment due to the Company's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Company as provided in this Section 7(h), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year and the Pro-Rata Bonus for the year in which such termination occurs. In addition, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive an amount equal to the Executive's annual Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices. In the event of any termination of this Agreement as provided in this Section 7, the Executive shall immediately resign from, and surrender, all medical staff and other privileges ("Privileges"), at any hospital, ambulatory surgical center or other facility where the Company 8 8 provides services and Executive waives any and all due claims of any kind whatsoever, including due process claims, the Executive or the Executive's estate may have against the Company and all other parties with respect to the termination of the Executive's Privileges. Unless the Company and the Executive otherwise agree in writing, continuation of the Executive's employment with the Company beyond the expiration or termination of the Term of Employment shall be deemed an employment at will and shall not be deemed to extend any of the provisions of this Agreement and the Executive's employment may thereafter be terminated at will by either the Executive or the Company. 8. Non-Competition. (a) Except as provided below, during the Term of Employment and for the Non-Competition Period, the Executive shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Executive may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the outstanding equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of the Company or any Subsidiary of the Company or any Controlled Entity, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with the Company or any Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of the Company or any Subsidiary of the Company or any Controlled Entity, and diverting to any Person any client or business opportunity of the Company, or any Subsidiary of the Company or Controlled Entity. (b) The term "Non-Competition Period" shall mean the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment or, in the event the Executive fails to commence employment with the Company as of the Commencement Date, until the first anniversary of the Commencement Date. (c) For purposes of this Section 8: "Affiliate" shall mean, as to any Person, (i) each direct or indirect Subsidiary of such Person, (ii) each other Person of which such Person is a direct or indirect Subsidiary, and (iii) each other direct or indirect Subsidiary of such other Person. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities in any state in which the Company is engaged or intends to engage 9 9 in the same or a similar business during the one year period preceding the Executive's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Controlled Entity" shall have the meaning ascribed thereto in the Merger Agreement. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of the Company or any Controlled Entity on a full or part-time basis as an independent contractor or consultant. "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. (d) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, subject to Section 4, the Executive shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of the Company. 9. Business Opportunities. The Executive agrees, while he is employed by the Company, to offer or otherwise make known or available to the Company or any subsidiary, as directed by the Company and without additional compensation or consideration, any business 10 10 prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 10. Representations and Warranties of Executive/Indemnification. (a) The Executive represents and warrants to the Company (i) that the Executive (A) is able to enter into and perform all duties under this Agreement, and (B) is in good mental and, except as set forth on Exhibit B hereto, physical health and does not suffer from any illness or disability which could prevent him from fulfilling the Executive's responsibilities under this Agreement; (ii) that the Executive is not a party to or bound by any agreement, arrangement or understanding that would interfere with, hinder or conflict with the performance of the Executive's duties hereunder, and (iii) that none of the representations or warranties made by the Executive in this Agreement or in any interviews, references, resumes or curricula vitae submitted to the Company or in any insurance applications or any staff membership applications submitted to any third party in connection with this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements or provisions therein and in this Agreement not misleading or incomplete. (b) The Executive agrees to immediately notify the Company of any fact or circumstance of which he becomes aware during the Term of Employment, which in itself or with the passage of time and/or the combination with other reasonably anticipated factors known to the Executive does render or will render any of these representations and warranties to be untrue. (c) The Company hereby agrees that it shall indemnify and hold harmless the Executive to the fullest extent permitted by Delaware law from and against any and all liabilities, costs, claims, and expenses, including all costs and expenses incurred in defense of litigation (including attorneys' fees), arising out of the employment of the Executive with the Company. Costs and expenses incurred by the Executive in defense of such litigation (including attorneys' fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of (a) a written request, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expense for which payment is being sought, and (c) an undertaking made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under Delaware law. During the Term of Employment, the Company shall maintain in effect, at its sole expense, directors' and officers' liability insurance policies providing for coverage and reimbursement amounts and policies that are customary and appropriate for companies of similar size and nature to the Company and that cover claims (subject to customary exceptions) arising from facts or events that occur at any time during the period of the Executive's employment with the Company. 11. Confidentiality. 11 11 (a) The Executive acknowledges that as a result of the Executive's employment with the Company, the Executive has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Executive, is the Company's exclusive property to be held by the Executive in trust and solely for the Company's benefit. Accordingly, except as required by law, by an order of a court having jurisdiction or under subpoena from a government agency, the Executive shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to officers and employees of the Company and other persons who are in a contractual or fiduciary relationship with the Company and except for information which is or becomes of general public knowledge from sources other than the Executive. (b) Upon the termination of this Agreement, the Executive shall promptly deliver to the Company all Company property and possessions including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's business which are in the Executive's possession or control. 12. Substance Abuse Policy. It is the Company's policy that none of its employees shall use or abuse any controlled substances at any time or be under the influence of alcohol or be affected by the use of alcohol during the time period required to perform their duties and obligations under any employment agreements. Company and the Executive both acknowledge and agree that the purpose of this policy is for the benefit of the Company, the Executive and the individuals whom they serve. In compliance with this policy, the Executive agrees to submit to random drug testing immediately upon the Company's request in accordance with practices and policies in effect from time to time for physician employees of the Company. Testing may include, but shall not be limited to, the taking of blood and urine samples and utilization of gas chromatography. Unless otherwise provided in the practices and policies in effect from time to time for physician employees of the Company, in the event that a positive test result is reached indicating a violation of the Company's policy, the Executive may, at the Executive's own expense and subject to the supervision and approval of the Company of the manner and testing facilities utilized, elect to have a second drug test performed on a second portion of the same sample. The Company may, in its sole and absolute discretion, terminate the Executive for cause pursuant to Section 7(b) of this Agreement in the event either: (a) a positive test result is received in the initial drug test and the Executive fails to exercise the Executive's option for a second test in the manner provided for in this Section 12 or in accordance with practices and policies in effect from time to time for physician employees of the Company; or (b) positive test results are received from both tests. In the event that the second test result is negative, the Company may, at any time, retest the Executive pursuant to the terms of this Section 12 and the practices and policies in effect from time to time for physician employees of the Company. 12 12 13. Specific Performance; Severability. It is specifically understood and agreed that any breach of the provisions of Sections 8, 9 and 11 hereof and the obligations referred to and incorporated therein by the Executive is likely to result in irreparable injury to the Company, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive through both temporary and permanent injunctive relief, and through any other appropriate equitable relief, without the necessity of showing or proving actual damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, including without limitation geographic scope, duration or functional coverage, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. 14. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 200 Hollywood, FL 33021 Attn: General Counsel (954) 964-2611 Fax: (954) 987-8359 With copies to: Vestar Capital Partners III, L.P. Att: Robert L. Rosner 245 Park Avenue 41st Floor New York, NY 10167 (212) 351-1600 Fax: (212) 808-4922 and, Brian D. Robbins, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue 13 13 New York, NY 10017 (212) 455-2000 Fax: (212) 455-2502 To the Executive: Michael F. Schundler 2493 Poinciana Drive Weston, FL 33326 (954) 349-7041 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 15. Miscellaneous. This Agreement shall be governed by and construed under the laws and solely in the courts of the State of Florida without regard to the conflicts of law provisions thereof, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by each of the parties hereto. The failure of any of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, shall be binding upon the heirs, executors, administrators and legal representatives of the Executive and may not be assigned by the Executive. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof including, without limitation, the Prior Agreements. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to applicable law or regulation. 16. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL 14 14 RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT. IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg, Pres. ----------------------------- EXECUTIVE: /s/ Michael F. Schundler ------------------------- MICHAEL F. SCHUNDLER EX-99.C.5 7 EMPLOYMENT AGREEMENT WITH JAY MARTUS 1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of March 24, 1999 (the "Agreement"), between Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), and Jay A. Martus (the "Executive"). PRELIMINARY STATEMENTS WHEREAS, on the date hereof, Vestar/Calvary, Inc. ("Acquisition"), Vestar/Calvary Holdings, Inc. ("Holdings") and the Company are entering into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Acquisition will merge into the Company (the "Merger"), with the Company constituting the surviving corporation; WHEREAS, Acquisition and the Company desire that, effective upon the purchase by Acquisition of shares of the Company's common stock pursuant to the Offer (as defined in the Merger Agreement), the Company employ the Executive and enter into an agreement embodying the terms of such employment and the Executive desires to accept such employment with the Company and enter into such an agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: AGREEMENT 1. Effectiveness of Agreement/Prior Agreements. (a) Notwithstanding any other provision of this Agreement, this Agreement shall constitute a binding obligation of the parties hereto as of the date hereof but shall become effective only upon the date of Acquisition's purchase of shares of the Company's common stock pursuant to the Offer (such date being hereinafter referred to as the "Commencement Date"); provided, however, that for this Agreement to continue to be effective after the ninetieth day following the Merger, Holdings shall, within ninety (90) days following the Merger, obtain shareholder approval intended to satisfy Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Shareholder Approval"). If the Shareholder Approval is not obtained or the Merger Agreement is terminated for any reason without shares of the Company's common stock being purchased pursuant to the Offer, this Agreement shall, at such time, be terminated without further obligation or liability of either party. (b) Effective as of the Commencement Date, this Agreement shall supercede all prior agreements and understandings (including verbal agreements) between the Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and its affiliates including, without limitation, the Executive Employment Agreement dated as of January 1, 1995 with the Company (f/k/a SAMA Holdings, Inc.) and Sheridan Healthcorp, Inc. (f/k/a Southeastern Anesthesia Management Associates), as amended 2 2 (the "Prior Employment Agreement" and together with such other prior agreements and understandings, collectively, the "Prior Agreements"); provided that this Agreement shall not supercede the Executive's rights to expense reimbursement or benefits under the Company's employee benefits plans, programs and arrangements. It is expressly agreed that from and after the Commencement Date the Company and its affiliates shall have no further obligations under, and the Executive shall have no further rights under, the Prior Employment Agreement including, without limitation, any severance, termination, or change of control related benefits. 2. Employment. Subject to the provisions of this Agreement, the Company shall employ the Executive, and the Executive agrees that he will be so employed, upon the terms and conditions hereinafter set forth. 3. Term of Employment. Subject to the provisions of this Agreement, unless earlier terminated pursuant to Section 7, the term of Executive's employment pursuant to this Agreement (the "Term of Employment") shall remain effective until the fifth anniversary of the Commencement Date (the "Scheduled Expiration Date"). Notwithstanding the preceding sentence, commencing with the Scheduled Expiration Date and on each anniversary of the Scheduled Expiration Date thereafter (each an "Extension Date"), the Term of Employment shall be automatically extended for an additional one-year period, unless the Company or the Executive provides the other party hereto six (6) months' prior written notice before the next Extension Date that the Term of Employment shall not be so extended. For the avoidance of doubt, the term "Term of Employment" shall include any extension that becomes applicable pursuant to the preceding sentence. 4. Duties. (a) During the Term of Employment, beginning on the Commencement Date the Executive (i) shall continue to serve as the Vice President, Secretary and General Counsel of the Company or in a position carrying an equivalent or more senior title, as reasonably determined by the Board of Directors, (ii) shall perform such duties and responsibilities as may be determined by the Board of Directors of the Company consistent with the Executive's title and position as an executive officer of the Company pursuant to the preceding clause (i), (iii) upon request of the Board of Directors of the Company, shall serve as an officer and/or director of the Company and any of its subsidiaries and (iv) shall render all services reasonably incident to the foregoing. The Executive agrees to use the Executive's best efforts in, and shall devote the Executive's full working time, attention, skill and energies to, the advancement of the interests of the Company and/or its Subsidiaries and the performance of the Executive's duties and responsibilities hereunder, except for (x) vacation time and absence for sickness or similar disability and (y) to the extent that it does not interfere with the performance of the Executive's duties hereunder, (A) such reasonable time as may be devoted to service on the boards of directors of other corporations and entities, subject to the provisions of Section 8, on which the Executive currently serves and which are disclosed on Exhibit A hereto or any other boards of directors on which the Executive may serve in the future, subject to the consent of the Company's Board of Directors (not to be unreasonably withheld), and the fulfillment of civic responsibilities and (B) such reasonable time as may necessary from time to time for personal financial matters. 3 3 (b) In performing the Executive's duties under this Agreement, the Executive shall use reasonable good faith efforts to comply with and follow all written policies, standards, rules and regulations established by the Company from time to time and shall be bound by and comply with the terms and conditions of other written agreements to which the Company is a party, or to which it may become a party during the Term of Employment, that are applicable to executive officers of the Company in their capacity as such and not in their capacity as physicians, in any case under this Section 4(b), provided Executive has knowledge of such policies, standards, rules, regulations or agreements, as the case may be. (c) During and subsequent to the Term of Employment, the Executive agrees that the Executive shall immediately notify the Company of any and all notices of claims made or threats thereof of which the Executive has knowledge arising out of the Executive's services during or prior to the Term of Employment as soon as the Executive becomes aware of this information and shall cooperate in any investigation and in the defense of any claims made or threats thereof. (d) During and subsequent to the Term of Employment, the Executive shall assign, account and pay to the Company all accounts receivable, compensation and any other form of remuneration due from or paid by any source other than the Company that is paid to the Executive and is attributable to services he has rendered in the Executive's professional capacity on behalf of the Company during the Term of Employment or sums which come into the Executive's possession which are attributable to the services of other employees of the Company on behalf of the Company. 5. Compensation. (a) During the Term of Employment, the Company shall pay the Executive as compensation for the performance of the Executive's duties under this Agreement, a salary at an annual rate of $275,000 per annum from the Commencement Date (as such base salary may be increased from time to time, the "Base Salary"). Such salary shall be subject to such increases, if any (but not decreases), as may be determined in the sole discretion of the compensation committee of the Company's Board of Directors. Executive's salary shall be subject to withholding under applicable law and shall be payable in periodic installments in accordance with the Company's usual practice for its senior executives, as in effect from time to time. (b) During the Term of Employment, the Company shall maintain an annual incentive compensation plan (the "Annual Bonus Plan") for its senior executives in which the Executive shall be entitled to participate in accordance with the terms thereof as in effect from time to time, at a level commensurate with the Executive's position and duties with the Company. During the Term of Employment, the Executive shall be eligible to receive an annual target bonus equal to 25% of the Base Salary pursuant to the Annual Bonus Plan, based upon the satisfaction of performance targets established by the Company's Board of Directors in its sole discretion. It is the Company's intention that its Board of Directors shall use its best commercial efforts to establish such performance targets during the first 120 days of each fiscal year. 4 4 (c) Upon the occurrence of the Effective Time (as defined in the Merger Agreement), the Company shall pay the Executive a cash bonus in the amount of $245,000. 6. Benefits. (a) During the Term of Employment, the Executive shall be entitled to participate in any and all pension, profit sharing, medical, dental and/or life insurance plans (collectively, the "Benefits") as may be in effect from time to time for senior executives of the Company. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) policies of the Company generally applicable to senior executives and (iii) the discretion of the Board of Directors of the Company or any administrative or other committee provided for in or contemplated by such plans, including discretion with respect to creation, maintenance and continuation of particular benefits, plans and arrangements. Notwithstanding anything to the contrary contained herein, the Executive shall at any time be entitled to at least those Benefits that are equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally. (b) The Company shall promptly reimburse the Executive for all reasonable business expenses (including business travel and entertainment expenses) incurred by the Executive during the Term of Employment in accordance with the Company's practices for senior executives of the Company, as in effect from time to time. (c) During the Term of Employment, the Executive shall be entitled to five (5) weeks paid vacation time during each calendar year the Executive is employed under this Agreement (pro-rated for the final partial calendar year of the Term of Employment). Vacation time shall be used within the calendar in which they accrue, and vacation time shall only be used at the times and intervals mutually agreed upon between Executive and the Company. The Executive shall not be entitled to any additional compensation for unused vacation days. (d) During the Term of Employment, the Company shall pay the Executive's professional license fees as reasonably requested by the Executive. (e) During the Term of Employment, the Company shall reimburse the Executive for dues and fees for the period of membership covering such Term of Employment for any of the following professional associations which are paid by the Executive during the Executive's Term of Employment: (i) American Bar Association; (ii) American Health Lawyer's Association; and (iii) Broward Bar Association. Reimbursement shall be made after Executive's presentation of an expense statement and paid receipt and any other supporting information the Company may reasonably request. 7. Termination of Employment of the Executive. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern the Executive's rights under this Agreement upon a termination of the Executive's employment with the Company and its affiliates. Notwithstanding the foregoing, the Executive shall be entitled to receive such expense reimbursement and benefits accrued under any plan, policy or program of the Company in accordance with the terms of such plan, policy or program, including, without limitation, 5 5 reimbursement for reasonable business expenses incurred. During the Term of Employment, this Agreement and the Executive's employment hereunder may be terminated as follows under subparagraph (a) through (h) inclusive: (a) At any time by the mutual consent of the Executive and the Company. Upon termination pursuant to this Section 7(a), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than obligations with respect to earned but unpaid Base Salary. (b) At any time for "cause" by the Company upon written notice of termination to the Executive, which notice specifies in reasonable detail the facts and circumstances claimed to give rise to the Company's right to terminate the Executive's employment for cause. For purposes of this Agreement, a termination shall be for "cause" if the Board of Directors of the Company reasonably determines that: (i) the Executive has committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or its affiliates or felony involving the business, assets or customers or clients of the Company or its affiliates or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; or (ii) the Executive has committed a material breach of any of the covenants, terms or provisions of Sections 8, 9 or 11 hereof; or (iii) the Executive substantially has failed to perform the Executive's duties hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof (other than pursuant to Sections 8, 9, or 11), which failure or breach has not been remedied within a reasonable time specified by the Company that is not less than thirty (30) days after delivery to the Executive by the Company of written notice thereof; or (iv) the Executive has breached the Executive's obligation contained in Section 12 of this Agreement. Upon termination for cause as provided in this Section 7(b), (A) all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary, and (B) the Company shall have any and all rights and remedies under this Agreement and applicable law. (c) Upon the Executive's death or upon the Executive's permanent disability (as defined below) continuing for a period of one hundred eighty (180) days. Upon termination in the event of death or permanent disability as provided in this Section 7(c), such termination will be treated as a termination by the Company without Cause and the rights and obligations of the parties shall be as set forth in Section 7(e), provided that in the case of the death of the Executive, any payments shall be made to the Executive's estate. As used herein, the term "permanent disability" or "permanently disabled" is 6 6 hereby defined as the inability of the Executive, by reason of injury, illness or other similar cause, to perform a major part of the duties and responsibilities which the Executive had been performing pursuant to this Agreement prior to the date of disability in connection with the conduct of the business and affairs of the Company. (d) At any time by the Executive upon ninety (90) days' prior written notice to the Company. Upon termination by the Executive as provided in this Section 7(d), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary and any accrued but unpaid incentive bonus in accordance with Section 5(b) hereof for any previously completed fiscal year. (e) At any time without "cause" (as defined in Section 7(b)) by the Company upon written notice to the Executive of not less than thirty (30) days. In the event of termination of the Executive by the Company pursuant to this Section 7(e), the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, (i) pay to the Executive an amount equal to the Executive's Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices, (ii) continue the Executive's benefits, car allowance and reimbursements as provided in Section 6 hereof from the effective date of termination through the date that is twelve (12) months from the date of such termination, (iii) pay to the Executive the Executive's pro rata portion (based on the number of days the Executive is employed during the applicable year as compared to 365 days) of the bonus that the Executive would have been eligible to receive pursuant to Section 5(b) hereof if he had been employed pursuant to this Agreement for the whole year based upon the Company's actual financial performance for the applicable year as measured against the performance objectives for such year, determined and calculated in accordance with the terms of the Annual Bonus Plan (the "Pro-Rata Bonus"), payable when bonuses are generally paid to the Company's senior executives and (iv) any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year. Notwithstanding the foregoing provisions of this Section 7(e), if the Executive terminates the Executive's employment pursuant to Section 7(f) following any reduction in the Base Salary, the Base Salary amount applicable under this Section 7(e) shall be the amount in effect prior to any reduction thereof. Upon termination by the Company without cause as provided in this Section 7(e), except for the compensation and benefits expressly provided in this Section 7(e), all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to earned but unpaid Base Salary. (f) Upon written notice by the Executive upon the continuation of any of the following (without the Executive's written consent) after written notice (the "Good Reason Notice") by the Executive to the Company describing in reasonable detail the occurrence of one or more of the following events and the failure by the Company to remedy such event(s) within thirty (30) days after receipt of the Good Reason Notice: (i) the Company has failed to pay the Executive the Base Salary (or any installment thereof) provided for in Section 5(a) or (if applicable) the annual incentive bonus, if any, payable 7 7 under Section 5(b) upon such date as payment is due in accordance with Section 5(a) or (if applicable) Section 5(b), (ii) the Company fails to make available to the Executive any benefit plan or compensation plan (including any pension, profit sharing, life insurance, health, accidental death or dismemberment or disability plan) that has been made available generally to the senior executives of the Company (subject to applicable eligibility and waiting periods applicable to senior executives generally) or reduces the Benefits to which the Executive is entitled so that they are not at least equivalent in nature to those Benefits available at such time to the employees or executives of the Company generally, provided that nothing in this Section 7(f) shall be construed to mean that the Company shall be constrained in any manner from amending or eliminating any benefit or compensation plan as such is applied to the Executive and the other senior executives of the Company generally, (iii) the principal offices of the Company are moved to a location more than 30 miles from the Company's current headquarters in Broward County in the State of Florida, or (iv) the Company has substantially failed to perform any of its obligations hereunder, including by committing a material breach of any of the covenants, terms or provisions hereof, by a demotion in Executive's titles from those contemplated by this Agreement or by assigning to the Executive duties representing a diminution from those contemplated by this Agreement. The Executive shall have no right of termination under this Section 7(f) in the event the relevant default described in the Good Reason Notice is cured within the 30 day period following the Company's receipt of the Good Reason Notice. In the event of the Executive's termination of employment pursuant to this Section 7(f), such termination shall be treated for purposes of this Agreement as a termination by the Company without "cause" and the provisions of Section 7(e) shall apply. (g) Upon the expiration of the Term of Employment due to the Executive's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Executive as provided in this Section 7(g), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately shall terminate, other than any obligations with respect to the earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year and the Pro-Rata Bonus for the year in which such termination occurs. (h) Upon the expiration of the Term of Employment due to the Company's election not to extend the Term of Employment pursuant to Section 3. Upon termination of the Term of Employment by the Company as provided in this Section 7(h), unless the Executive's employment is earlier terminated pursuant to paragraphs (a) through (f) of this Section 7, the Executive's termination of employment hereunder (whether or not the Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and all obligations of the Company under this Agreement thereupon immediately 8 8 shall terminate, other than any obligations with respect to earned but unpaid Base Salary, any accrued but unpaid incentive bonus in accordance with Section 5(b) for any previously completed fiscal year and the Pro-Rata Bonus for the year in which such termination occurs. In addition, the Company shall, subject to the Executive's continued compliance with the provisions of Section 8, pay to the Executive an amount equal to the Executive's annual Base Salary according to the terms of Section 5(a) hereof, in equal installments over the 12 months following the termination of employment pursuant to the Company's payroll practices. In the event of any termination of this Agreement as provided in this Section 7, the Executive shall immediately resign from, and surrender, all medical staff and other privileges ("Privileges"), at any hospital, ambulatory surgical center or other facility where the Company provides services and Executive waives any and all due claims of any kind whatsoever, including due process claims, the Executive or the Executive's estate may have against the Company and all other parties with respect to the termination of the Executive's Privileges. Unless the Company and the Executive otherwise agree in writing, continuation of the Executive's employment with the Company beyond the expiration or termination of the Term of Employment shall be deemed an employment at will and shall not be deemed to extend any of the provisions of this Agreement and the Executive's employment may thereafter be terminated at will by either the Executive or the Company. 8. Non-Competition. (a) Except as provided below, during the Term of Employment and for the Non-Competition Period, the Executive shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Executive may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the outstanding equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of the Company or any Subsidiary of the Company or any Controlled Entity, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with the Company or any Subsidiary of the Company or Controlled Entity, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of the Company or any Subsidiary of the Company or any Controlled Entity, and diverting to any Person any client or business opportunity of the Company, or any Subsidiary of the Company or Controlled Entity. Notwithstanding anything to the contrary contained herein, nothing in this Section 8 shall limit, or otherwise restrict, the Executive from working for a law firm during the Non-Competition Period provided he has no conflict of interest from his prior representation of or employment by the Company. (b) The term "Non-Competition Period" shall mean the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the 9 9 Term of Employment or, in the event the Executive fails to commence employment with the Company as of the Commencement Date, until the first anniversary of the Commencement Date. (c) For purposes of this Section 8: "Affiliate" shall mean, as to any Person, (i) each direct or indirect Subsidiary of such Person, (ii) each other Person of which such Person is a direct or indirect Subsidiary, and (iii) each other direct or indirect Subsidiary of such other Person. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Executive's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Controlled Entity" shall have the meaning ascribed thereto in the Merger Agreement. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of the Company or any Controlled Entity on a full or part-time basis as an independent contractor or consultant. "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. 10 10 "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. (d) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, subject to Section 4, the Executive shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of the Company. 9. Business Opportunities. The Executive agrees, while he is employed by the Company, to offer or otherwise make known or available to the Company or any subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 10. Representations and Warranties of Executive/Indemnification. (a) The Executive represents and warrants to the Company (i) that the Executive (A) is able to enter into and perform all duties under this Agreement, and (B) is in good mental and, except as set forth on Exhibit B hereto, physical health and does not suffer from any illness or disability which could prevent him from fulfilling the Executive's responsibilities under this Agreement; (ii) that the Executive is not a party to or bound by any agreement, arrangement or understanding that would interfere with, hinder or conflict with the performance of the Executive's duties hereunder, and (iii) that none of the representations or warranties made by the Executive in this Agreement or in any interviews, references, resumes or curricula vitae submitted to the Company or in any insurance applications or any staff membership applications submitted to any third party in connection with this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary in order to make the statements or provisions therein and in this Agreement not misleading or incomplete. (b) The Executive agrees to immediately notify the Company of any fact or circumstance of which he becomes aware during the Term of Employment, which in itself or with the passage of time and/or the combination with other reasonably anticipated factors known to the Executive does render or will render any of these representations and warranties to be untrue. (c) The Company hereby agrees that it shall indemnify and hold harmless the Executive to the fullest extent permitted by Delaware law from and against any and all liabilities, costs, claims, and expenses, including all costs and expenses incurred in defense of litigation 11 11 (including attorneys' fees), arising out of the employment of the Executive with the Company. Costs and expenses incurred by the Executive in defense of such litigation (including attorneys' fees) shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of (a) a written request, (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expense for which payment is being sought, and (c) an undertaking made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under Delaware law. During the Term of Employment, the Company shall maintain in effect, at its sole expense, directors' and officers' liability insurance policies providing for coverage and reimbursement amounts and policies that are customary and appropriate for companies of similar size and nature to the Company and that cover claims (subject to customary exceptions) arising from facts or events that occur at any time during the period of the Executive's employment with the Company. 11. Confidentiality. (a) The Executive acknowledges that as a result of the Executive's employment with the Company, the Executive has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Executive, is the Company's exclusive property to be held by the Executive in trust and solely for the Company's benefit. Accordingly, except as required by law, by an order of a court having jurisdiction or under subpoena from a government agency, the Executive shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to officers and employees of the Company and other persons who are in a contractual or fiduciary relationship with the Company and except for information which is or becomes of general public knowledge from sources other than the Executive. (b) Upon the termination of this Agreement, the Executive shall promptly deliver to the Company all Company property and possessions including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's business which are in the Executive's possession or control. 12. Substance Abuse Policy. It is the Company's policy that none of its employees shall use or abuse any controlled substances at any time or be under the influence of alcohol or be affected by the use of alcohol during the time period required to perform their duties and obligations under any employment agreements. Company and the Executive both acknowledge and agree that the purpose of this policy is for the benefit of the Company, the Executive and the individuals whom they serve. 12 12 In compliance with this policy, the Executive agrees to submit to random drug testing immediately upon the Company's request in accordance with practices and policies in effect from time to time for physician employees of the Company. Testing may include, but shall not be limited to, the taking of blood and urine samples and utilization of gas chromatography. Unless otherwise provided in the practices and policies in effect from time to time for physician employees of the Company, in the event that a positive test result is reached indicating a violation of the Company's policy, the Executive may, at the Executive's own expense and subject to the supervision and approval of the Company of the manner and testing facilities utilized, elect to have a second drug test performed on a second portion of the same sample. The Company may, in its sole and absolute discretion, terminate the Executive for cause pursuant to Section 7(b) of this Agreement in the event either: (a) a positive test result is received in the initial drug test and the Executive fails to exercise the Executive's option for a second test in the manner provided for in this Section 12 or in accordance with practices and policies in effect from time to time for physician employees of the Company; or (b) positive test results are received from both tests. In the event that the second test result is negative, the Company may, at any time, retest the Executive pursuant to the terms of this Section 12 and the practices and policies in effect from time to time for physician employees of the Company. 13. Specific Performance; Severability. It is specifically understood and agreed that any breach of the provisions of Sections 8, 9 and 11 hereof and the obligations referred to and incorporated therein by the Executive is likely to result in irreparable injury to the Company, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive through both temporary and permanent injunctive relief, and through any other appropriate equitable relief, without the necessity of showing or proving actual damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, including without limitation geographic scope, duration or functional coverage, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. 14. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 200 Hollywood, FL 33021 Attn: Chief Executive Officer (954) 964-2611 13 13 Fax: (954) 987-8359 With copies to: Vestar Capital Partners III, L.P. Att: Robert L. Rosner 245 Park Avenue 41st Floor New York, NY 10167 (212) 351-1600 Fax: (212) 808-4922 and, Brian D. Robbins, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 (212) 455-2000 Fax: (212) 455-2502 To the Executive: Jay A. Martus 227 Landings Boulevard Weston, FL 33327 (954) 389-7698 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 15. Miscellaneous. This Agreement shall be governed by and construed under the laws and solely in the courts of the State of Florida without regard to the conflicts of law provisions thereof, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by each of the parties hereto. The failure of any of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, shall be binding upon the heirs, executors, administrators and legal representatives of the Executive and may not be assigned by the Executive. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof including, without limitation, the Prior Agreements. The Company may withhold from any amounts 14 14 payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to applicable law or regulation. 16. Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA IN BROWARD COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT. IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg, Pres. ------------------------------ EXECUTIVE: /s/ Jay A. Martus ------------------------------ JAY A. MARTUS EX-99.C.6 8 STOCKHOLDERS AGREEMENT 1 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 2 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 3 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 4 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 5 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 6 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 7 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 8 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 9 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 10 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 11 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 12 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 13 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 14 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 15 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 16 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 17 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 18 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 19 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 20 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 21 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 22 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 23 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 24 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 25 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 26 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 27 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 28 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 29 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 30 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 31 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 32 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 33 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 34 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 35 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 36 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 37 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 38 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 39 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 40 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 41 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 42 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 43 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 44 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 45 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW EX-99.C.7 9 SUBSCRIPTION AND TENDER AGREEMENT 1 SUBSCRIPTION AND TENDER AGREEMENT SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and the individual named on the signature page hereto (the "Stockholder"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Stockholder and certain other Management Investors referred to below to enter into this Agreement and the other Stockholder Documents referred to in the Merger Agreement; WHEREAS, the Stockholder has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, on the terms and subject to the conditions hereof, the Stockholder desires to subscribe for and acquire from the Company, and the Company desires to issue and sell to the Stockholder, the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth on Schedule I hereto, as hereinafter set forth; WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Stockholder, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Subscription for and Purchase of Common Stock. 1.1. Purchase of Common Stock. Pursuant to the terms and subject to the conditions set forth in this Agreement, the Stockholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Stockholder, on the Closing 2 2 Date (as defined in Section 1.3) the number of shares of Common Stock set forth on Schedule I hereto at a price per share and for the aggregate amount in cash (the "Purchase Price") set forth on Schedule I hereto. 1.2. Sales of Common Stock to Employees Only. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue, sell or deliver any shares of Common Stock to any person (i) who is not a full-time employee of, or consultant to, the Company or any of its subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in which such issuance, sale or delivery to such person would constitute a violation of the securities or "blue sky" laws of such jurisdiction. 1.3. The Closing. The closing (the "Closing") of the purchase of Common Stock hereunder shall take place on the date (the "Closing Date") that Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and at such time as the Company shall direct on at least one business day's prior notice to the Stockholder. The Closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such other place as the parties may mutually agree. At the Closing, the Stockholder (or the Stockholder's representative) shall deliver to the Company the Purchase Price, payable by delivery of the amount set forth on Schedule I hereto, by delivery of a certified check or by wire transfer in immediately available funds. 1.4. Conditions to the Obligations of the Parties. (a) The obligations of the Company under this Section 1 shall be subject to the conditions that (i) the Stockholder shall have executed and delivered the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement"), (ii) the representations and warranties of the Stockholder in Section 2 of this Agreement shall be true and correct as of the Closing Date in all material respects and (iii) the Stockholder shall not have breached his obligations under Section 3 hereof. (b) The obligations of the Stockholder under this Section 1 shall be subject to the conditions that (i) the Company shall have executed and delivered the Stockholders Agreement and (ii) the representations and warranties of the Company in Section 1.5 of this Agreement shall be true and correct as of the Closing Date in all material respects. 1.5. Representations and Warranties of the Company. The Company represents and warrants to the Stockholder as follows: (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement has been duly authorized by all necessary corporate and legal action by the Company, and no other corporate proceeding by the Company is necessary for the execution, delivery and performance by the Company of this Agreement or the Stockholders Agreement. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Company and, assuming they are duly executed and delivered by the Stockholder, 3 3 constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (b) the Common Stock to be issued to the Stockholder pursuant to this Agreement, when issued and delivered in accordance with the terms hereof, will be duly and validly issued and, upon receipt by the Company of the Purchase Price therefor, will be fully paid and nonassessable with no personal liability attached to the ownership thereof and will not be subject to any preemptive rights under the Delaware General Corporation Law; and (c) the execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company or any of its subsidiaries or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or (iii) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their assets may be bound or affected. 2. Representations, Warranties and Covenants of the Stockholder. 2.1. Residence and Competency; Power; Enforceability; Noncontravention. The Stockholder is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Stockholder. Assuming the due execution and delivery of this Agreement and the Stockholders Agreement by the Company, this Agreement and the Stockholders Agreement constitute valid and binding obligations of the Stockholder, enforceable against the Stockholder in accordance with their terms. The execution, delivery and performance of this Agreement and the Stockholders Agreement by the Stockholder will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Stockholder or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Stockholder is a party or by which the Stockholder is bound. 2.2. Investment Intention; No Resales. The Stockholder hereby represents and warrants that he is acquiring the Common Stock for investment solely for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Stockholder agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock, or solicit any offers to purchase or otherwise acquire or pledge any shares of Common Stock, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions hereof and of the Stockholders Agreement. 4 4 2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that he has been advised by the Company that: (a) the offer and sale of the Common Stock have not been and will not be registered under the Securities Act; (b) the Common Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the Common Stock unless the offer and sale of such Common Stock is subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such registration is available; (c) there is no established market for the Common Stock and it is not anticipated that there will be any public market for the Common Stock in the foreseeable future; (d) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company, and, except as set forth in the Stockholders Agreement, the Company has made no covenant to make such Rule available; (e) when and if shares of Common Stock may be disposed of without registration under the Securities Act in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule; (f) if the Rule 144 exemption is not available, public offer or sale of Common Stock without registration will require compliance with some other exemption under the Securities Act; (g) if any shares of Common Stock are at any time disposed of in accordance with Rule 144, the Stockholder will deliver to the Company at or prior to the time of such disposition an executed Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale; (h) a restrictive legend in the form set forth in the Stockholders Agreement shall be placed on the certificates representing Common Stock; and (i) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Common Stock. 2.4. Additional Investment Representations. The Stockholder represents and warrants that: (a) the Stockholder's financial situation is such that he can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, has adequate means for providing for his current needs and personal contingencies, and can afford to suffer a complete loss of his investment in the Common Stock; 5 5 (b) the Stockholder's knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of the investment in the Common Stock, as contemplated by this Agreement; (c) the Stockholder understands that the Common Stock is a speculative investment which involves a high degree of risk of loss of his investment therein, there are substantial restrictions on the transferability of the Common Stock and, on the Closing Date and for an indefinite period following the Closing, there will be no public market for the Common Stock and, accordingly, it may not be possible for the Stockholder to liquidate his investment in case of emergency, if at all; (d) the terms of the Stockholders Agreement provide that in the event that the Stockholder ceases to be an employee of Sheridan, the Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their designated affiliates have the right to repurchase the Common Stock at a price which may, in certain circumstances, be less than the fair market value of such stock; (e) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of Common Stock and, other than as set forth in this Agreement, no representations or warranties have been made to the Stockholder or his representatives concerning the Common Stock or the Company, its subsidiaries or their prospects or other matters; (f) in making his decision to purchase the Common Stock hereby subscribed for, the Stockholder has relied upon independent investigations made by him and, to the extent believed by the Stockholder to be appropriate, his representatives, including his own professional, financial, tax and other advisors; (g) the Stockholder has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the Company and its subsidiaries and the terms and conditions of the purchase of the Common Stock and to obtain any additional information, in each case as the Stockholder or his representatives deems necessary; (h) all information which the Stockholder has provided to the Company and its representatives concerning the Stockholder and his financial position is complete and correct as of the date of this Agreement; and (i) the Stockholder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. 3. Agreements Relating to Tender Shares. 3.1. Agreement to Tender. The Stockholder hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 3.2. Voting of Tender Shares. The Stockholder hereby agrees, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, to vote all Tender 6 6 Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 3.3. Disposition of Tender Shares. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 3.4. Stop Transfer Order. The Stockholder hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof. 4. Options. 4.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 4.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Stockholder will be granted performance options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 4.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Stockholder will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 7 7 5. Miscellaneous. 5.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 5.2. Stockholder's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to employ the Stockholder in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Stockholder at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 5.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Stockholder shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 5.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 5.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. 8 8 (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 (b) If to the Stockholder, to him at his address or telecopy number as shown on the stock register of the Company. 5.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.9. Injunctive Relief. The Stockholder, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Stockholder, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 5.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Stockholder at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Stockholder, whether or not at the time of such purchase circumstances exist 9 9 which specifically grant the Company the right to purchase, or the Stockholder the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 5.11. Rights Cumulative; Waiver. The rights and remedies of the Stockholder and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR/CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. ---------------------------------------- Name: James L. Elrod, Jr. Title: President 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. STOCKHOLDER: /s/ Mitchell Eisenberg -------------------------------- Mitchell Eisenberg 12 MITCHELL EISENBERG SCHEDULE I
Number of Shares Purchase Price Aggregate Purchase of Common Stock Per Share Price Payable - - --------------- --------- ------------- 135,135** Per share price paid by Acquisition $1,249,998.75 for Sheridan Common Stock pursuant to the Offer
** Assuming a purchase price per share of $9.25. 13 MITCHELL EISENBERG SCHEDULE II
Number of Shares Subject Number of Shares Subject to Time Options to Performance Options - - --------------- ---------------------- 216,666 108,334
14 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 15 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 16 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 17 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 18 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 19 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 20 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 21 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 22 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 23 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 24 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 25 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 26 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 27 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 28 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 29 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 30 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 31 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 32 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 33 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 34 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 35 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 36 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 37 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 38 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 39 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 40 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 41 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 42 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 43 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 44 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 45 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 46 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 47 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 48 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 49 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 50 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 51 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 52 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 53 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 54 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 55 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 56 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 57 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 58 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW 59 Exhibit B Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional officers, key employees and outside directors of, and consultants to, the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change of Control" shall mean the earlier to occur of (x) the date of the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), other than Vestar, or (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, Public Offering (as defined in the Stockholders' Agreement), sale of capital stock or assets of Sheridan or any other Subsidiary of the Company or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) their equity interest in the Company immediately following the Closing Date (as defined in the Stockholders'sAgreement) plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of (y) either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates or a combination thereof or (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding 60 2 securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan. "Company" shall have the meaning specified in the Stockholders' Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall have the meaning specified in the Stockholders' Agreement. "Management Investor" shall have the meaning specified in the Stockholders' Agreement. "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan. "Participant" shall mean any officer, key employee or outside director of, or consultant to, the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an Option under the Plan. "Performance Option" shall mean an Option granted under the Plan which becomes exercisable, or for which the period of exercisability is accelerated, upon the satisfaction of certain performance criteria established by the Committee and set forth in the Award Agreement evidencing such option. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean (i) shares or units of Common Stock (as defined in the Stockholders' Agreement) or (ii) as may be determined by the Committee pursuant to Section 4(b). 61 3 "Stockholders' Agreement" shall mean the Agreement, dated as of March 24, 1999, among the Company and the other parties identified therein. "Subsidiary" shall mean any entity that, directly or indirectly, is controlled by the Company. "Substitute Options" shall have the meaning specified in Section 4(c). "Time Option" shall mean an Option granted under the Plan, which is not a Performance Option, and which becomes exercisable over time based on a Participant's continued employment with the Company or its Subsidiaries. "Vestar" shall mean Vestar Capital Partners III, L.P. and any of its Affiliates. SECTION 3. Administration. (a) The Plan shall be administered by the Committee. Subject to the terms of the Plan, any Award Agreement and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Options to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Options; (iv) determine the terms and conditions of any Option; (v) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Options, other property, and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Unless otherwise expressly provided in the Plan and subject to the terms of any Award Agreement, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any holder of Shares. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder. 62 4 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 1,150,000; provided, however, that in no event shall the number of Shares subject to Time Options granted under the Plan exceed 666,667. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been cancelled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder. (b) Adjustments. In the event that the Committee determines that any Exit Transaction, dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate in connection with a Change of Control, make provision for an immediate cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option. (c) Substitute Options. Options may be granted, in the discretion of the Committee, under the Plan in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan. (d) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any officer, key employee or outside director of, or consultant to, the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the 63 5 number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option. None of the Options granted under the Plan are intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement. (b) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or, with the consent of the Participant thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (c) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment shall be made in cash or by bank check or, subject to the consent of the Committee in its sole discretion, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. SECTION 7. Amendment and Termination. (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (b) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment or alteration that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. In addition, with the consent of any Participant, holder or beneficiary, the Company may suspend, discontinue, cancel or terminate any Option theretofore granted, prospectively or retroactively (c) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the performance criteria applicable to outstanding Performance Options in the event of any extraordinary and nonrecurring events affecting the Company or its Subsidiaries, or the financial statements of the Company or its Subsidiaries, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines in good faith that such adjustments are necessary in order to prevent dilution or enlargement of rights under such Performance Options. 64 6 SECTION 8. Change of Control. In the event of a Change of Control after the date of the adoption of this Plan, (i) any outstanding Time Options then held by Participants, which are unexercisable or otherwise unvested, shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control and (ii) any outstanding Performance Options, whether exercisable or not, then held by Participants, shall continue to be governed by the terms of each such Participant's Award Agreement. SECTION 9. General Provisions. (a) Nontransferability. (i) Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to: (A) the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family"); (B) a trust solely for the benefit of the Grantee and his or her Immediate Family; or (C) a partnership or limited liability company whose only partners or members are the Grantee and his or her Immediate Family members; (each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the Option. The terms of any Option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless 65 7 there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement or form is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, provided all required notices are given to the Grantee and (d) the consequences of termination of the Grantee's employment by, or services to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement. (b) No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). (c) Share Certificates. All certificates for Shares or other securities of the Company delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, any applicable Federal or state laws, and any applicable written agreements between Vestar and/or the Company and the Participants including, without limitation, the Stockholders' Agreement, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (ii) Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 9(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee. (e) Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other 66 8 compensation arrangements, which may, but need not, provide for the grant of options (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of New York. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration will violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. 67 9 (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (n) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Term of the Plan. (a) Effective Date. The Plan shall be effective as of the date of its approval by the persons and/or entities who own, immediately after giving effect to the Effective Time (as defined in the Agreement and Plan of Merger dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding stock of the Company, determined in a manner consistent with Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended and the proposed regulations promulgated thereunder. If such approval is not obtained, this Plan and any Options granted under the Plan shall be null and void and of no force and effect. (b) Expiration Date. No Option shall be granted under the Plan after December 31, 2009. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 31, 2009. SECTION 11. Awards Subject to Stockholders' Agreement. Options granted under the Plan and any Shares delivered upon the exercise or settlement of any Options granted hereunder shall be subject to the Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and any terms or provisions of the Stockholders' Agreement, the applicable provisions of the Stockholders' Agreement will govern and prevail. 68 Exhibit C VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN PERFORMANCE OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - ---------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 69 2 (a) Time Vesting. Subject to paragraphs (b), (c) and (d) of this Section 2, the Option shall vest and become exercisable in full on the ninth anniversary of the purchase of shares of common stock of Sheridan pursuant to the Offer (the date of such purchase being the "Purchase Date"). (b) Accelerated Vesting Based Upon Performance. (i) Subject to the Participant's continued employment with the Company, the Option shall vest and become exercisable on an accelerated basis with respect to up to twenty-five percent (25%) of the Shares initially covered by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting Shares") on each of the first, second, third and fourth anniversaries of the Purchase Date (each an "Accelerated Vesting Date") as follows: (A) With respect to each Accelerated Vesting Date, 100% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending immediately prior to the applicable Accelerated Vesting Date (such last day of the fiscal year being referred to as the "Determination Date") equals or exceeds the Maximum Annual Price Target (described below) for such Determination Date; (B) With respect to each Accelerated Vesting Date, 0% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share as of the applicable Determination Date is less than or equal to the Minimum Annual Price Target (described below) for such Determination Date; and (C) With respect to each Accelerated Vesting Date, if the Common Equity Per Share as of the Determination Date is less than the Maximum Annual Price Target and greater than the Minimum Annual Price Target for such Determination Date, then the number of Scheduled Accelerated Vesting Shares which shall vest will equal the product of (x) 100% of the Scheduled Accelerated Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall equal the quotient obtained by dividing (A) the excess of the Value of Common Equity Per Share as of the Determination Date over the Minimum Annual Price Target for such Determination Date by (B) the excess of the Maximum Annual Price Target as of the Determination Date over the Minimum Annual Price Target for such Determination Date. (ii) In the event that the Option does not vest on an accelerated basis with respect to all of the Scheduled Accelerated Vesting Shares on an Accelerated Vesting Date solely as a result of the failure to achieve or exceed the applicable Maximum Annual Price Target, then the number of Scheduled Vesting Shares with respect to which the Option did not vest on an accelerated basis (the "Missed Shares"), will be available for vesting on the next succeeding Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The number of Missed Shares, if any, which will vest on an accelerated basis on the Make-Up Vesting Date will equal the excess, if any, of (x) the number of Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of Scheduled Accelerated Vesting Shares which actually vested on an accelerated basis on the immediately preceding Accelerated Vesting Date. 70 3
Determination Minimum Maximum Vesting Date Date Annual Price Target Annual Price Target - - ------------ ---- ------------------- ------------------- 1st anniversary of FY Ending Purchase Date 12/31/99 $10.18 $10.64 2nd anniversary of FY Ending Purchase Date 12/31/00 $12.21 $13.83 3rd anniversary of FY Ending Purchase Date 12/31/01 $14.65 $17.98 4th anniversary of FY Ending Purchase Date 12/31/02 $17.58 $23.37 5th anniversary of FY Ending $21.10 $30.38 Purchase Date 2/31/03 (Used for 4th anniversary missed shares only)
The determination of the Value of Common Equity Per Share for each fiscal year shall be made by the Board in good faith based upon, and immediately following receipt of, the audited financial statements for such fiscal year and will be calculated (after giving effect to the issuance of all Time Options and all Performance Options which have previously vested or which will vest in such fiscal year) pursuant to the methodology outlined in Exhibit A. (c) Termination of Employment If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability (as each such term is defined in Section 3(a) below), and the Minimum Annual Price Target for the Determination Date applicable to the next succeeding Accelerated Vesting Date is exceeded as of such Determination Date, then the Option shall, upon the Board's determination that the Minimum Annual Price Target for such Determination Date has been exceeded, become vested with respect to, and the Vested Portion of the Option shall include a number of Shares (the "Termination Shares") equal to the sum of: (i) the product of (A) the number of Scheduled Accelerated Vesting Shares that would otherwise have vested pursuant to Section 2(b)(i) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) a fraction, the numerator of which is the number of days that passed since the immediately preceding Accelerated Vesting Date through and including the date of the Participant's 71 4 termination of employment and the denominator of which is 365 (the "Termination Fraction"); plus (ii) If there were Missed Shares with respect to the immediately preceding Accelerated Vesting Date, the product of (A) the number of Missed Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) the Termination Fraction. (d) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control, the Option shall, to the extent not previously cancelled, immediately become vested and exercisable with respect to the Scheduled Accelerated Vesting Shares for any remaining future Accelerated Vesting Dates, if, and only if, in connection with the Change of Control, Vestar receives aggregate proceeds, in cash, securities or a combination of cash and securities, having an aggregate Fair Market Value in an amount equal to or in excess of the product of (i) Vestar's Aggregate Investment (as defined below) times (ii) the Minimum Investment Multiple (as defined below) applicable to the fiscal year of the Company in which such Change of Control occurs; provided that, securities received by Vestar shall be taken into account for purposes hereof only if such securities are distributed by Vestar, in kind, to its limited partners. For purposes of this Agreement: "Vestar's Aggregate Investment" shall mean the total amount of capital invested by Vestar in the Company and its Subsidiaries, including investments made in connection with the Offer, the Merger contemplated by the Merger Agreement, or otherwise; and "Minimum Investment Multiple" shall mean with respect to the Company's fiscal years ending December 31, 1999 through December 31, 2003 as follows:
FY In Which Change of Control Occurs Minimum Investment Multiple - - ------------------------------------ --------------------------- 1999 1.22 2000 1.66 2001 2.12 2002 2.50 2003 3.26
For purposes of this Section 2(d), "Fair Market Value"shall mean, solely with respect to securities distributed by Vestar to its limited partners, the value of such securities as reported by Vestar to such limited partners. 3. Exercise of Option. 72 5 (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to 73 6 time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with appliicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages 74 7 relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant. Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer 75 8 under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 76 9 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: --------------------------- Agreed and acknowledged as of the date first above written: - - ------------------------- 77 SHERIDAN HEALTHCARE, INC. EXHIBIT A METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS ARE SUBJECT TO ACCELERATED VESTING STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements for the year, the Company shall calculate (and the Board of Directors shall review and approve) EBITDA in good faith pro forma to give effect to all acquisitions and divestitures completed during the year as if they had occurred on January 1 of such year. STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated in Step 1) by 7.5. STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value (calculated in Step 2), deduct year-end balances for Total Debt and Other Obligations, add year-end balance for Total Cash and add Total Option Proceeds. For purposes of this calculation, Other Obligations includes any debt-like instruments such as acquisition-related non-compete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. Total Option Proceeds should include options proceeds related to i) all time-based options (whether or not vested), ii) all performance-based options that have vested in prior years and iii) all performance-based options that vest in current year. STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number of shares outstanding at the beginning of the year, ii) shares issued in current year for any reason, including those related to acquisitions, iii) all time-based options (whether or not vested), iv) all performance-based options that vest in prior years or in the current year, v) shares associated with in-the-money convertible preferred stock and vi) shares associated with other in-the-money common stock equivalents including, but not limited to, warrants and any other options. STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step 4). In Step 6, this number will be compared with the maximum and minimum targets listed below to determine how many (if any) performance-based options vest in current year. STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR. Multiply the number of options eligible for accelerated vesting in current year pursuant to the Performance Option Plan by i) if the Value of Common Equity per Share (Step 5) is greater than or equal to current year's Maximum Annual Price Target, 100%; ii) if the Value of Common Equity per Share is less than or equal to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common Equity per Share is between current year's Minimum and Maximum Annual Price Targets, the quotient calculated by dividing (A) excess of the Value of Common Equity per Share over current year's Minimum Annual Price Target by (B) the excess of current year's Maximum Annual Price Target over current year's Minimum Annual Price Target.
Minimum Annual Price Maximum Annual Price Target Year Target ---------- -------------------- ----------------------------- 1999 $10.18 $10.64 2000 12.21 13.83 2001 14.65 17.98 2002 17.58 23.37 2003 21.10 30.38
78 SHERIDAN HEALTHCARE, INC. EXHIBIT A ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST PURSUANT TO PERFORMANCE MEASURES
====================================================================== 1999 2000 2001 2002 2003 --------------------------------------------------------------------- Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8 EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5 --------------------------------------------------------------------- Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3 Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6) Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6 --------------------------------------------------------------------- Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3 Beginning # of Shares 7.317 10.105 10.225 10.346 10.467 Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000 Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000 Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000 Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000 Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000 --------------------------------------------------------------------- Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467 Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24 % appreciation 42.1% 32.9% 42.0% 34.3% 27.7% ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38 % APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0% ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10 % APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
(a) Represents full year EBITDA adjusted to give effect to all current year acquisitions and divestitures as if they occurred on January 1. (b) For purposes of calculating Total Enterprise Value at the end of any year, the EBITDA multiple shall be 7.5x. (c) Other Obligations include any debt-like instruments such as acquisition-related noncompete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. (d) Option proceeds assume exercise of all vested in-the-money options, including those options available for current year vesting. In this example, assumes all options have exercise price of $9.25. (e) For purposes of calculating value of common equity per share on this schedule, all time-based options are deemed vested and exercised. (f) 483,333 performance options are available for grant. At Closing, 333,333 of such options will be granted to existing members of management. The remaining 150,000 options will be reserved for future grant. This example assumes that all 483,333 are granted. (g) Assumes a June 30, 1999 closing. If calculated value of common equity per share exceeds the maximum annual share price target for that year, then 100% of eligible options will vest (0.121 million in this example). (h) Assumes a June 30, 1999 closing. If calculated value of common equity per share is below the minimum annual share price target for that year, then 0% of eligible options will vest (0.000 million in this example). 79 Exhibit D VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN TIME OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - -------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 80 2 (a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries (each such anniversary being a "Vesting Date") of the purchase of shares of common stock of Sheridan pursuant to the Offer. (b) Termination of Employment. If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability, the Option shall, as of the date of such termination, become vested with respect to, and the Vested Portion of the Option shall include, that portion of the Option which would otherwise have vested on the next Vesting Date. (c) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control the Option shall, to the extent not then vested and not previously canceled, immediately become fully vested and exercisable. 3. Exercise of Option. (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in 81 3 effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and 82 4 "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with applicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall 83 5 contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the 84 6 Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: ------------------------------ Agreed and acknowledged as of the date first above written: - - ------------------------------ EX-99.C.8 10 SUBSCRIPTION AND TENDER AGREEMENT 1 SUBSCRIPTION AND TENDER AGREEMENT SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and the individual named on the signature page hereto (the "Stockholder"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Stockholder and certain other Management Investors referred to below to enter into this Agreement and the other Stockholder Documents referred to in the Merger Agreement; WHEREAS, the Stockholder has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, on the terms and subject to the conditions hereof, the Stockholder desires to subscribe for and acquire from the Company, and the Company desires to issue and sell to the Stockholder, the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth on Schedule I hereto, as hereinafter set forth; WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Stockholder, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Subscription for and Purchase of Common Stock. 1.1. Purchase of Common Stock. Pursuant to the terms and subject to the conditions set forth in this Agreement, the Stockholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Stockholder, on the Closing 2 2 Date (as defined in Section 1.3) the number of shares of Common Stock set forth on Schedule I hereto at a price per share and for the aggregate amount in cash (the "Purchase Price") set forth on Schedule I hereto. 1.2. Sales of Common Stock to Employees Only. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue, sell or deliver any shares of Common Stock to any person (i) who is not a full-time employee of, or consultant to, the Company or any of its subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in which such issuance, sale or delivery to such person would constitute a violation of the securities or "blue sky" laws of such jurisdiction. 1.3. The Closing. The closing (the "Closing") of the purchase of Common Stock hereunder shall take place on the date (the "Closing Date") that Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and at such time as the Company shall direct on at least one business day's prior notice to the Stockholder. The Closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such other place as the parties may mutually agree. At the Closing, the Stockholder (or the Stockholder's representative) shall deliver to the Company the Purchase Price, payable by delivery of the amount set forth on Schedule I hereto, by delivery of a certified check or by wire transfer in immediately available funds. 1.4. Conditions to the Obligations of the Parties. (a) The obligations of the Company under this Section 1 shall be subject to the conditions that (i) the Stockholder shall have executed and delivered the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement"), (ii) the representations and warranties of the Stockholder in Section 2 of this Agreement shall be true and correct as of the Closing Date in all material respects and (iii) the Stockholder shall not have breached his obligations under Section 3 hereof. (b) The obligations of the Stockholder under this Section 1 shall be subject to the conditions that (i) the Company shall have executed and delivered the Stockholders Agreement and (ii) the representations and warranties of the Company in Section 1.5 of this Agreement shall be true and correct as of the Closing Date in all material respects. 1.5. Representations and Warranties of the Company. The Company represents and warrants to the Stockholder as follows: (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement has been duly authorized by all necessary corporate and legal action by the Company, and no other corporate proceeding by the Company is necessary for the execution, delivery and performance by the Company of this Agreement or the Stockholders Agreement. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Company and, assuming they are duly executed and delivered by the Stockholder, 3 3 constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (b) the Common Stock to be issued to the Stockholder pursuant to this Agreement, when issued and delivered in accordance with the terms hereof, will be duly and validly issued and, upon receipt by the Company of the Purchase Price therefor, will be fully paid and nonassessable with no personal liability attached to the ownership thereof and will not be subject to any preemptive rights under the Delaware General Corporation Law; and (c) the execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company or any of its subsidiaries or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or (iii) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their assets may be bound or affected. 2. Representations, Warranties and Covenants of the Stockholder. 2.1. Residence and Competency; Power; Enforceability; Noncontravention. The Stockholder is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Stockholder. Assuming the due execution and delivery of this Agreement and the Stockholders Agreement by the Company, this Agreement and the Stockholders Agreement constitute valid and binding obligations of the Stockholder, enforceable against the Stockholder in accordance with their terms. The execution, delivery and performance of this Agreement and the Stockholders Agreement by the Stockholder will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Stockholder or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Stockholder is a party or by which the Stockholder is bound. 2.2. Investment Intention; No Resales. The Stockholder hereby represents and warrants that he is acquiring the Common Stock for investment solely for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Stockholder agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock, or solicit any offers to purchase or otherwise acquire or pledge any shares of Common Stock, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions hereof and of the Stockholders Agreement. 4 4 2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that he has been advised by the Company that: (a) the offer and sale of the Common Stock have not been and will not be registered under the Securities Act; (b) the Common Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the Common Stock unless the offer and sale of such Common Stock is subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such registration is available; (c) there is no established market for the Common Stock and it is not anticipated that there will be any public market for the Common Stock in the foreseeable future; (d) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company, and, except as set forth in the Stockholders Agreement, the Company has made no covenant to make such Rule available; (e) when and if shares of Common Stock may be disposed of without registration under the Securities Act in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule; (f) if the Rule 144 exemption is not available, public offer or sale of Common Stock without registration will require compliance with some other exemption under the Securities Act; (g) if any shares of Common Stock are at any time disposed of in accordance with Rule 144, the Stockholder will deliver to the Company at or prior to the time of such disposition an executed Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale; (h) a restrictive legend in the form set forth in the Stockholders Agreement shall be placed on the certificates representing Common Stock; and (i) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Common Stock. 2.4. Additional Investment Representations. The Stockholder represents and warrants that: (a) the Stockholder's financial situation is such that he can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, has adequate means for providing for his current needs and personal contingencies, and can afford to suffer a complete loss of his investment in the Common Stock; 5 5 (b) the Stockholder's knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of the investment in the Common Stock, as contemplated by this Agreement; (c) the Stockholder understands that the Common Stock is a speculative investment which involves a high degree of risk of loss of his investment therein, there are substantial restrictions on the transferability of the Common Stock and, on the Closing Date and for an indefinite period following the Closing, there will be no public market for the Common Stock and, accordingly, it may not be possible for the Stockholder to liquidate his investment in case of emergency, if at all; (d) the terms of the Stockholders Agreement provide that in the event that the Stockholder ceases to be an employee of Sheridan, the Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their designated affiliates have the right to repurchase the Common Stock at a price which may, in certain circumstances, be less than the fair market value of such stock; (e) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of Common Stock and, other than as set forth in this Agreement, no representations or warranties have been made to the Stockholder or his representatives concerning the Common Stock or the Company, its subsidiaries or their prospects or other matters; (f) in making his decision to purchase the Common Stock hereby subscribed for, the Stockholder has relied upon independent investigations made by him and, to the extent believed by the Stockholder to be appropriate, his representatives, including his own professional, financial, tax and other advisors; (g) the Stockholder has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the Company and its subsidiaries and the terms and conditions of the purchase of the Common Stock and to obtain any additional information, in each case as the Stockholder or his representatives deems necessary; (h) all information which the Stockholder has provided to the Company and its representatives concerning the Stockholder and his financial position is complete and correct as of the date of this Agreement; and (i) the Stockholder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. 3. Agreements Relating to Tender Shares. 3.1. Agreement to Tender. The Stockholder hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 3.2. Voting of Tender Shares. The Stockholder hereby agrees, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, to vote all Tender 6 6 Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 3.3. Disposition of Tender Shares. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 3.4. Stop Transfer Order. The Stockholder hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof. 4. Options. 4.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 4.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Stockholder will be granted performance options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 4.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Stockholder will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 7 7 5. Miscellaneous. 5.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 5.2. Stockholder's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to employ the Stockholder in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Stockholder at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 5.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Stockholder shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 5.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 5.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. 8 8 (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 (b) If to the Stockholder, to him at his address or telecopy number as shown on the stock register of the Company. 5.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.9. Injunctive Relief. The Stockholder, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Stockholder, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 5.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Stockholder at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Stockholder, whether or not at the time of such purchase circumstances exist 9 9 which specifically grant the Company the right to purchase, or the Stockholder the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 5.11. Rights Cumulative; Waiver. The rights and remedies of the Stockholder and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. --------------------------------- Name: James L. Elrod, Jr. Title: President 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. STOCKHOLDER: /s/ Lewis D. Gold Lewis D. Gold 12 LEWIS D. GOLD SCHEDULE I Number of Shares Purchase Price Aggregate Purchase of Common Stock Per Share Price Payable - - --------------- --------- ------------- 135,135** Per share price paid by Acquisition $1,249,998.75 for Sheridan Common Stock pursuant to the Offer ** Assuming a purchase price per share of $9.25. 13 LEWIS D. GOLD SCHEDULE II Number of Shares Subject Number of Shares Subject to Time Options to Performance Options - - --------------- ---------------------- 216,666 108,334 14 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 15 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 16 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 17 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 18 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 19 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 20 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 21 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 22 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 23 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 24 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 25 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 26 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 27 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 28 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 29 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 30 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 31 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 32 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 33 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 34 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 35 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 36 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 37 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 38 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 39 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 40 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 41 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 42 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 43 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 44 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 45 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 46 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 47 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 48 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 49 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 50 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 51 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 52 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 53 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 54 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 55 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 56 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 57 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 58 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW 59 Exhibit B Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional officers, key employees and outside directors of, and consultants to, the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change of Control" shall mean the earlier to occur of (x) the date of the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), other than Vestar, or (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, Public Offering (as defined in the Stockholders' Agreement), sale of capital stock or assets of Sheridan or any other Subsidiary of the Company or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) their equity interest in the Company immediately following the Closing Date (as defined in the Stockholders'sAgreement) plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of (y) either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates or a combination thereof or (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding 60 2 securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan. "Company" shall have the meaning specified in the Stockholders' Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall have the meaning specified in the Stockholders' Agreement. "Management Investor" shall have the meaning specified in the Stockholders' Agreement. "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan. "Participant" shall mean any officer, key employee or outside director of, or consultant to, the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an Option under the Plan. "Performance Option" shall mean an Option granted under the Plan which becomes exercisable, or for which the period of exercisability is accelerated, upon the satisfaction of certain performance criteria established by the Committee and set forth in the Award Agreement evidencing such option. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean (i) shares or units of Common Stock (as defined in the Stockholders' Agreement) or (ii) as may be determined by the Committee pursuant to Section 4(b). 61 3 "Stockholders' Agreement" shall mean the Agreement, dated as of March 24, 1999, among the Company and the other parties identified therein. "Subsidiary" shall mean any entity that, directly or indirectly, is controlled by the Company. "Substitute Options" shall have the meaning specified in Section 4(c). "Time Option" shall mean an Option granted under the Plan, which is not a Performance Option, and which becomes exercisable over time based on a Participant's continued employment with the Company or its Subsidiaries. "Vestar" shall mean Vestar Capital Partners III, L.P. and any of its Affiliates. SECTION 3. Administration. (a) The Plan shall be administered by the Committee. Subject to the terms of the Plan, any Award Agreement and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Options to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Options; (iv) determine the terms and conditions of any Option; (v) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Options, other property, and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Unless otherwise expressly provided in the Plan and subject to the terms of any Award Agreement, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any holder of Shares. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder. 62 4 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 1,150,000; provided, however, that in no event shall the number of Shares subject to Time Options granted under the Plan exceed 666,667. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been cancelled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder. (b) Adjustments. In the event that the Committee determines that any Exit Transaction, dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate in connection with a Change of Control, make provision for an immediate cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option. (c) Substitute Options. Options may be granted, in the discretion of the Committee, under the Plan in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan. (d) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any officer, key employee or outside director of, or consultant to, the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the 63 5 number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option. None of the Options granted under the Plan are intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement. (b) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or, with the consent of the Participant thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (c) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment shall be made in cash or by bank check or, subject to the consent of the Committee in its sole discretion, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. SECTION 7. Amendment and Termination. (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (b) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment or alteration that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. In addition, with the consent of any Participant, holder or beneficiary, the Company may suspend, discontinue, cancel or terminate any Option theretofore granted, prospectively or retroactively (c) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the performance criteria applicable to outstanding Performance Options in the event of any extraordinary and nonrecurring events affecting the Company or its Subsidiaries, or the financial statements of the Company or its Subsidiaries, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines in good faith that such adjustments are necessary in order to prevent dilution or enlargement of rights under such Performance Options. 64 6 SECTION 8. Change of Control. In the event of a Change of Control after the date of the adoption of this Plan, (i) any outstanding Time Options then held by Participants, which are unexercisable or otherwise unvested, shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control and (ii) any outstanding Performance Options, whether exercisable or not, then held by Participants, shall continue to be governed by the terms of each such Participant's Award Agreement. SECTION 9. General Provisions. (a) Nontransferability. (i) Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to: (A) the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family"); (B) a trust solely for the benefit of the Grantee and his or her Immediate Family; or (C) a partnership or limited liability company whose only partners or members are the Grantee and his or her Immediate Family members; (each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the Option. The terms of any Option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless 65 7 there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement or form is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, provided all required notices are given to the Grantee and (d) the consequences of termination of the Grantee's employment by, or services to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement. (b) No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). (c) Share Certificates. All certificates for Shares or other securities of the Company delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, any applicable Federal or state laws, and any applicable written agreements between Vestar and/or the Company and the Participants including, without limitation, the Stockholders' Agreement, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (ii) Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 9(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee. (e) Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other 66 8 compensation arrangements, which may, but need not, provide for the grant of options (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of New York. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration will violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. 67 9 (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (n) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Term of the Plan. (a) Effective Date. The Plan shall be effective as of the date of its approval by the persons and/or entities who own, immediately after giving effect to the Effective Time (as defined in the Agreement and Plan of Merger dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding stock of the Company, determined in a manner consistent with Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended and the proposed regulations promulgated thereunder. If such approval is not obtained, this Plan and any Options granted under the Plan shall be null and void and of no force and effect. (b) Expiration Date. No Option shall be granted under the Plan after December 31, 2009. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 31, 2009. SECTION 11. Awards Subject to Stockholders' Agreement. Options granted under the Plan and any Shares delivered upon the exercise or settlement of any Options granted hereunder shall be subject to the Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and any terms or provisions of the Stockholders' Agreement, the applicable provisions of the Stockholders' Agreement will govern and prevail. 68 Exhibit C VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN PERFORMANCE OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - ---------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 69 2 (a) Time Vesting. Subject to paragraphs (b), (c) and (d) of this Section 2, the Option shall vest and become exercisable in full on the ninth anniversary of the purchase of shares of common stock of Sheridan pursuant to the Offer (the date of such purchase being the "Purchase Date"). (b) Accelerated Vesting Based Upon Performance. (i) Subject to the Participant's continued employment with the Company, the Option shall vest and become exercisable on an accelerated basis with respect to up to twenty-five percent (25%) of the Shares initially covered by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting Shares") on each of the first, second, third and fourth anniversaries of the Purchase Date (each an "Accelerated Vesting Date") as follows: (A) With respect to each Accelerated Vesting Date, 100% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending immediately prior to the applicable Accelerated Vesting Date (such last day of the fiscal year being referred to as the "Determination Date") equals or exceeds the Maximum Annual Price Target (described below) for such Determination Date; (B) With respect to each Accelerated Vesting Date, 0% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share as of the applicable Determination Date is less than or equal to the Minimum Annual Price Target (described below) for such Determination Date; and (C) With respect to each Accelerated Vesting Date, if the Common Equity Per Share as of the Determination Date is less than the Maximum Annual Price Target and greater than the Minimum Annual Price Target for such Determination Date, then the number of Scheduled Accelerated Vesting Shares which shall vest will equal the product of (x) 100% of the Scheduled Accelerated Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall equal the quotient obtained by dividing (A) the excess of the Value of Common Equity Per Share as of the Determination Date over the Minimum Annual Price Target for such Determination Date by (B) the excess of the Maximum Annual Price Target as of the Determination Date over the Minimum Annual Price Target for such Determination Date. (ii) In the event that the Option does not vest on an accelerated basis with respect to all of the Scheduled Accelerated Vesting Shares on an Accelerated Vesting Date solely as a result of the failure to achieve or exceed the applicable Maximum Annual Price Target, then the number of Scheduled Vesting Shares with respect to which the Option did not vest on an accelerated basis (the "Missed Shares"), will be available for vesting on the next succeeding Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The number of Missed Shares, if any, which will vest on an accelerated basis on the Make-Up Vesting Date will equal the excess, if any, of (x) the number of Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of Scheduled Accelerated Vesting Shares which actually vested on an accelerated basis on the immediately preceding Accelerated Vesting Date. 70 3
Determination Minimum Maximum Vesting Date Date Annual Price Target Annual Price Target - - ------------ ---- ------------------- ------------------- 1st anniversary of FY Ending Purchase Date 12/31/99 $10.18 $10.64 2nd anniversary of FY Ending Purchase Date 12/31/00 $12.21 $13.83 3rd anniversary of FY Ending Purchase Date 12/31/01 $14.65 $17.98 4th anniversary of FY Ending Purchase Date 12/31/02 $17.58 $23.37 5th anniversary of FY Ending $21.10 $30.38 Purchase Date 2/31/03 (Used for 4th anniversary missed shares only)
The determination of the Value of Common Equity Per Share for each fiscal year shall be made by the Board in good faith based upon, and immediately following receipt of, the audited financial statements for such fiscal year and will be calculated (after giving effect to the issuance of all Time Options and all Performance Options which have previously vested or which will vest in such fiscal year) pursuant to the methodology outlined in Exhibit A. (c) Termination of Employment If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability (as each such term is defined in Section 3(a) below), and the Minimum Annual Price Target for the Determination Date applicable to the next succeeding Accelerated Vesting Date is exceeded as of such Determination Date, then the Option shall, upon the Board's determination that the Minimum Annual Price Target for such Determination Date has been exceeded, become vested with respect to, and the Vested Portion of the Option shall include a number of Shares (the "Termination Shares") equal to the sum of: (i) the product of (A) the number of Scheduled Accelerated Vesting Shares that would otherwise have vested pursuant to Section 2(b)(i) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) a fraction, the numerator of which is the number of days that passed since the immediately preceding Accelerated Vesting Date through and including the date of the Participant's 71 4 termination of employment and the denominator of which is 365 (the "Termination Fraction"); plus (ii) If there were Missed Shares with respect to the immediately preceding Accelerated Vesting Date, the product of (A) the number of Missed Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) the Termination Fraction. (d) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control, the Option shall, to the extent not previously cancelled, immediately become vested and exercisable with respect to the Scheduled Accelerated Vesting Shares for any remaining future Accelerated Vesting Dates, if, and only if, in connection with the Change of Control, Vestar receives aggregate proceeds, in cash, securities or a combination of cash and securities, having an aggregate Fair Market Value in an amount equal to or in excess of the product of (i) Vestar's Aggregate Investment (as defined below) times (ii) the Minimum Investment Multiple (as defined below) applicable to the fiscal year of the Company in which such Change of Control occurs; provided that, securities received by Vestar shall be taken into account for purposes hereof only if such securities are distributed by Vestar, in kind, to its limited partners. For purposes of this Agreement: "Vestar's Aggregate Investment" shall mean the total amount of capital invested by Vestar in the Company and its Subsidiaries, including investments made in connection with the Offer, the Merger contemplated by the Merger Agreement, or otherwise; and "Minimum Investment Multiple" shall mean with respect to the Company's fiscal years ending December 31, 1999 through December 31, 2003 as follows:
FY In Which Change of Control Occurs Minimum Investment Multiple - - ------------------------------------ --------------------------- 1999 1.22 2000 1.66 2001 2.12 2002 2.50 2003 3.26
For purposes of this Section 2(d), "Fair Market Value"shall mean, solely with respect to securities distributed by Vestar to its limited partners, the value of such securities as reported by Vestar to such limited partners. 3. Exercise of Option. 72 5 (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to 73 6 time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with appliicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages 74 7 relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant. Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer 75 8 under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 76 9 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: --------------------------- Agreed and acknowledged as of the date first above written: - - ------------------------- 77 SHERIDAN HEALTHCARE, INC. EXHIBIT A METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS ARE SUBJECT TO ACCELERATED VESTING STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements for the year, the Company shall calculate (and the Board of Directors shall review and approve) EBITDA in good faith pro forma to give effect to all acquisitions and divestitures completed during the year as if they had occurred on January 1 of such year. STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated in Step 1) by 7.5. STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value (calculated in Step 2), deduct year-end balances for Total Debt and Other Obligations, add year-end balance for Total Cash and add Total Option Proceeds. For purposes of this calculation, Other Obligations includes any debt-like instruments such as acquisition-related non-compete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. Total Option Proceeds should include options proceeds related to i) all time-based options (whether or not vested), ii) all performance-based options that have vested in prior years and iii) all performance-based options that vest in current year. STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number of shares outstanding at the beginning of the year, ii) shares issued in current year for any reason, including those related to acquisitions, iii) all time-based options (whether or not vested), iv) all performance-based options that vest in prior years or in the current year, v) shares associated with in-the-money convertible preferred stock and vi) shares associated with other in-the-money common stock equivalents including, but not limited to, warrants and any other options. STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step 4). In Step 6, this number will be compared with the maximum and minimum targets listed below to determine how many (if any) performance-based options vest in current year. STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR. Multiply the number of options eligible for accelerated vesting in current year pursuant to the Performance Option Plan by i) if the Value of Common Equity per Share (Step 5) is greater than or equal to current year's Maximum Annual Price Target, 100%; ii) if the Value of Common Equity per Share is less than or equal to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common Equity per Share is between current year's Minimum and Maximum Annual Price Targets, the quotient calculated by dividing (A) excess of the Value of Common Equity per Share over current year's Minimum Annual Price Target by (B) the excess of current year's Maximum Annual Price Target over current year's Minimum Annual Price Target.
Minimum Annual Price Maximum Annual Price Target Year Target ---------- -------------------- ----------------------------- 1999 $10.18 $10.64 2000 12.21 13.83 2001 14.65 17.98 2002 17.58 23.37 2003 21.10 30.38
78 SHERIDAN HEALTHCARE, INC. EXHIBIT A ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST PURSUANT TO PERFORMANCE MEASURES
====================================================================== 1999 2000 2001 2002 2003 --------------------------------------------------------------------- Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8 EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5 --------------------------------------------------------------------- Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3 Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6) Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6 --------------------------------------------------------------------- Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3 Beginning # of Shares 7.317 10.105 10.225 10.346 10.467 Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000 Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000 Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000 Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000 Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000 --------------------------------------------------------------------- Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467 Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24 % appreciation 42.1% 32.9% 42.0% 34.3% 27.7% ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38 % APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0% ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10 % APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
(a) Represents full year EBITDA adjusted to give effect to all current year acquisitions and divestitures as if they occurred on January 1. (b) For purposes of calculating Total Enterprise Value at the end of any year, the EBITDA multiple shall be 7.5x. (c) Other Obligations include any debt-like instruments such as acquisition-related noncompete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. (d) Option proceeds assume exercise of all vested in-the-money options, including those options available for current year vesting. In this example, assumes all options have exercise price of $9.25. (e) For purposes of calculating value of common equity per share on this schedule, all time-based options are deemed vested and exercised. (f) 483,333 performance options are available for grant. At Closing, 333,333 of such options will be granted to existing members of management. The remaining 150,000 options will be reserved for future grant. This example assumes that all 483,333 are granted. (g) Assumes a June 30, 1999 closing. If calculated value of common equity per share exceeds the maximum annual share price target for that year, then 100% of eligible options will vest (0.121 million in this example). (h) Assumes a June 30, 1999 closing. If calculated value of common equity per share is below the minimum annual share price target for that year, then 0% of eligible options will vest (0.000 million in this example). 79 Exhibit D VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN TIME OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - -------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 80 2 (a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries (each such anniversary being a "Vesting Date") of the purchase of shares of common stock of Sheridan pursuant to the Offer. (b) Termination of Employment. If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability, the Option shall, as of the date of such termination, become vested with respect to, and the Vested Portion of the Option shall include, that portion of the Option which would otherwise have vested on the next Vesting Date. (c) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control the Option shall, to the extent not then vested and not previously canceled, immediately become fully vested and exercisable. 3. Exercise of Option. (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in 81 3 effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and 82 4 "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with applicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall 83 5 contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the 84 6 Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: ------------------------------ Agreed and acknowledged as of the date first above written: - - ------------------------------ EX-99.C.9 11 SUBSCRIPTION AND TENDER AGREEMENT 1 SUBSCRIPTION AND TENDER AGREEMENT SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and the individual named on the signature page hereto (the "Stockholder"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Stockholder and certain other Management Investors referred to below to enter into this Agreement and the other Stockholder Documents referred to in the Merger Agreement; WHEREAS, the Stockholder has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, on the terms and subject to the conditions hereof, the Stockholder desires to subscribe for and acquire from the Company, and the Company desires to issue and sell to the Stockholder, the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth on Schedule I hereto, as hereinafter set forth; WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Stockholder, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Subscription for and Purchase of Common Stock. 1.1. Purchase of Common Stock. Pursuant to the terms and subject to the conditions set forth in this Agreement, the Stockholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Stockholder, on the Closing 2 2 Date (as defined in Section 1.3) the number of shares of Common Stock set forth on Schedule I hereto at a price per share and for the aggregate amount in cash (the "Purchase Price") set forth on Schedule I hereto. 1.2. Sales of Common Stock to Employees Only. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue, sell or deliver any shares of Common Stock to any person (i) who is not a full-time employee of, or consultant to, the Company or any of its subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in which such issuance, sale or delivery to such person would constitute a violation of the securities or "blue sky" laws of such jurisdiction. 1.3. The Closing. The closing (the "Closing") of the purchase of Common Stock hereunder shall take place on the date (the "Closing Date") that Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and at such time as the Company shall direct on at least one business day's prior notice to the Stockholder. The Closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such other place as the parties may mutually agree. At the Closing, the Stockholder (or the Stockholder's representative) shall deliver to the Company the Purchase Price, payable by delivery of the amount set forth on Schedule I hereto, by delivery of a certified check or by wire transfer in immediately available funds. 1.4. Conditions to the Obligations of the Parties. (a) The obligations of the Company under this Section 1 shall be subject to the conditions that (i) the Stockholder shall have executed and delivered the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement"), (ii) the representations and warranties of the Stockholder in Section 2 of this Agreement shall be true and correct as of the Closing Date in all material respects and (iii) the Stockholder shall not have breached his obligations under Section 3 hereof. (b) The obligations of the Stockholder under this Section 1 shall be subject to the conditions that (i) the Company shall have executed and delivered the Stockholders Agreement and (ii) the representations and warranties of the Company in Section 1.5 of this Agreement shall be true and correct as of the Closing Date in all material respects. 1.5. Representations and Warranties of the Company. The Company represents and warrants to the Stockholder as follows: (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement has been duly authorized by all necessary corporate and legal action by the Company, and no other corporate proceeding by the Company is necessary for the execution, delivery and performance by the Company of this Agreement or the Stockholders Agreement. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Company and, assuming they are duly executed and delivered by the Stockholder, 3 3 constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (b) the Common Stock to be issued to the Stockholder pursuant to this Agreement, when issued and delivered in accordance with the terms hereof, will be duly and validly issued and, upon receipt by the Company of the Purchase Price therefor, will be fully paid and nonassessable with no personal liability attached to the ownership thereof and will not be subject to any preemptive rights under the Delaware General Corporation Law; and (c) the execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company or any of its subsidiaries or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or (iii) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their assets may be bound or affected. 2. Representations, Warranties and Covenants of the Stockholder. 2.1. Residence and Competency; Power; Enforceability; Noncontravention. The Stockholder is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Stockholder. Assuming the due execution and delivery of this Agreement and the Stockholders Agreement by the Company, this Agreement and the Stockholders Agreement constitute valid and binding obligations of the Stockholder, enforceable against the Stockholder in accordance with their terms. The execution, delivery and performance of this Agreement and the Stockholders Agreement by the Stockholder will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Stockholder or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Stockholder is a party or by which the Stockholder is bound. 2.2. Investment Intention; No Resales. The Stockholder hereby represents and warrants that he is acquiring the Common Stock for investment solely for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Stockholder agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock, or solicit any offers to purchase or otherwise acquire or pledge any shares of Common Stock, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions hereof and of the Stockholders Agreement. 4 4 2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that he has been advised by the Company that: (a) the offer and sale of the Common Stock have not been and will not be registered under the Securities Act; (b) the Common Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the Common Stock unless the offer and sale of such Common Stock is subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such registration is available; (c) there is no established market for the Common Stock and it is not anticipated that there will be any public market for the Common Stock in the foreseeable future; (d) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company, and, except as set forth in the Stockholders Agreement, the Company has made no covenant to make such Rule available; (e) when and if shares of Common Stock may be disposed of without registration under the Securities Act in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule; (f) if the Rule 144 exemption is not available, public offer or sale of Common Stock without registration will require compliance with some other exemption under the Securities Act; (g) if any shares of Common Stock are at any time disposed of in accordance with Rule 144, the Stockholder will deliver to the Company at or prior to the time of such disposition an executed Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale; (h) a restrictive legend in the form set forth in the Stockholders Agreement shall be placed on the certificates representing Common Stock; and (i) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Common Stock. 2.4. Additional Investment Representations. The Stockholder represents and warrants that: (a) the Stockholder's financial situation is such that he can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, has adequate means for providing for his current needs and personal contingencies, and can afford to suffer a complete loss of his investment in the Common Stock; 5 5 (b) the Stockholder's knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of the investment in the Common Stock, as contemplated by this Agreement; (c) the Stockholder understands that the Common Stock is a speculative investment which involves a high degree of risk of loss of his investment therein, there are substantial restrictions on the transferability of the Common Stock and, on the Closing Date and for an indefinite period following the Closing, there will be no public market for the Common Stock and, accordingly, it may not be possible for the Stockholder to liquidate his investment in case of emergency, if at all; (d) the terms of the Stockholders Agreement provide that in the event that the Stockholder ceases to be an employee of Sheridan, the Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their designated affiliates have the right to repurchase the Common Stock at a price which may, in certain circumstances, be less than the fair market value of such stock; (e) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of Common Stock and, other than as set forth in this Agreement, no representations or warranties have been made to the Stockholder or his representatives concerning the Common Stock or the Company, its subsidiaries or their prospects or other matters; (f) in making his decision to purchase the Common Stock hereby subscribed for, the Stockholder has relied upon independent investigations made by him and, to the extent believed by the Stockholder to be appropriate, his representatives, including his own professional, financial, tax and other advisors; (g) the Stockholder has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the Company and its subsidiaries and the terms and conditions of the purchase of the Common Stock and to obtain any additional information, in each case as the Stockholder or his representatives deems necessary; (h) all information which the Stockholder has provided to the Company and its representatives concerning the Stockholder and his financial position is complete and correct as of the date of this Agreement; and (i) the Stockholder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. 3. Agreements Relating to Tender Shares. 3.1. Agreement to Tender. The Stockholder hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 3.2. Voting of Tender Shares. The Stockholder hereby agrees, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, to vote all Tender 6 6 Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 3.3. Disposition of Tender Shares. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 3.4. Stop Transfer Order. The Stockholder hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof. 4. Options. 4.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 4.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Stockholder will be granted performance options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 4.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Stockholder will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 7 7 5. Miscellaneous. 5.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 5.2. Stockholder's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to employ the Stockholder in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Stockholder at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 5.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Stockholder shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 5.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 5.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. 8 8 (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 (b) If to the Stockholder, to him at his address or telecopy number as shown on the stock register of the Company. 5.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.9. Injunctive Relief. The Stockholder, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Stockholder, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 5.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Stockholder at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Stockholder, whether or not at the time of such purchase circumstances exist 9 9 which specifically grant the Company the right to purchase, or the Stockholder the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 5.11. Rights Cumulative; Waiver. The rights and remedies of the Stockholder and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR/CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. ---------------------------------------- Name: James L. Elrod, Jr. Title: President 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. STOCKHOLDER: /s/ Jay A. Martus ------------------------------------- Jay A. Martus 12 JAY A. MARTUS SCHEDULE I
Number of Shares Purchase Price Aggregate Purchase of Common Stock Per Share Price Payable - - --------------- --------- ------------- 3,244** Per share price paid by Acquisition $30,007 for Sheridan Common Stock pursuant to the Offer
** Assuming a purchase price per share of $9.25. 13 JAY A. MARTUS SCHEDULE II
Number of Shares Subject Number of Shares Subject to Time Options to Performance Options - - --------------- ---------------------- 66,666 33,334
14 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 15 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 16 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 17 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 18 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 19 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 20 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 21 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 22 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 23 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 24 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 25 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 26 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 27 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 28 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 29 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 30 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 31 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 32 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 33 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 34 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 35 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 36 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 37 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 38 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 39 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 40 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 41 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 42 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 43 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 44 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 45 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 46 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 47 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 48 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 49 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 50 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 51 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 52 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 53 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 54 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 55 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 56 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 57 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 58 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW 59 Exhibit B Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional officers, key employees and outside directors of, and consultants to, the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change of Control" shall mean the earlier to occur of (x) the date of the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), other than Vestar, or (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, Public Offering (as defined in the Stockholders' Agreement), sale of capital stock or assets of Sheridan or any other Subsidiary of the Company or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) their equity interest in the Company immediately following the Closing Date (as defined in the Stockholders'sAgreement) plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of (y) either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates or a combination thereof or (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding 60 2 securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan. "Company" shall have the meaning specified in the Stockholders' Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall have the meaning specified in the Stockholders' Agreement. "Management Investor" shall have the meaning specified in the Stockholders' Agreement. "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan. "Participant" shall mean any officer, key employee or outside director of, or consultant to, the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an Option under the Plan. "Performance Option" shall mean an Option granted under the Plan which becomes exercisable, or for which the period of exercisability is accelerated, upon the satisfaction of certain performance criteria established by the Committee and set forth in the Award Agreement evidencing such option. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean (i) shares or units of Common Stock (as defined in the Stockholders' Agreement) or (ii) as may be determined by the Committee pursuant to Section 4(b). 61 3 "Stockholders' Agreement" shall mean the Agreement, dated as of March 24, 1999, among the Company and the other parties identified therein. "Subsidiary" shall mean any entity that, directly or indirectly, is controlled by the Company. "Substitute Options" shall have the meaning specified in Section 4(c). "Time Option" shall mean an Option granted under the Plan, which is not a Performance Option, and which becomes exercisable over time based on a Participant's continued employment with the Company or its Subsidiaries. "Vestar" shall mean Vestar Capital Partners III, L.P. and any of its Affiliates. SECTION 3. Administration. (a) The Plan shall be administered by the Committee. Subject to the terms of the Plan, any Award Agreement and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Options to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Options; (iv) determine the terms and conditions of any Option; (v) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Options, other property, and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Unless otherwise expressly provided in the Plan and subject to the terms of any Award Agreement, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any holder of Shares. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder. 62 4 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 1,150,000; provided, however, that in no event shall the number of Shares subject to Time Options granted under the Plan exceed 666,667. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been cancelled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder. (b) Adjustments. In the event that the Committee determines that any Exit Transaction, dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate in connection with a Change of Control, make provision for an immediate cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option. (c) Substitute Options. Options may be granted, in the discretion of the Committee, under the Plan in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan. (d) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any officer, key employee or outside director of, or consultant to, the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the 63 5 number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option. None of the Options granted under the Plan are intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement. (b) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or, with the consent of the Participant thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (c) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment shall be made in cash or by bank check or, subject to the consent of the Committee in its sole discretion, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. SECTION 7. Amendment and Termination. (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (b) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment or alteration that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. In addition, with the consent of any Participant, holder or beneficiary, the Company may suspend, discontinue, cancel or terminate any Option theretofore granted, prospectively or retroactively (c) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the performance criteria applicable to outstanding Performance Options in the event of any extraordinary and nonrecurring events affecting the Company or its Subsidiaries, or the financial statements of the Company or its Subsidiaries, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines in good faith that such adjustments are necessary in order to prevent dilution or enlargement of rights under such Performance Options. 64 6 SECTION 8. Change of Control. In the event of a Change of Control after the date of the adoption of this Plan, (i) any outstanding Time Options then held by Participants, which are unexercisable or otherwise unvested, shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control and (ii) any outstanding Performance Options, whether exercisable or not, then held by Participants, shall continue to be governed by the terms of each such Participant's Award Agreement. SECTION 9. General Provisions. (a) Nontransferability. (i) Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to: (A) the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family"); (B) a trust solely for the benefit of the Grantee and his or her Immediate Family; or (C) a partnership or limited liability company whose only partners or members are the Grantee and his or her Immediate Family members; (each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the Option. The terms of any Option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless 65 7 there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement or form is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, provided all required notices are given to the Grantee and (d) the consequences of termination of the Grantee's employment by, or services to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement. (b) No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). (c) Share Certificates. All certificates for Shares or other securities of the Company delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, any applicable Federal or state laws, and any applicable written agreements between Vestar and/or the Company and the Participants including, without limitation, the Stockholders' Agreement, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (ii) Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 9(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee. (e) Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other 66 8 compensation arrangements, which may, but need not, provide for the grant of options (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of New York. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration will violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. 67 9 (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (n) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Term of the Plan. (a) Effective Date. The Plan shall be effective as of the date of its approval by the persons and/or entities who own, immediately after giving effect to the Effective Time (as defined in the Agreement and Plan of Merger dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding stock of the Company, determined in a manner consistent with Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended and the proposed regulations promulgated thereunder. If such approval is not obtained, this Plan and any Options granted under the Plan shall be null and void and of no force and effect. (b) Expiration Date. No Option shall be granted under the Plan after December 31, 2009. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 31, 2009. SECTION 11. Awards Subject to Stockholders' Agreement. Options granted under the Plan and any Shares delivered upon the exercise or settlement of any Options granted hereunder shall be subject to the Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and any terms or provisions of the Stockholders' Agreement, the applicable provisions of the Stockholders' Agreement will govern and prevail. 68 Exhibit C VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN PERFORMANCE OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - ---------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 69 2 (a) Time Vesting. Subject to paragraphs (b), (c) and (d) of this Section 2, the Option shall vest and become exercisable in full on the ninth anniversary of the purchase of shares of common stock of Sheridan pursuant to the Offer (the date of such purchase being the "Purchase Date"). (b) Accelerated Vesting Based Upon Performance. (i) Subject to the Participant's continued employment with the Company, the Option shall vest and become exercisable on an accelerated basis with respect to up to twenty-five percent (25%) of the Shares initially covered by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting Shares") on each of the first, second, third and fourth anniversaries of the Purchase Date (each an "Accelerated Vesting Date") as follows: (A) With respect to each Accelerated Vesting Date, 100% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending immediately prior to the applicable Accelerated Vesting Date (such last day of the fiscal year being referred to as the "Determination Date") equals or exceeds the Maximum Annual Price Target (described below) for such Determination Date; (B) With respect to each Accelerated Vesting Date, 0% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share as of the applicable Determination Date is less than or equal to the Minimum Annual Price Target (described below) for such Determination Date; and (C) With respect to each Accelerated Vesting Date, if the Common Equity Per Share as of the Determination Date is less than the Maximum Annual Price Target and greater than the Minimum Annual Price Target for such Determination Date, then the number of Scheduled Accelerated Vesting Shares which shall vest will equal the product of (x) 100% of the Scheduled Accelerated Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall equal the quotient obtained by dividing (A) the excess of the Value of Common Equity Per Share as of the Determination Date over the Minimum Annual Price Target for such Determination Date by (B) the excess of the Maximum Annual Price Target as of the Determination Date over the Minimum Annual Price Target for such Determination Date. (ii) In the event that the Option does not vest on an accelerated basis with respect to all of the Scheduled Accelerated Vesting Shares on an Accelerated Vesting Date solely as a result of the failure to achieve or exceed the applicable Maximum Annual Price Target, then the number of Scheduled Vesting Shares with respect to which the Option did not vest on an accelerated basis (the "Missed Shares"), will be available for vesting on the next succeeding Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The number of Missed Shares, if any, which will vest on an accelerated basis on the Make-Up Vesting Date will equal the excess, if any, of (x) the number of Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of Scheduled Accelerated Vesting Shares which actually vested on an accelerated basis on the immediately preceding Accelerated Vesting Date. 70 3
Determination Minimum Maximum Vesting Date Date Annual Price Target Annual Price Target - - ------------ ---- ------------------- ------------------- 1st anniversary of FY Ending Purchase Date 12/31/99 $10.18 $10.64 2nd anniversary of FY Ending Purchase Date 12/31/00 $12.21 $13.83 3rd anniversary of FY Ending Purchase Date 12/31/01 $14.65 $17.98 4th anniversary of FY Ending Purchase Date 12/31/02 $17.58 $23.37 5th anniversary of FY Ending $21.10 $30.38 Purchase Date 2/31/03 (Used for 4th anniversary missed shares only)
The determination of the Value of Common Equity Per Share for each fiscal year shall be made by the Board in good faith based upon, and immediately following receipt of, the audited financial statements for such fiscal year and will be calculated (after giving effect to the issuance of all Time Options and all Performance Options which have previously vested or which will vest in such fiscal year) pursuant to the methodology outlined in Exhibit A. (c) Termination of Employment If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability (as each such term is defined in Section 3(a) below), and the Minimum Annual Price Target for the Determination Date applicable to the next succeeding Accelerated Vesting Date is exceeded as of such Determination Date, then the Option shall, upon the Board's determination that the Minimum Annual Price Target for such Determination Date has been exceeded, become vested with respect to, and the Vested Portion of the Option shall include a number of Shares (the "Termination Shares") equal to the sum of: (i) the product of (A) the number of Scheduled Accelerated Vesting Shares that would otherwise have vested pursuant to Section 2(b)(i) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) a fraction, the numerator of which is the number of days that passed since the immediately preceding Accelerated Vesting Date through and including the date of the Participant's 71 4 termination of employment and the denominator of which is 365 (the "Termination Fraction"); plus (ii) If there were Missed Shares with respect to the immediately preceding Accelerated Vesting Date, the product of (A) the number of Missed Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) the Termination Fraction. (d) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control, the Option shall, to the extent not previously cancelled, immediately become vested and exercisable with respect to the Scheduled Accelerated Vesting Shares for any remaining future Accelerated Vesting Dates, if, and only if, in connection with the Change of Control, Vestar receives aggregate proceeds, in cash, securities or a combination of cash and securities, having an aggregate Fair Market Value in an amount equal to or in excess of the product of (i) Vestar's Aggregate Investment (as defined below) times (ii) the Minimum Investment Multiple (as defined below) applicable to the fiscal year of the Company in which such Change of Control occurs; provided that, securities received by Vestar shall be taken into account for purposes hereof only if such securities are distributed by Vestar, in kind, to its limited partners. For purposes of this Agreement: "Vestar's Aggregate Investment" shall mean the total amount of capital invested by Vestar in the Company and its Subsidiaries, including investments made in connection with the Offer, the Merger contemplated by the Merger Agreement, or otherwise; and "Minimum Investment Multiple" shall mean with respect to the Company's fiscal years ending December 31, 1999 through December 31, 2003 as follows:
FY In Which Change of Control Occurs Minimum Investment Multiple - - ------------------------------------ --------------------------- 1999 1.22 2000 1.66 2001 2.12 2002 2.50 2003 3.26
For purposes of this Section 2(d), "Fair Market Value"shall mean, solely with respect to securities distributed by Vestar to its limited partners, the value of such securities as reported by Vestar to such limited partners. 3. Exercise of Option. 72 5 (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to 73 6 time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with appliicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages 74 7 relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant. Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer 75 8 under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 76 9 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: --------------------------- Agreed and acknowledged as of the date first above written: - - ------------------------- 77 SHERIDAN HEALTHCARE, INC. EXHIBIT A METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS ARE SUBJECT TO ACCELERATED VESTING STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements for the year, the Company shall calculate (and the Board of Directors shall review and approve) EBITDA in good faith pro forma to give effect to all acquisitions and divestitures completed during the year as if they had occurred on January 1 of such year. STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated in Step 1) by 7.5. STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value (calculated in Step 2), deduct year-end balances for Total Debt and Other Obligations, add year-end balance for Total Cash and add Total Option Proceeds. For purposes of this calculation, Other Obligations includes any debt-like instruments such as acquisition-related non-compete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. Total Option Proceeds should include options proceeds related to i) all time-based options (whether or not vested), ii) all performance-based options that have vested in prior years and iii) all performance-based options that vest in current year. STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number of shares outstanding at the beginning of the year, ii) shares issued in current year for any reason, including those related to acquisitions, iii) all time-based options (whether or not vested), iv) all performance-based options that vest in prior years or in the current year, v) shares associated with in-the-money convertible preferred stock and vi) shares associated with other in-the-money common stock equivalents including, but not limited to, warrants and any other options. STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step 4). In Step 6, this number will be compared with the maximum and minimum targets listed below to determine how many (if any) performance-based options vest in current year. STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR. Multiply the number of options eligible for accelerated vesting in current year pursuant to the Performance Option Plan by i) if the Value of Common Equity per Share (Step 5) is greater than or equal to current year's Maximum Annual Price Target, 100%; ii) if the Value of Common Equity per Share is less than or equal to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common Equity per Share is between current year's Minimum and Maximum Annual Price Targets, the quotient calculated by dividing (A) excess of the Value of Common Equity per Share over current year's Minimum Annual Price Target by (B) the excess of current year's Maximum Annual Price Target over current year's Minimum Annual Price Target.
Minimum Annual Price Maximum Annual Price Target Year Target ---------- -------------------- ----------------------------- 1999 $10.18 $10.64 2000 12.21 13.83 2001 14.65 17.98 2002 17.58 23.37 2003 21.10 30.38
78 SHERIDAN HEALTHCARE, INC. EXHIBIT A ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST PURSUANT TO PERFORMANCE MEASURES
====================================================================== 1999 2000 2001 2002 2003 --------------------------------------------------------------------- Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8 EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5 --------------------------------------------------------------------- Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3 Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6) Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6 --------------------------------------------------------------------- Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3 Beginning # of Shares 7.317 10.105 10.225 10.346 10.467 Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000 Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000 Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000 Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000 Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000 --------------------------------------------------------------------- Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467 Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24 % appreciation 42.1% 32.9% 42.0% 34.3% 27.7% ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38 % APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0% ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10 % APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
(a) Represents full year EBITDA adjusted to give effect to all current year acquisitions and divestitures as if they occurred on January 1. (b) For purposes of calculating Total Enterprise Value at the end of any year, the EBITDA multiple shall be 7.5x. (c) Other Obligations include any debt-like instruments such as acquisition-related noncompete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. (d) Option proceeds assume exercise of all vested in-the-money options, including those options available for current year vesting. In this example, assumes all options have exercise price of $9.25. (e) For purposes of calculating value of common equity per share on this schedule, all time-based options are deemed vested and exercised. (f) 483,333 performance options are available for grant. At Closing, 333,333 of such options will be granted to existing members of management. The remaining 150,000 options will be reserved for future grant. This example assumes that all 483,333 are granted. (g) Assumes a June 30, 1999 closing. If calculated value of common equity per share exceeds the maximum annual share price target for that year, then 100% of eligible options will vest (0.121 million in this example). (h) Assumes a June 30, 1999 closing. If calculated value of common equity per share is below the minimum annual share price target for that year, then 0% of eligible options will vest (0.000 million in this example). 79 Exhibit D VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN TIME OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - -------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 80 2 (a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries (each such anniversary being a "Vesting Date") of the purchase of shares of common stock of Sheridan pursuant to the Offer. (b) Termination of Employment. If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability, the Option shall, as of the date of such termination, become vested with respect to, and the Vested Portion of the Option shall include, that portion of the Option which would otherwise have vested on the next Vesting Date. (c) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control the Option shall, to the extent not then vested and not previously canceled, immediately become fully vested and exercisable. 3. Exercise of Option. (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in 81 3 effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and 82 4 "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with applicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall 83 5 contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the 84 6 Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: ------------------------------ Agreed and acknowledged as of the date first above written: - - ------------------------------ EX-99.C.10 12 SUBSCRIPTION AND TENDER AGREEMENT 1 SUBSCRIPTION AND TENDER AGREEMENT SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and the individual named on the signature page hereto (the "Stockholder"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Stockholder and certain other Management Investors referred to below to enter into this Agreement and the other Stockholder Documents referred to in the Merger Agreement; WHEREAS, the Stockholder has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, on the terms and subject to the conditions hereof, the Stockholder desires to subscribe for and acquire from the Company, and the Company desires to issue and sell to the Stockholder, the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth on Schedule I hereto, as hereinafter set forth; WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Stockholder, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Subscription for and Purchase of Common Stock. 1.1. Purchase of Common Stock. Pursuant to the terms and subject to the conditions set forth in this Agreement, the Stockholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Stockholder, on the Closing 2 2 Date (as defined in Section 1.3) the number of shares of Common Stock set forth on Schedule I hereto at a price per share and for the aggregate amount in cash (the "Purchase Price") set forth on Schedule I hereto. 1.2. Sales of Common Stock to Employees Only. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue, sell or deliver any shares of Common Stock to any person (i) who is not a full-time employee of, or consultant to, the Company or any of its subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in which such issuance, sale or delivery to such person would constitute a violation of the securities or "blue sky" laws of such jurisdiction. 1.3. The Closing. The closing (the "Closing") of the purchase of Common Stock hereunder shall take place on the date (the "Closing Date") that Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and at such time as the Company shall direct on at least one business day's prior notice to the Stockholder. The Closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such other place as the parties may mutually agree. At the Closing, the Stockholder (or the Stockholder's representative) shall deliver to the Company the Purchase Price, payable by delivery of the amount set forth on Schedule I hereto, by delivery of a certified check or by wire transfer in immediately available funds. 1.4. Conditions to the Obligations of the Parties. (a) The obligations of the Company under this Section 1 shall be subject to the conditions that (i) the Stockholder shall have executed and delivered the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement"), (ii) the representations and warranties of the Stockholder in Section 2 of this Agreement shall be true and correct as of the Closing Date in all material respects and (iii) the Stockholder shall not have breached his obligations under Section 3 hereof. (b) The obligations of the Stockholder under this Section 1 shall be subject to the conditions that (i) the Company shall have executed and delivered the Stockholders Agreement and (ii) the representations and warranties of the Company in Section 1.5 of this Agreement shall be true and correct as of the Closing Date in all material respects. 1.5. Representations and Warranties of the Company. The Company represents and warrants to the Stockholder as follows: (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement has been duly authorized by all necessary corporate and legal action by the Company, and no other corporate proceeding by the Company is necessary for the execution, delivery and performance by the Company of this Agreement or the Stockholders Agreement. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Company and, assuming they are duly executed and delivered by the Stockholder, 3 3 constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (b) the Common Stock to be issued to the Stockholder pursuant to this Agreement, when issued and delivered in accordance with the terms hereof, will be duly and validly issued and, upon receipt by the Company of the Purchase Price therefor, will be fully paid and nonassessable with no personal liability attached to the ownership thereof and will not be subject to any preemptive rights under the Delaware General Corporation Law; and (c) the execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company or any of its subsidiaries or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or (iii) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their assets may be bound or affected. 2. Representations, Warranties and Covenants of the Stockholder. 2.1. Residence and Competency; Power; Enforceability; Noncontravention. The Stockholder is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Stockholder. Assuming the due execution and delivery of this Agreement and the Stockholders Agreement by the Company, this Agreement and the Stockholders Agreement constitute valid and binding obligations of the Stockholder, enforceable against the Stockholder in accordance with their terms. The execution, delivery and performance of this Agreement and the Stockholders Agreement by the Stockholder will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Stockholder or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Stockholder is a party or by which the Stockholder is bound. 2.2. Investment Intention; No Resales. The Stockholder hereby represents and warrants that he is acquiring the Common Stock for investment solely for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Stockholder agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock, or solicit any offers to purchase or otherwise acquire or pledge any shares of Common Stock, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions hereof and of the Stockholders Agreement. 4 4 2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that he has been advised by the Company that: (a) the offer and sale of the Common Stock have not been and will not be registered under the Securities Act; (b) the Common Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the Common Stock unless the offer and sale of such Common Stock is subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such registration is available; (c) there is no established market for the Common Stock and it is not anticipated that there will be any public market for the Common Stock in the foreseeable future; (d) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company, and, except as set forth in the Stockholders Agreement, the Company has made no covenant to make such Rule available; (e) when and if shares of Common Stock may be disposed of without registration under the Securities Act in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule; (f) if the Rule 144 exemption is not available, public offer or sale of Common Stock without registration will require compliance with some other exemption under the Securities Act; (g) if any shares of Common Stock are at any time disposed of in accordance with Rule 144, the Stockholder will deliver to the Company at or prior to the time of such disposition an executed Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale; (h) a restrictive legend in the form set forth in the Stockholders Agreement shall be placed on the certificates representing Common Stock; and (i) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Common Stock. 2.4. Additional Investment Representations. The Stockholder represents and warrants that: (a) the Stockholder's financial situation is such that he can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, has adequate means for providing for his current needs and personal contingencies, and can afford to suffer a complete loss of his investment in the Common Stock; 5 5 (b) the Stockholder's knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of the investment in the Common Stock, as contemplated by this Agreement; (c) the Stockholder understands that the Common Stock is a speculative investment which involves a high degree of risk of loss of his investment therein, there are substantial restrictions on the transferability of the Common Stock and, on the Closing Date and for an indefinite period following the Closing, there will be no public market for the Common Stock and, accordingly, it may not be possible for the Stockholder to liquidate his investment in case of emergency, if at all; (d) the terms of the Stockholders Agreement provide that in the event that the Stockholder ceases to be an employee of Sheridan, the Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their designated affiliates have the right to repurchase the Common Stock at a price which may, in certain circumstances, be less than the fair market value of such stock; (e) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of Common Stock and, other than as set forth in this Agreement, no representations or warranties have been made to the Stockholder or his representatives concerning the Common Stock or the Company, its subsidiaries or their prospects or other matters; (f) in making his decision to purchase the Common Stock hereby subscribed for, the Stockholder has relied upon independent investigations made by him and, to the extent believed by the Stockholder to be appropriate, his representatives, including his own professional, financial, tax and other advisors; (g) the Stockholder has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the Company and its subsidiaries and the terms and conditions of the purchase of the Common Stock and to obtain any additional information, in each case as the Stockholder or his representatives deems necessary; (h) all information which the Stockholder has provided to the Company and its representatives concerning the Stockholder and his financial position is complete and correct as of the date of this Agreement; and (i) the Stockholder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. 3. Agreements Relating to Tender Shares. 3.1. Agreement to Tender. The Stockholder hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 3.2. Voting of Tender Shares. The Stockholder hereby agrees, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, to vote all Tender 6 6 Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 3.3. Disposition of Tender Shares. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 3.4. Stop Transfer Order. The Stockholder hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof. 4. Options. 4.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 4.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Stockholder will be granted performance options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 4.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Stockholder will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 7 7 5. Miscellaneous. 5.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 5.2. Stockholder's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to employ the Stockholder in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Stockholder at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 5.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Stockholder shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 5.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 5.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. 8 8 (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 (b) If to the Stockholder, to him at his address or telecopy number as shown on the stock register of the Company. 5.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.9. Injunctive Relief. The Stockholder, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Stockholder, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 5.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Stockholder at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Stockholder, whether or not at the time of such purchase circumstances exist 9 9 which specifically grant the Company the right to purchase, or the Stockholder the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 5.11. Rights Cumulative; Waiver. The rights and remedies of the Stockholder and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR/CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. ---------------------------------------- Name: James L. Elrod, Jr. Title: President 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. STOCKHOLDER: /s/ Michael F. Schundler ------------------------------------- Michael F. Schundler 12 MICHAEL F. SCHUNDLER SCHEDULE I
Number of Shares Purchase Price Aggregate Purchase of Common Stock Per Share Price Payable - - --------------- --------- ------------- 40,000** Per share price paid by Acquisition $ 370,000 for Sheridan Common Stock pursuant to the Offer
** Assuming a purchase price per share of $9.25. 13 MICHAEL F. SCHUNDLER SCHEDULE II
Number of Shares Subject Number of Shares Subject to Time Options to Performance Options - - --------------- ---------------------- 66,666 33,334
14 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 15 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 16 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 17 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 18 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 19 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 20 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 21 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 22 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 23 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 24 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 25 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 26 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 27 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 28 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 29 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 30 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 31 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 32 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 33 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 34 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 35 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 36 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 37 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 38 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 39 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 40 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 41 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 42 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 43 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 44 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 45 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 46 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 47 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 48 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 49 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 50 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 51 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 52 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 53 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 54 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 55 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 56 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 57 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 58 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW 59 Exhibit B Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional officers, key employees and outside directors of, and consultants to, the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change of Control" shall mean the earlier to occur of (x) the date of the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), other than Vestar, or (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, Public Offering (as defined in the Stockholders' Agreement), sale of capital stock or assets of Sheridan or any other Subsidiary of the Company or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) their equity interest in the Company immediately following the Closing Date (as defined in the Stockholders'sAgreement) plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of (y) either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates or a combination thereof or (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding 60 2 securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan. "Company" shall have the meaning specified in the Stockholders' Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall have the meaning specified in the Stockholders' Agreement. "Management Investor" shall have the meaning specified in the Stockholders' Agreement. "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan. "Participant" shall mean any officer, key employee or outside director of, or consultant to, the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an Option under the Plan. "Performance Option" shall mean an Option granted under the Plan which becomes exercisable, or for which the period of exercisability is accelerated, upon the satisfaction of certain performance criteria established by the Committee and set forth in the Award Agreement evidencing such option. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean (i) shares or units of Common Stock (as defined in the Stockholders' Agreement) or (ii) as may be determined by the Committee pursuant to Section 4(b). 61 3 "Stockholders' Agreement" shall mean the Agreement, dated as of March 24, 1999, among the Company and the other parties identified therein. "Subsidiary" shall mean any entity that, directly or indirectly, is controlled by the Company. "Substitute Options" shall have the meaning specified in Section 4(c). "Time Option" shall mean an Option granted under the Plan, which is not a Performance Option, and which becomes exercisable over time based on a Participant's continued employment with the Company or its Subsidiaries. "Vestar" shall mean Vestar Capital Partners III, L.P. and any of its Affiliates. SECTION 3. Administration. (a) The Plan shall be administered by the Committee. Subject to the terms of the Plan, any Award Agreement and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Options to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Options; (iv) determine the terms and conditions of any Option; (v) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Options, other property, and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Unless otherwise expressly provided in the Plan and subject to the terms of any Award Agreement, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any holder of Shares. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder. 62 4 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 1,150,000; provided, however, that in no event shall the number of Shares subject to Time Options granted under the Plan exceed 666,667. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been cancelled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder. (b) Adjustments. In the event that the Committee determines that any Exit Transaction, dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate in connection with a Change of Control, make provision for an immediate cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option. (c) Substitute Options. Options may be granted, in the discretion of the Committee, under the Plan in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan. (d) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any officer, key employee or outside director of, or consultant to, the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the 63 5 number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option. None of the Options granted under the Plan are intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement. (b) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or, with the consent of the Participant thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (c) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment shall be made in cash or by bank check or, subject to the consent of the Committee in its sole discretion, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. SECTION 7. Amendment and Termination. (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (b) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment or alteration that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. In addition, with the consent of any Participant, holder or beneficiary, the Company may suspend, discontinue, cancel or terminate any Option theretofore granted, prospectively or retroactively (c) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the performance criteria applicable to outstanding Performance Options in the event of any extraordinary and nonrecurring events affecting the Company or its Subsidiaries, or the financial statements of the Company or its Subsidiaries, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines in good faith that such adjustments are necessary in order to prevent dilution or enlargement of rights under such Performance Options. 64 6 SECTION 8. Change of Control. In the event of a Change of Control after the date of the adoption of this Plan, (i) any outstanding Time Options then held by Participants, which are unexercisable or otherwise unvested, shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control and (ii) any outstanding Performance Options, whether exercisable or not, then held by Participants, shall continue to be governed by the terms of each such Participant's Award Agreement. SECTION 9. General Provisions. (a) Nontransferability. (i) Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to: (A) the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family"); (B) a trust solely for the benefit of the Grantee and his or her Immediate Family; or (C) a partnership or limited liability company whose only partners or members are the Grantee and his or her Immediate Family members; (each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the Option. The terms of any Option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless 65 7 there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement or form is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, provided all required notices are given to the Grantee and (d) the consequences of termination of the Grantee's employment by, or services to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement. (b) No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). (c) Share Certificates. All certificates for Shares or other securities of the Company delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, any applicable Federal or state laws, and any applicable written agreements between Vestar and/or the Company and the Participants including, without limitation, the Stockholders' Agreement, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (ii) Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 9(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee. (e) Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other 66 8 compensation arrangements, which may, but need not, provide for the grant of options (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of New York. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration will violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. 67 9 (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (n) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Term of the Plan. (a) Effective Date. The Plan shall be effective as of the date of its approval by the persons and/or entities who own, immediately after giving effect to the Effective Time (as defined in the Agreement and Plan of Merger dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding stock of the Company, determined in a manner consistent with Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended and the proposed regulations promulgated thereunder. If such approval is not obtained, this Plan and any Options granted under the Plan shall be null and void and of no force and effect. (b) Expiration Date. No Option shall be granted under the Plan after December 31, 2009. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 31, 2009. SECTION 11. Awards Subject to Stockholders' Agreement. Options granted under the Plan and any Shares delivered upon the exercise or settlement of any Options granted hereunder shall be subject to the Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and any terms or provisions of the Stockholders' Agreement, the applicable provisions of the Stockholders' Agreement will govern and prevail. 68 Exhibit C VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN PERFORMANCE OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - ---------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 69 2 (a) Time Vesting. Subject to paragraphs (b), (c) and (d) of this Section 2, the Option shall vest and become exercisable in full on the ninth anniversary of the purchase of shares of common stock of Sheridan pursuant to the Offer (the date of such purchase being the "Purchase Date"). (b) Accelerated Vesting Based Upon Performance. (i) Subject to the Participant's continued employment with the Company, the Option shall vest and become exercisable on an accelerated basis with respect to up to twenty-five percent (25%) of the Shares initially covered by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting Shares") on each of the first, second, third and fourth anniversaries of the Purchase Date (each an "Accelerated Vesting Date") as follows: (A) With respect to each Accelerated Vesting Date, 100% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending immediately prior to the applicable Accelerated Vesting Date (such last day of the fiscal year being referred to as the "Determination Date") equals or exceeds the Maximum Annual Price Target (described below) for such Determination Date; (B) With respect to each Accelerated Vesting Date, 0% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share as of the applicable Determination Date is less than or equal to the Minimum Annual Price Target (described below) for such Determination Date; and (C) With respect to each Accelerated Vesting Date, if the Common Equity Per Share as of the Determination Date is less than the Maximum Annual Price Target and greater than the Minimum Annual Price Target for such Determination Date, then the number of Scheduled Accelerated Vesting Shares which shall vest will equal the product of (x) 100% of the Scheduled Accelerated Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall equal the quotient obtained by dividing (A) the excess of the Value of Common Equity Per Share as of the Determination Date over the Minimum Annual Price Target for such Determination Date by (B) the excess of the Maximum Annual Price Target as of the Determination Date over the Minimum Annual Price Target for such Determination Date. (ii) In the event that the Option does not vest on an accelerated basis with respect to all of the Scheduled Accelerated Vesting Shares on an Accelerated Vesting Date solely as a result of the failure to achieve or exceed the applicable Maximum Annual Price Target, then the number of Scheduled Vesting Shares with respect to which the Option did not vest on an accelerated basis (the "Missed Shares"), will be available for vesting on the next succeeding Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The number of Missed Shares, if any, which will vest on an accelerated basis on the Make-Up Vesting Date will equal the excess, if any, of (x) the number of Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of Scheduled Accelerated Vesting Shares which actually vested on an accelerated basis on the immediately preceding Accelerated Vesting Date. 70 3
Determination Minimum Maximum Vesting Date Date Annual Price Target Annual Price Target - - ------------ ---- ------------------- ------------------- 1st anniversary of FY Ending Purchase Date 12/31/99 $10.18 $10.64 2nd anniversary of FY Ending Purchase Date 12/31/00 $12.21 $13.83 3rd anniversary of FY Ending Purchase Date 12/31/01 $14.65 $17.98 4th anniversary of FY Ending Purchase Date 12/31/02 $17.58 $23.37 5th anniversary of FY Ending $21.10 $30.38 Purchase Date 2/31/03 (Used for 4th anniversary missed shares only)
The determination of the Value of Common Equity Per Share for each fiscal year shall be made by the Board in good faith based upon, and immediately following receipt of, the audited financial statements for such fiscal year and will be calculated (after giving effect to the issuance of all Time Options and all Performance Options which have previously vested or which will vest in such fiscal year) pursuant to the methodology outlined in Exhibit A. (c) Termination of Employment If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability (as each such term is defined in Section 3(a) below), and the Minimum Annual Price Target for the Determination Date applicable to the next succeeding Accelerated Vesting Date is exceeded as of such Determination Date, then the Option shall, upon the Board's determination that the Minimum Annual Price Target for such Determination Date has been exceeded, become vested with respect to, and the Vested Portion of the Option shall include a number of Shares (the "Termination Shares") equal to the sum of: (i) the product of (A) the number of Scheduled Accelerated Vesting Shares that would otherwise have vested pursuant to Section 2(b)(i) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) a fraction, the numerator of which is the number of days that passed since the immediately preceding Accelerated Vesting Date through and including the date of the Participant's 71 4 termination of employment and the denominator of which is 365 (the "Termination Fraction"); plus (ii) If there were Missed Shares with respect to the immediately preceding Accelerated Vesting Date, the product of (A) the number of Missed Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) the Termination Fraction. (d) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control, the Option shall, to the extent not previously cancelled, immediately become vested and exercisable with respect to the Scheduled Accelerated Vesting Shares for any remaining future Accelerated Vesting Dates, if, and only if, in connection with the Change of Control, Vestar receives aggregate proceeds, in cash, securities or a combination of cash and securities, having an aggregate Fair Market Value in an amount equal to or in excess of the product of (i) Vestar's Aggregate Investment (as defined below) times (ii) the Minimum Investment Multiple (as defined below) applicable to the fiscal year of the Company in which such Change of Control occurs; provided that, securities received by Vestar shall be taken into account for purposes hereof only if such securities are distributed by Vestar, in kind, to its limited partners. For purposes of this Agreement: "Vestar's Aggregate Investment" shall mean the total amount of capital invested by Vestar in the Company and its Subsidiaries, including investments made in connection with the Offer, the Merger contemplated by the Merger Agreement, or otherwise; and "Minimum Investment Multiple" shall mean with respect to the Company's fiscal years ending December 31, 1999 through December 31, 2003 as follows:
FY In Which Change of Control Occurs Minimum Investment Multiple - - ------------------------------------ --------------------------- 1999 1.22 2000 1.66 2001 2.12 2002 2.50 2003 3.26
For purposes of this Section 2(d), "Fair Market Value"shall mean, solely with respect to securities distributed by Vestar to its limited partners, the value of such securities as reported by Vestar to such limited partners. 3. Exercise of Option. 72 5 (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to 73 6 time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with appliicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages 74 7 relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant. Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer 75 8 under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 76 9 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: --------------------------- Agreed and acknowledged as of the date first above written: - - ------------------------- 77 SHERIDAN HEALTHCARE, INC. EXHIBIT A METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS ARE SUBJECT TO ACCELERATED VESTING STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements for the year, the Company shall calculate (and the Board of Directors shall review and approve) EBITDA in good faith pro forma to give effect to all acquisitions and divestitures completed during the year as if they had occurred on January 1 of such year. STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated in Step 1) by 7.5. STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value (calculated in Step 2), deduct year-end balances for Total Debt and Other Obligations, add year-end balance for Total Cash and add Total Option Proceeds. For purposes of this calculation, Other Obligations includes any debt-like instruments such as acquisition-related non-compete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. Total Option Proceeds should include options proceeds related to i) all time-based options (whether or not vested), ii) all performance-based options that have vested in prior years and iii) all performance-based options that vest in current year. STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number of shares outstanding at the beginning of the year, ii) shares issued in current year for any reason, including those related to acquisitions, iii) all time-based options (whether or not vested), iv) all performance-based options that vest in prior years or in the current year, v) shares associated with in-the-money convertible preferred stock and vi) shares associated with other in-the-money common stock equivalents including, but not limited to, warrants and any other options. STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step 4). In Step 6, this number will be compared with the maximum and minimum targets listed below to determine how many (if any) performance-based options vest in current year. STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR. Multiply the number of options eligible for accelerated vesting in current year pursuant to the Performance Option Plan by i) if the Value of Common Equity per Share (Step 5) is greater than or equal to current year's Maximum Annual Price Target, 100%; ii) if the Value of Common Equity per Share is less than or equal to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common Equity per Share is between current year's Minimum and Maximum Annual Price Targets, the quotient calculated by dividing (A) excess of the Value of Common Equity per Share over current year's Minimum Annual Price Target by (B) the excess of current year's Maximum Annual Price Target over current year's Minimum Annual Price Target.
Minimum Annual Price Maximum Annual Price Target Year Target ---------- -------------------- ----------------------------- 1999 $10.18 $10.64 2000 12.21 13.83 2001 14.65 17.98 2002 17.58 23.37 2003 21.10 30.38
78 SHERIDAN HEALTHCARE, INC. EXHIBIT A ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST PURSUANT TO PERFORMANCE MEASURES
====================================================================== 1999 2000 2001 2002 2003 --------------------------------------------------------------------- Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8 EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5 --------------------------------------------------------------------- Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3 Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6) Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6 --------------------------------------------------------------------- Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3 Beginning # of Shares 7.317 10.105 10.225 10.346 10.467 Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000 Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000 Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000 Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000 Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000 --------------------------------------------------------------------- Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467 Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24 % appreciation 42.1% 32.9% 42.0% 34.3% 27.7% ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38 % APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0% ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10 % APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
(a) Represents full year EBITDA adjusted to give effect to all current year acquisitions and divestitures as if they occurred on January 1. (b) For purposes of calculating Total Enterprise Value at the end of any year, the EBITDA multiple shall be 7.5x. (c) Other Obligations include any debt-like instruments such as acquisition-related noncompete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. (d) Option proceeds assume exercise of all vested in-the-money options, including those options available for current year vesting. In this example, assumes all options have exercise price of $9.25. (e) For purposes of calculating value of common equity per share on this schedule, all time-based options are deemed vested and exercised. (f) 483,333 performance options are available for grant. At Closing, 333,333 of such options will be granted to existing members of management. The remaining 150,000 options will be reserved for future grant. This example assumes that all 483,333 are granted. (g) Assumes a June 30, 1999 closing. If calculated value of common equity per share exceeds the maximum annual share price target for that year, then 100% of eligible options will vest (0.121 million in this example). (h) Assumes a June 30, 1999 closing. If calculated value of common equity per share is below the minimum annual share price target for that year, then 0% of eligible options will vest (0.000 million in this example). 79 Exhibit D VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN TIME OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - -------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 80 2 (a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries (each such anniversary being a "Vesting Date") of the purchase of shares of common stock of Sheridan pursuant to the Offer. (b) Termination of Employment. If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability, the Option shall, as of the date of such termination, become vested with respect to, and the Vested Portion of the Option shall include, that portion of the Option which would otherwise have vested on the next Vesting Date. (c) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control the Option shall, to the extent not then vested and not previously canceled, immediately become fully vested and exercisable. 3. Exercise of Option. (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in 81 3 effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and 82 4 "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with applicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall 83 5 contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the 84 6 Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: ------------------------------ Agreed and acknowledged as of the date first above written: - - ------------------------------ EX-99.C.11 13 SUBSCRIPTION AND TENDER AGREEMENT 1 SUBSCRIPTION AND TENDER AGREEMENT SUBSCRIPTION AND TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and the individual named on the signature page hereto (the "Stockholder"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Stockholder and certain other Management Investors referred to below to enter into this Agreement and the other Stockholder Documents referred to in the Merger Agreement; WHEREAS, the Stockholder has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, on the terms and subject to the conditions hereof, the Stockholder desires to subscribe for and acquire from the Company, and the Company desires to issue and sell to the Stockholder, the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth on Schedule I hereto, as hereinafter set forth; WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Stockholder, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Subscription for and Purchase of Common Stock. 1.1. Purchase of Common Stock. Pursuant to the terms and subject to the conditions set forth in this Agreement, the Stockholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Stockholder, on the Closing 2 2 Date (as defined in Section 1.3) the number of shares of Common Stock set forth on Schedule I hereto at a price per share and for the aggregate amount in cash (the "Purchase Price") set forth on Schedule I hereto. 1.2. Sales of Common Stock to Employees Only. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue, sell or deliver any shares of Common Stock to any person (i) who is not a full-time employee of, or consultant to, the Company or any of its subsidiaries on the Closing Date or (ii) who is a resident of a jurisdiction in which such issuance, sale or delivery to such person would constitute a violation of the securities or "blue sky" laws of such jurisdiction. 1.3. The Closing. The closing (the "Closing") of the purchase of Common Stock hereunder shall take place on the date (the "Closing Date") that Acquisition purchases shares of Sheridan Common Stock pursuant to the Offer and at such time as the Company shall direct on at least one business day's prior notice to the Stockholder. The Closing shall occur at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such other place as the parties may mutually agree. At the Closing, the Stockholder (or the Stockholder's representative) shall deliver to the Company the Purchase Price, payable by delivery of the amount set forth on Schedule I hereto, by delivery of a certified check or by wire transfer in immediately available funds. 1.4. Conditions to the Obligations of the Parties. (a) The obligations of the Company under this Section 1 shall be subject to the conditions that (i) the Stockholder shall have executed and delivered the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement"), (ii) the representations and warranties of the Stockholder in Section 2 of this Agreement shall be true and correct as of the Closing Date in all material respects and (iii) the Stockholder shall not have breached his obligations under Section 3 hereof. (b) The obligations of the Stockholder under this Section 1 shall be subject to the conditions that (i) the Company shall have executed and delivered the Stockholders Agreement and (ii) the representations and warranties of the Company in Section 1.5 of this Agreement shall be true and correct as of the Closing Date in all material respects. 1.5. Representations and Warranties of the Company. The Company represents and warrants to the Stockholder as follows: (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver this Agreement and the Stockholders Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement has been duly authorized by all necessary corporate and legal action by the Company, and no other corporate proceeding by the Company is necessary for the execution, delivery and performance by the Company of this Agreement or the Stockholders Agreement. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Company and, assuming they are duly executed and delivered by the Stockholder, 3 3 constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (b) the Common Stock to be issued to the Stockholder pursuant to this Agreement, when issued and delivered in accordance with the terms hereof, will be duly and validly issued and, upon receipt by the Company of the Purchase Price therefor, will be fully paid and nonassessable with no personal liability attached to the ownership thereof and will not be subject to any preemptive rights under the Delaware General Corporation Law; and (c) the execution, delivery and performance by the Company of this Agreement and the Stockholders Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company or any of its subsidiaries or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or (iii) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their assets may be bound or affected. 2. Representations, Warranties and Covenants of the Stockholder. 2.1. Residence and Competency; Power; Enforceability; Noncontravention. The Stockholder is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement and the Stockholders Agreement have been duly executed and delivered by the Stockholder. Assuming the due execution and delivery of this Agreement and the Stockholders Agreement by the Company, this Agreement and the Stockholders Agreement constitute valid and binding obligations of the Stockholder, enforceable against the Stockholder in accordance with their terms. The execution, delivery and performance of this Agreement and the Stockholders Agreement by the Stockholder will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Stockholder or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Stockholder is a party or by which the Stockholder is bound. 2.2. Investment Intention; No Resales. The Stockholder hereby represents and warrants that he is acquiring the Common Stock for investment solely for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Stockholder agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock, or solicit any offers to purchase or otherwise acquire or pledge any shares of Common Stock, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions hereof and of the Stockholders Agreement. 4 4 2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that he has been advised by the Company that: (a) the offer and sale of the Common Stock have not been and will not be registered under the Securities Act; (b) the Common Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the Common Stock unless the offer and sale of such Common Stock is subsequently registered under the Securities Act and all applicable state securities laws or an exemption from such registration is available; (c) there is no established market for the Common Stock and it is not anticipated that there will be any public market for the Common Stock in the foreseeable future; (d) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company, and, except as set forth in the Stockholders Agreement, the Company has made no covenant to make such Rule available; (e) when and if shares of Common Stock may be disposed of without registration under the Securities Act in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule; (f) if the Rule 144 exemption is not available, public offer or sale of Common Stock without registration will require compliance with some other exemption under the Securities Act; (g) if any shares of Common Stock are at any time disposed of in accordance with Rule 144, the Stockholder will deliver to the Company at or prior to the time of such disposition an executed Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale; (h) a restrictive legend in the form set forth in the Stockholders Agreement shall be placed on the certificates representing Common Stock; and (i) a notation shall be made in the appropriate records of the Company indicating that the Common Stock is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Common Stock. 2.4. Additional Investment Representations. The Stockholder represents and warrants that: (a) the Stockholder's financial situation is such that he can afford to bear the economic risk of holding the Common Stock for an indefinite period of time, has adequate means for providing for his current needs and personal contingencies, and can afford to suffer a complete loss of his investment in the Common Stock; 5 5 (b) the Stockholder's knowledge and experience in financial and business matters are such that he is capable of evaluating the merits and risks of the investment in the Common Stock, as contemplated by this Agreement; (c) the Stockholder understands that the Common Stock is a speculative investment which involves a high degree of risk of loss of his investment therein, there are substantial restrictions on the transferability of the Common Stock and, on the Closing Date and for an indefinite period following the Closing, there will be no public market for the Common Stock and, accordingly, it may not be possible for the Stockholder to liquidate his investment in case of emergency, if at all; (d) the terms of the Stockholders Agreement provide that in the event that the Stockholder ceases to be an employee of Sheridan, the Company, Sheridan, Vestar (as defined in the Stockholders Agreement) and their designated affiliates have the right to repurchase the Common Stock at a price which may, in certain circumstances, be less than the fair market value of such stock; (e) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of Common Stock and, other than as set forth in this Agreement, no representations or warranties have been made to the Stockholder or his representatives concerning the Common Stock or the Company, its subsidiaries or their prospects or other matters; (f) in making his decision to purchase the Common Stock hereby subscribed for, the Stockholder has relied upon independent investigations made by him and, to the extent believed by the Stockholder to be appropriate, his representatives, including his own professional, financial, tax and other advisors; (g) the Stockholder has been given the opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the Company and its subsidiaries and the terms and conditions of the purchase of the Common Stock and to obtain any additional information, in each case as the Stockholder or his representatives deems necessary; (h) all information which the Stockholder has provided to the Company and its representatives concerning the Stockholder and his financial position is complete and correct as of the date of this Agreement; and (i) the Stockholder is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. 3. Agreements Relating to Tender Shares. 3.1. Agreement to Tender. The Stockholder hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 3.2. Voting of Tender Shares. The Stockholder hereby agrees, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, to vote all Tender 6 6 Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 3.3. Disposition of Tender Shares. The Stockholder shall not, so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 3.4. Stop Transfer Order. The Stockholder hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Stockholder is required to tender Tender Shares pursuant to Section 3.1 hereof. 4. Options. 4.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 4.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Stockholder will be granted performance options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 4.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Stockholder shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Stockholder will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule II hereto at an exercise price equal to the per share price paid by the Stockholder for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company and the Stockholder, enforceable against each of the Company and the Stockholder in accordance with its terms. 7 7 5. Miscellaneous. 5.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 5.2. Stockholder's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to employ the Stockholder in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Stockholder at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 5.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Stockholder shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 5.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 5.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. 8 8 (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 (b) If to the Stockholder, to him at his address or telecopy number as shown on the stock register of the Company. 5.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 5.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.9. Injunctive Relief. The Stockholder, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Stockholder, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 5.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Stockholder at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Stockholder, whether or not at the time of such purchase circumstances exist 9 9 which specifically grant the Company the right to purchase, or the Stockholder the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 5.11. Rights Cumulative; Waiver. The rights and remedies of the Stockholder and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR/CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. ---------------------------------------- Name: James L. Elrod, Jr. Title: President 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. STOCKHOLDER: /s/ Gilbert L. Drozdow ------------------------------------- Gilbert L. Drozdow 12 GILBERT L. DROZDOW SCHEDULE I
Number of Shares Purchase Price Aggregate Purchase of Common Stock Per Share Price Payable - - --------------- --------- ------------- 10,811** Per share price paid by Acquisition $100,001.75 for Sheridan Common Stock pursuant to the Offer
** Assuming a purchase price per share of $9.25. 13 GILBERT L. DROZDOW SCHEDULE II 14 Exhibit (c) (2) EXECUTION COPY ================================================================================ STOCKHOLDERS AGREEMENT dated as of March 24, 1999 among VESTAR/CALVARY HOLDINGS, INC., SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC, MITCHELL EISENBERG, LEWIS D. GOLD, MICHAEL F. SCHUNDLER, JAY A. MARTUS and THE OTHER MANAGEMENT INVESTORS ================================================================================ 15 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................................1 1.1 Defined Terms.....................................................1 1.2 Other Definitional Provisions; Interpretation....................10 SECTION 2. VOTING AGREEMENTS................................................11 2.1 Election of Directors............................................11 2.2 Other Voting Matters.............................................12 SECTION 3. TRANSFERS AND ISSUANCES..........................................12 3.1 Transfers to be Made Only as Permitted or Required by this Agreement ......................................12 3.2 Permitted Transfers..............................................13 3.3 Effect of Void Transfers.........................................13 3.4 Legend on Securities.............................................13 3.5 Tag-Along Rights.................................................14 3.6 Public Offerings, etc. ..........................................15 3.7 Drag-Along Rights................................................16 3.8 Rights of First Refusal..........................................16 3.9 Participation Right..............................................18 3.10 Partial Transfers Following a Qualified Public Offering..........19 3.11 Partial Transfers to Cover Option-Related Tax Payments...........19 3.12 Transfers to Other Management Investors. .......................20 3.13 Call Right.......................................................20 3.14 Put Right........................................................22 SECTION 4. REGISTRATION RIGHTS..............................................24 4.1 Demand Registration..............................................24 4.2 Incidental Registration..........................................25 4.3 Registration Procedures..........................................27 4.4 Underwritten Offerings...........................................30 4.5 Preparation; Reasonable Investigation............................31 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants.....................................31 4.7 Expenses.........................................................32 4.8 Indemnification..................................................33 4.9 Participation in Underwritten Registrations......................34 4.10 Rule 144.........................................................35 4.11 Holdback Agreements..............................................35 4.12 Mezzanine Securities.............................................35 SECTION 5. MISCELLANEOUS....................................................36 5.1 Additional Securities Subject to Agreement.......................36 -i- 16 5.2 Termination......................................................36 5.3 Injunctive Relief................................................36 5.4 Other Stockholders' Agreements...................................36 5.5 Amendments.......................................................36 5.6 Successors, Assigns and Transferees..............................36 5.7 Notices..........................................................36 5.8 Integration......................................................37 5.9 Severability.....................................................37 5.10 Counterparts.....................................................37 5.11 Governing Law....................................................38 5.12 Jurisdiction.....................................................38 5.13 Management Investors.............................................38 5.14 83(b) Election...................................................38 5.15 Management Investor Representative...............................38 5.16 Covenant Not to Compete..........................................39 5.17 Business Opportunities...........................................39 5.18 Confidentiality..................................................40 5.19 Effectiveness....................................................40 SCHEDULE 1 - Initial Other Management Investors -ii- 17 STOCKHOLDERS AGREEMENT, dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), Vestar/Calvary Investors, LLC, a Delaware limited liability company ("Vestar"), Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler and Jay A. Martus (collectively, the "Senior Management Investors") and the other persons listed on Schedule 1 hereto (collectively, together with the persons identified in the supplementary agreements referred to in Section 5.13 hereof, the "Other Management Investors"). The Senior Management Investors and the Other Management Investors are collectively referred to herein as the "Management Investors". W I T N E S S E T H : WHEREAS, the Company, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have entered into subscription and tender agreements dated as of the date hereof (the "Subscription and Tender Agreements"); WHEREAS, pursuant to the Subscription and Tender Agreements and on the terms and subject to the conditions set forth therein, the Senior Management Investors and the Other Management Investors listed on Schedule 1 hereto have agreed to purchase shares of common stock of the Company; WHEREAS, the Company, Sheridan, Vestar and the Management Investors desire to make certain arrangements among themselves with respect to matters set forth herein; and WHEREAS, it is a condition to the consummation of the closings under the Subscription and Tender Agreements that this Agreement (as defined below) shall have been duly authorized, executed and delivered by each of the parties hereto and be in full force and effect; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the headings and the recitals shall have their respective assigned meanings, and the following capitalized terms shall have the meanings ascribed to them below: "Acquisition" means Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly controls, is controlled by or is under common control with, such Person, or (ii) any director, officer, partner or employee of such Person or any Person specified in clause (i) above, or (iii) any a spouse, parent, child, step-child, grandchild, step-grandchild or sibling of any Person specified in clause (i) or (ii) above. 18 2 "Aggregate Investment" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Agreement" means this Stockholders Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Applicable Percentage" shall mean (i) for the period from the Closing Date through the day immediately preceding the first anniversary of the Closing Date, 0%, (ii) for the period from the first anniversary of the Closing Date through the date immediately preceding the second anniversary of the Closing Date, 25%, (iii) for the period from the second anniversary of the Closing Date through the day immediately preceding the third anniversary of the Closing Date, 50%, (iv) for the period from the third anniversary of the Closing Date through the day immediately preceding the fourth anniversary of the Closing Date, 75% and (v) on and after the fourth anniversary of the Closing Date, 100%. "Business Day" means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York City or Miami, Florida are authorized or required by law to close. "Call Notice" shall have the meaning ascribed to such term in Section 3.13(a). "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Management Investor has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Management Investor and Vestar, Sheridan, the Company or any Subsidiary of the Company or Sheridan (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Management Investor by Sheridan of written notice thereof; or (iv) breached the Management Investor's obligations pursuant to Sheridan's, the Company's or any of the Company's or Sheridan's Subsidiary's substance abuse policy. "Closing Date" shall have the meaning ascribed to such term in the Subscription and Tender Agreements. 19 3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. "Columbia" means the hospitals and ambulatory surgical facilities owned by Columbia/HCA Healthcare, Inc. "Common Stock" means the common stock of the Company or common equity securities, or securities exchangeable or exercisable for or convertible into common equity securities, of any Person into or for which Common Stock is converted, exchanged or received in an Exit Transaction. "Common Stock Equivalents" means any stock, warrants, rights, calls, options or other securities exchangeable or exercisable for or convertible into Common Stock. "Company" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include any Person who, in connection with an Exit Transaction, becomes the issuer of Common Stock. "Competitive Enterprise" means any Person the activities, products or services of which (A) are competitive with activities, products or services of the Company or any of its Controlled Entities (as defined in the Merger Agreement) in any state in which the Company is engaged or intends to engage in the same or a similar business during the one year period preceding the Management Investor's termination of employment or during the Non-Competition Period, and (B) include (1) the provision of medical services, including without limitation, the provision of anesthesia services, pain management services, emergency room services, primary medical care services, neonatology, perinatology and radiology services; (2) the provision of Payor Services; (3) the provision of administrative services for medical services and Payor Services, including without limitation, quality assurance services, utilization management services, billing services, recruitment services and medical management information services; or (4) the provision of services or products of any nature to Columbia. "Confidential Information" shall have the meaning ascribed to such term in Section 5.18(a). "Cost" means the purchase price per share of Common Stock paid by the applicable Management Investor determined by dividing (x) the total purchase price paid by such Management Investor on the date of purchase of such share by (y) the number of shares of Common Stock purchased by such Management Investor on such date, as adjusted by the Board of Directors of the Company in good faith and on a consistent basis to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions. "Cost Securities" shall have the meaning ascribed to such term in Section 3.13(f). "Custody Agreement and Power of Attorney" shall have the meaning ascribed to such term in Section 4.2(c) 20 4 "DGCL" shall have the meaning ascribed to such term in Section 5.11. "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Management Investor and the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms thereof) or, if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time or if, there shall be no plan or if not defined therein, the Management Investor's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Management Investor's duties to Sheridan, the Company or any Subsidiary of Sheridan or the Company. "Effective Time" shall have the meaning ascribed to such term in the Merger Agreement. "Exit Transaction" shall have the meaning ascribed to such term in the definition of "Lapse Date." "Equity Interests" shall have the meaning ascribed to such term in Section 3.9(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" shall mean, as of any date of determination, with respect to shares of Common Stock, (x) prior to a Qualified Public Offering, the fair market value of the shares, disregarding any discount for minority interest, restrictions on transfer of the shares or lack of marketability of the shares, as determined in good faith and on a consistent basis by the Board of Directors of the Company, giving due consideration to, among other things, the earnings and other financial and operating information of the Company, Sheridan and its Subsidiaries in recent periods, the future prospects of the Company, Sheridan and its Subsidiaries, the general condition of the securities markets and the fair market value of securities of companies of a similar size and engaged in businesses similar to the business of the Company, Sheridan and its Subsidiaries, and (y) subsequent to an Initial Public Offering, the price per share of Common Stock equal to the average of the last sales price of a share of Common Stock on each of the last five trading days prior to the date of determination (the "FMV Calculation Period") on each exchange on which the Common Stock may at the time be listed or, if there shall have been no sales on any of such exchanges during the FMV Calculation Period, the average of the closing bid and asked prices on each such exchange on each day during the FMV Calculation Period or, if there are no such bid and asked prices during the FMV Calculation Period, on the next preceding five dates on which such bid and asked prices occurred or, if Common Stock shall not be so listed, the average of the closing sales prices as reported by NASDAQ during the FMV Calculation Period in the over-the-counter market. "Family Group" shall have the meaning ascribed to such term in Section 3.2(a). 21 5 "Financing Default" shall mean an event which constitutes (or which with notice or lapse of time or both would constitute) an event of default (which event of default has not been cured or waived) under any of the following as originally entered into or as they may be amended from time to time: (i) any agreement or instrument under which indebtedness of any of the Company and its Subsidiaries is outstanding as of the time of the aforementioned event, and any extensions, renewals, refinancings or refundings thereof in whole or in part; (ii) any provision of the Company's or any of its Subsidiaries' certificates of incorporation or other organizational documents as in effect on the date hereof; (iii) any amendment of, supplement to or other modification of any of the instruments referred to in clauses (i) or (ii) above; and (iv) any of the securities issued pursuant to or whose terms are governed by the terms of any of the agreements set forth in clauses (i) and (ii) above, and any extensions, renewals, refinancings or refundings thereof in whole or in part. "FMV Calculation Period" shall have the meaning ascribed to such term in the defined term "Fair Market Value". "Good Reason" shall mean, if the Management Investor has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of or after the Closing Date (as the same may be amended in accordance with the terms hereof) the occurrence of such events which, under the terms of such employment agreement, would expressly enable the Management Investor to resign from employment and be treated under such employment agreement as though the Management Investor's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary of Sheridan or the Company has failed to pay the Management Investor his salary; (ii) the office where the Management Investor performs his duties is moved more than 30 miles from where the Management Investor performed the Management Investor's duties on the Closing Date; (iii) a substantial reduction of the Management Investor's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Management Investor's duties, which, in each case, has not been remedied within a reasonable time specified by the Management Investor that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Health Care Provider" means any physician, nurse, technician or allied health care provider providing medical services on behalf of Sheridan or any of its Affiliates on a full or part-time basis as an independent contractor or consultant. "Initial Call Period" shall have the meaning ascribed to such term in Section 3.13(f). 22 6 "Initial Public Offering" means the first Public Offering occurring after the date hereof. "Issuance" shall have the meaning ascribed to such term in Section 3.9(a). "Junior Subordinated Note" shall have the meaning ascribed to such term in Section 3.13(g). "Lapse Date" means the earlier of (x) the fifth anniversary of the Closing Date and (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, sale of capital stock or assets of Sheridan or any other Subsidiary of the Company, or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) its equity interest in the Company immediately following the Closing Date plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of clause (y), either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates, or a combination thereof, (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Majority Selling Stockholders" shall have the meaning ascribed to such term in Section 4.7. "Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Management Investor Offeree" shall have the meaning ascribed to such term in Section 3.8(a). "Manager Investor Representative" shall have the meaning ascribed to such term in Section 5.15. "Management Investor's Transfer Group" shall have the meaning ascribed to such term in Section 3.8(a). "Measurement Date" shall have the meaning ascribed to such term in Section 3.10. 23 7 "Medical Customers" means patients, health maintenance organizations, preferred payer organizations, third party payors, IPAs, PHOs, MSOs, PSOs (or similar arrangements), employers, labor unions, hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and Medicaid intermediaries. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger dated as of the date hereof among Sheridan, the Company and Acquisition, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which, among other things, Acquisition will merge into Sheridan, with Sheridan constituting the surviving corporation. "Mezzanine Securities" means securities of the Company, excluding Common Stock, but including preferred stock and warrants to purchase Common Stock, issued to any of Vestar and its Affiliates prior to the Effective Time, and any securities into or for which such securities are exchangeable. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "No Call Notice" shall have the meaning ascribed to such term in Section 3.13(e). "No ROFR Notice" shall have the meaning ascribed to such term in Section 3.8(g). "Non-Competition Period" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, the period commencing on the last day of the Term of Employment and ending on the first anniversary of the last day of the Term of Employment. "Offeror" shall have the meaning ascribed to such term in Section 3.8(a). "Option" means any option to acquire Common Stock or other capital stock of the Company, including without limitation, all options granted under the Company's 1999 Stock Option Plan. "Option Shares" means all Common Stock or other capital stock of the Company received by a Management Investor upon the exercise or other settlement of an Option. "Other Capital Stock" shall have the meaning ascribed to such term in Section 3.9(a)(i). "Other Capital Stock Equivalents" shall have the meaning ascribed to such term in Section 3.9(a)(ii). 24 8 "Other Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Payor Services" means payor services in the area of managed care, third party payors, provider networks, IPAs, TPAs, PHOs, MSOs, HMOs, PSOs, capitation pools and other similar arrangements. "Permitted Payment" shall have the meaning ascribed to such term in Section 3.13(g). "Permitted Transferee" has the meaning ascribed to such term in Section 3.2(a). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Public Offering" means the sale of Securities to the public pursuant to an effective registration statement filed under the Securities Act. "Purchased Shares" shall mean, with respect to each Management Investor, those shares of Common Stock that are purchased by the Management Investor from the Company (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar transactions), other than pursuant to the exercise of an Option. "Put Notice" shall have the meaning ascribed to such term in Section 3.14(a). "Qualified Public Offering" shall mean the sale of Common Stock to the public after the Effective Time pursuant to an effective registration statement filed under the Securities Act, which, together with any earlier registered public sales of Common Stock under the Securities Act occurring after the Effective Time, results in aggregate gross proceeds to the Company or its stockholders, or both, of at least $50 million. "Regulations" means the regulations promulgated under the Code. "Request" shall have the meaning ascribed to such term in Section 4.1(a). "Requesting Stockholder" shall have the meaning ascribed to such term in Section 4.1(a). "Right" shall have the meaning ascribed to such term in Section 3.9(a). "Securities" means shares of Common Stock or Common Stock Equivalents or other securities of the Company, other than (i) debt securities that are not Common Stock Equivalents and (ii) Mezzanine Securities, in each case whether owned on the date hereof or hereafter acquired. 25 9 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Selling Stockholder" shall have the meaning ascribed to such term in Section 4.3(c). "Senior Management Investors" shall have the meaning ascribed to such term in the preamble to this Agreement. "Sheridan" shall have the meaning ascribed to such term in the preamble to this Agreement and shall also include its successors by means of a merger, consolidation, reorganization, recapitalization or similar transaction. "Stockholders" means Vestar, the Management Investors, and their respective Permitted Transferees. "Subscription and Tender Agreements" shall have the meaning ascribed to such term in the recitals to this Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Tag Notice" shall have the meaning ascribed to such term in Section 3.5(b). "Tagging Stockholder" shall have the meaning ascribed to such term in Section 3.5(a). "Term of Employment" means with respect to each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision, any time during the period in which such Management Investor is employed by the Company or any of its Subsidiaries. "Third Party" means any Person other than the Company, the Stockholders and their Affiliates. "Transfer" means any transfer, sale, assignment, distribution, exchange, mortgage, pledge, hypothecation or other disposition of any Securities or any interest therein, including transfers by operation of law in connection with a merger transaction or otherwise. 26 10 "Transfer Notice" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Offer" shall have the meaning ascribed to such term in Section 3.8(a). "Transfer Securities" shall have the meaning ascribed to such term in Section 3.8(a). "Vestar" shall have the meaning ascribed to such term in the preamble to this Agreement. "Vested Purchased Shares" shall mean at any time, the number of Purchased Shares initially acquired by a Management Investor (as adjusted in good faith and on a consistent basis by the Board of Directors of the Company to reflect Exit Transactions and stock splits, stock dividends, recapitalizations and other similar corporate transactions) times the Applicable Percentage. 1.2 Other Definitional Provisions; Interpretation. (a) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) The headings in this Agreement are included for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (d) For purposes of comparing the beneficial ownership of any Person on the date of execution and delivery of this Agreement to the level of such ownership at any later time, the level of ownership on such later date shall be adjusted to eliminate the effect of any subdivision of the Common Stock, any combination of the Common Stock, any issuance of Common Stock or Common Stock Equivalents by reason of any reclassification (including, without limitation, any reclassification in connection with a merger or consolidation), or any dividend payable in Common Stock or Common Stock Equivalents. SECTION 2. VOTING AGREEMENTS 2.1 Election of Directors. (a) Each Stockholder hereby agrees that, so long as this Agreement shall remain in effect, such Stockholder will vote all of the voting Securities owned or held of record by such Stockholder so as to elect and, during such period, to continue in office a Board of Directors of the Company and each Subsidiary of the Company (other than Subsidiaries of Sheridan), each consisting solely of the following: (i) 3 designees of Vestar (or its designated Permitted Transferees); 27 11 (ii) 2 designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of Sheridan); and (iii) 2 persons to be designated by Vestar (or its designated Permitted Transferees) in its sole discretion after consultation with the Management Investor Representative. (b) If at any time while this Agreement shall remain in effect Vestar (or its designated Permitted Transferees) shall notify the other Stockholders of its desire to remove, with or without cause, any director of the Company or any of its Subsidiaries previously designated by it in accordance with Section 2.1(a)(i), each Stockholder shall vote all of the voting Securities owned or held of record by it so as to remove such director. (c) If at any time while this Agreement shall remain in effect any director previously designated by Vestar (or its Permitted Transferees) or the Management Investors ceases to serve on the Board of Directors of the Company or any Subsidiary of the Company (whether by reason of death, resignation, removal or otherwise), the Stockholder or Stockholders who designated such director shall be entitled to designate a successor director to fill the vacancy created thereby on the terms and subject to the conditions of paragraph (a). Each Stockholder agrees to vote all of the voting Securities owned or held of record by such Stockholder so as to elect any such director. (d) The parties hereto hereby agree that any individual designated as a director of the Company or any Subsidiary of the Company may be removed for cause (as reasonably determined by the Board of Directors of the Company, other than such person) with or without the consent of the Stockholder which designated such individual. No such removal of an individual designated pursuant to this Section 2.1 shall affect the rights of any of the Stockholders to designate a different individual pursuant to this Section 2.1. (e) No fees shall be paid by the Company or any of its Subsidiaries to any member of their respective Boards of Directors who are employees of Vestar, the Company, Sheridan or any of their Affiliates in his capacity as a member of such Board of Directors; provided that the foregoing shall not limit reimbursement of expenses in accordance with the expense reimbursement policy of Sheridan and its Subsidiaries. (f) The Stockholders hereby agree that Vestar (or its designated Permitted Transferees) shall have sole discretion to determine the composition of the Company's and its Subsidiaries' Board of Directors' committees (e.g., audit, compensation, etc.) through the rights granted to Vestar (or its designated Permitted Transferees) pursuant to Section 2.1(a)(i). 2.2 Other Voting Matters. (a) Each Management Investor and their Permitted Transferees hereby agrees that, until the occurrence of the Lapse Date, such Stockholder will vote all of the Securities owned or held of record by such Stockholder, either in person or by proxy, whether at a meeting of stockholders or by executing a written consent, (i) consistent with the vote of Vestar with respect to the shares of Common Stock beneficially owned by Vestar and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of the Company. 28 12 (b) In order to effectuate the provisions of Sections 2.1 and 2.2 hereof, (i) each of the Management Investors and their Permitted Transferees hereby grants to Dr. Mitchell Eisenberg, or if Dr. Eisenberg shall cease to be Chief Executive Officer of Sheridan, to the Chief Executive Officer of Sheridan, a proxy to vote at any annual or special meeting of Stockholders, or to take action by written consent in lieu of such meeting with respect to, or to otherwise take action in respect of, all of the Securities owned or held of record by the Management Investors and their Permitted Transferees in connection with the matters set forth in Sections 2.1 and 2.2 hereof in accordance with the provisions of Sections 2.1 and 2.2 hereof. Each of the proxies granted hereby is irrevocable and is coupled with an interest. To effectuate the provisions of this Section 2, the Secretary of each of the Company and each Subsidiary of the Company, or if there be no Secretary such other officer of the Company or such Subsidiary as the Board of Directors of the Company or such Subsidiary may appoint to fulfill the duties of the Secretary, shall not record any vote or consent or other action contrary to the terms of this Section 2. SECTION 3. TRANSFERS AND ISSUANCES 3.1 Transfers to be Made Only as Permitted or Required by this Agreement. (a) Each Stockholder hereby agrees that such Stockholder will not, directly or indirectly, Transfer any Securities unless such Transfer complies with the provisions hereof and (i) such Transfer is pursuant to an effective registration statement under the Securities Act and has been registered under all applicable state securities or "blue sky" laws or (ii) such Stockholder shall have furnished the Company with a written opinion of counsel reasonably satisfactory to the Company in form and substance reasonably satisfactory to the Company to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act and all applicable state securities or "blue sky" laws. (b) Each Management Investor and their Permitted Transferees hereby agrees that, except for Transfers in connection with a Public Offering, Transfers pursuant to Section 3.2(iii), 3.2(iv), 3.5, 3.7, 3.10, 3.12, 3.13 or 3.14 hereof and Transfers pursuant to Rule 144 under the Securities Act, no Transfer shall occur unless the transferee shall agree to become a party to, and be bound to the same extent as its transferor by the terms of, this Agreement in accordance with the provisions of Section 5.6 hereof. (c) Each Management Investor and their Permitted Transferees hereby agrees that such Stockholder shall not, without the prior written consent of Vestar (which consent may be withheld by Vestar in its absolute discretion), effect a Transfer prior to the Lapse Date, except for Transfers in connection with a Public Offering and Transfers pursuant to Sections 3.2, 3.5, 3.7, 3.10, 3.11, 3.12, 3.13 or 3.14 hereof. 3.2 Permitted Transfers. (a) Any Management Investor may Transfer any of the Securities beneficially owned by him (i) to his spouse, parent, descendant, step-child, or step-grandchild or any executor, estate, guardian, committee, trustee or other fiduciary acting as such solely on behalf or solely for the benefit of any such spouse, parent, descendant, step-child or step-grandchild (collectively, a "Family Group"), (ii) to any trust, corporation, partnership or limited liability company, all of the beneficial interests in which shall be held, directly or 29 13 indirectly, by such Management Investor and/or one or more of the Family Group of such Management Investor; provided, however, that during the period that any such trust, corporation, partnership or limited liability company holds any right, title or interest in any Securities, no person other than such Management Investor or members of the Family Group of such Management Investor may be or become beneficiaries, stockholders, general partners or members thereof, (iii) which he has purchased on a stock exchange or in the over-the-counter market after the occurrence of a Public Offering, to any Person, or (iv) to Sheridan, the Company, Vestar or any of Vestar's Affiliates. A transferee under this Section 3.2(a)(i) or 3.2(a)(ii) or under Section 3.2(b), or any other transferee of Vestar and its Affiliates in a Transfer made in accordance with this Agreement, is referred to as a "Permitted Transferee." (b) Notwithstanding anything in this Agreement to the contrary, Vestar and its Affiliates shall be entitled from time to time, without compliance with Section 3.5, to Transfer any or all of the Securities beneficially owed by them to any of their Affiliates who agrees to become a party to, and be bound to the same extent as its transferor by, the terms of this Agreement. 3.3 Effect of Void Transfers. In the event of any purported Transfer of any Securities in violation of the provisions of this Agreement, such purported Transfer shall be void and of no effect and the Company shall not give effect to such Transfer. 3.4 Legend on Securities. Each certificate representing Securities issued to any Stockholder shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG VESTAR/CALVARY HOLDINGS, INC. (THE "COMPANY"), SHERIDAN HEALTHCARE, INC., VESTAR/CALVARY INVESTORS, LLC., AND THE MANAGEMENT INVESTORS PARTIES THERETO, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY THE SECURITIES." 30 14 3.5 Tag-Along Rights. (a) So long as this Agreement shall remain in effect, with respect to any proposed Transfer by any of Vestar and its Affiliates (in such capacity, a "Transferring Stockholder") of Common Stock permitted hereunder, other than as provided in Section 3.2(b) and 3.6, the Transferring Stockholder shall have the obligation, and each other Stockholder (other than Vestar or any of its Affiliates) shall have the right, to require the proposed transferee to purchase from each such other Stockholder having and exercising such right (each a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by such Tagging Stockholder and sought by the Tagging Stockholder to be included in the contemplated Transfer by (B) the aggregate number of shares of Common Stock beneficially owned on a fully diluted basis by the Transferring Stockholder and all Tagging Stockholders and sought by the Transferring Stockholder and all Tagging Stockholders to be included in the contemplated Transfer and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee in the contemplated Transfer, and at the same price per share of Common Stock and upon the same terms and conditions (including without limitation time of payment and form of consideration) as to be paid and given to the Transferring Stockholder; provided that a Stockholder shall not be deemed to beneficially own any shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Tag Notice described in Section 3.5(b); and provided further that in order to be entitled to exercise its right to sell shares of Common Stock to the proposed transferee pursuant to this Section 3.5(a), a Tagging Stockholder must agree to make to the transferee the same representations, warranties, covenants, indemnities and agreements as the Transferring Stockholder agrees to make in connection with the proposed Transfer of the shares of Common Stock of the Transferring Stockholder (except that in the case of representations and warranties pertaining specifically to the Transferring Stockholder a Tagging Stockholder shall make the comparable representations and warranties pertaining specifically to itself); and provided further that all representations, warranties and indemnities shall be made by Tagging Stockholders severally and not jointly and that the liability of the Transferring Stockholder and the Tagging Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis. Any Tagging Stockholder that is a holder of Common Stock Equivalents and wishes to participate in a sale of Common Stock pursuant to this Section 3.5(a) shall convert or exercise or exchange such number of Common Stock Equivalents into or for Common Stock as may be required therefor on or prior to the closing date of such Transfer. (b) The Transferring Stockholder shall give notice (a "Tag Notice") to all relevant Stockholders of each proposed Transfer giving rise to the rights of the Tagging Stockholders set forth in the first sentence of Section 3.5(a) at least 45 days prior to the proposed consummation of such Transfer, setting forth the name of the Transferring Stockholder, the number of shares of Common Stock proposed to be so Transferred, the name and address of the proposed transferee, the proposed amount and form of consideration, the other terms and conditions of payment offered by the proposed transferee and the representations, warranties and indemnities to be made or given by the Transferring Stockholders, and a representation that the proposed transferee has been informed of the tag-along rights provided for in this Section 3.5 and has agreed to purchase shares of Common Stock in accordance with the terms hereof. The tag-along rights provided by 31 15 this Section 3.5 must be exercised by each Tagging Stockholder within 20 days following receipt of the notice required by the preceding sentence, by delivery of a written notice to the Transferring Stockholder indicating such Tagging Stockholder's desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell. The Transferring Stockholder shall be entitled under this Section 3.5 to Transfer to the proposed transferee the number of shares of Common Stock equal to the excess of (x) the number referred to in clause (ii) of Section 3.5(a) over (y) the aggregate number of shares of Common Stock set forth in the written notices, if any, delivered by the Tagging Stockholders pursuant to the preceding sentence (up to the maximum number of shares of Common Stock beneficially owned by such Tagging Stockholder required to be purchased by the proposed transferee pursuant to the first sentence of Section 3.5(a)). If the proposed transferee fails to purchase shares of Common Stock from any Tagging Stockholder that has properly exercised its tag-along rights, then the Transferring Stockholder shall not be permitted to make the proposed Transfer, and any such attempted Transfer shall be void and of no effect, as provided in Section 3.3 hereof. (c) If any of the Tagging Stockholders exercise their rights under Section 3.5(a), (i) the first shares of Common Stock to be transferred by such Tagging Stockholder must be Vested Purchased Shares until such Tagging Stockholder owns no more Vested Purchased Shares, then Option Shares until such Tagging Stockholder owns no more Option Shares, then any remaining Purchased Shares and (ii) the closing of the purchase of the Common Stock with respect to which such rights have been exercised shall take place concurrently with the closing of the sale of the Transferring Stockholder's Common Stock. 3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7 shall not be applicable to offers and sales of Securities in a Public Offering or, if such Securities previously have been sold in a Public Offering, pursuant to Rule 144 under the Securities Act. 3.7 Drag-Along Rights. So long as this Agreement shall remain in effect, if any of Vestar and its Affiliates receives an offer from a Third Party to purchase all or any portion of the outstanding shares of Common Stock and such offer is accepted by Vestar or such Affiliate, as the case may be, then each other Stockholder hereby agrees that it will, if requested in writing not less than 15 days' prior to the requested Transfer date by Vestar or such Affiliate, Transfer a pro rata number of Securities beneficially owned by it to such Third Party on the terms of the offer so accepted by Vestar or such Affiliate, as the case may be; including making the same representations, warranties, covenants, indemnities and agreements that Vestar or such Affiliate, as the case may be, agrees to make (except that, in the case of representations and warranties pertaining specifically to Vestar or such Affiliate, as the case may be, each other Stockholder shall make the comparable representations and warranties pertaining specifically to itself); provided that all representations, warranties and indemnities shall be made by Stockholders severally and not jointly and that the liability of Stockholders (whether pursuant to a representation, warranty, covenant, indemnification provision or agreement) shall be evidenced in writings executed by them and the transferee and shall be borne by each of them on a pro rata basis; and provided further that the terms of such offer applicable to any Common Stock beneficially owned by such other Stockholder are no less favorable than the terms of such offer applicable to the Common Stock beneficially owned by Vestar or such Affiliate, as the case may be, and their respective Affiliates (including with respect to the amount and nature of consideration and time of receipt 32 16 thereof); and provided further that the first shares of Common Stock Transferred by such other Stockholder must be Vested Purchased Shares until such other Stockholder owns no more Vested Purchased Shares, then the Option Shares until such other Stockholder owns no more Option Shares, then the portion of any Options then held by such other Stockholder that are then vested and exercisable (provided in the case of a Transfer of any such portion of the Options that the Company shall have made acceptable arrangements with the transferee for the same per share consideration to be paid to such Stockholder for such portion of the Option as the transferee pays for the shares of Common Stock to be purchased by the transferee, reduced by the aggregate option exercise price for the transferred portion of the Options) until no portion of the Options held by such Stockholder is vested and exercisable, and then any remaining Purchased Shares. 3.8 Rights of First Refusal. (a) Each Management Investor and their Permitted Transferees agree that if, prior to a Qualified Public Offering, such Management Investor or any of its Permitted Transferees receives a bona fide offer (a "Transfer Offer") to purchase any or all Securities (the "Transfer Securities") then owned by such Management Investor or such Management Investor's Permitted Transferees (collectively, the "Management Investor's Transfer Group") from any Person (the "Offeror") which any member of the Management Investor's Transfer Group wishes to accept (the "Management Investor Offeree"), the Management Investor Offeree shall cause the Transfer Offer to be reduced to writing and shall provide a written notice (the "Transfer Notice") of such Transfer Offer to the Company, Vestar and Sheridan. The Transfer Notice shall also contain an irrevocable offer to sell the Transfer Securities to the Company, Vestar and Sheridan (in the manner set forth below) at a price equal to the price contained in, and upon the same terms and conditions as the terms and conditions contained in, the Transfer Offer and shall be accompanied by a true and complete copy of the Transfer Offer (which shall identify the Offeror, the Transfer Securities, the price contained in the Transfer Offer and the other material terms and conditions of the Transfer Offer). At any time within 30 days after the date of the receipt by the Company, Vestar and Sheridan of the Transfer Notice, and subject to Section 3.8(c), the Company, Vestar and Sheridan or any of their designated Affiliates shall have the right and option to purchase all (but not less than all) of the Transfer Securities covered by the Transfer Offer either (i) for the same consideration and on the same terms and conditions as the Transfer Offer or (ii) if the Transfer Offer includes any consideration other than cash, then, at the sole option of the Company, Vestar, Sheridan, or any of their designated Affiliates, as applicable, at the equivalent all cash price, determined in good faith by a majority of the members of the Company's Board of Directors. If the option referred to in the preceding sentence is exercised, on or prior to the 60th day after the date of receipt by the Company, Vestar and Sheridan of the Transfer Notice the Company, Vestar, Sheridan or any other designated Affiliates, as applicable, shall execute and deliver to the Management Investor Offeree a written agreement in the form included in the Transfer Offer, including representations, warranties, covenants and indemnities, if the Transfer Offer included such written agreement, and shall pay the relevant cash consideration, by delivering a certified bank check or checks in (or, if the Management Investor Offeree so elects at least three business days prior to the closing date in a writing specifying the Management Investor Offeree's bank account and other wire Transfer instructions, by wire transferring) the appropriate amount and shall deliver the relevant non-cash consideration to the Management Investor Offeree against delivery at the principal office of Sheridan of certificates or other instruments representing the Transfer Securities so purchased, appropriately endorsed by the Management Investor Offeree. If at the end of such 30-day period, 33 17 the Company, Vestar and Sheridan have not delivered written notice of exercise by them of their right to purchase the Transfer Securities pursuant to this Section 3.8 or if at the end of such 60-day period, the Company, Vestar and Sheridan have not tendered the purchase price for such shares in the manner set forth above, the Management Investor Offeree shall be free for a period of 90 days from the end of such 30- or 60-day period, as applicable, to Transfer not less than all of the Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice (including the execution and delivery of any written agreement in the form included in the Transfer Offer). Such Offeror shall agree in a writing in form and substance reasonably satisfactory to the Company to become a party hereto and be bound to the same extent as the Management Investor Offeree by the provisions hereof. Promptly after such sale, the Management Investor Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If for any reason any Management Investor Offeree does not Transfer Transfer Securities to the Offeror on the terms and conditions set forth in the Transfer Notice, or if any Management Investor Offeree wishes to sell the Transfer Securities on terms other than those set forth in the Transfer Notice, the provisions of this Section 3.8 shall again be applicable to the Transfer Securities. (b) The closing of the purchase of the Transfer Securities by the Company, Sheridan, Vestar or any of their designated Affiliates, as appropriate, upon exercise of its right of first refusal pursuant to Section 3.8(a) shall take place at the principal office of Sheridan on a date specified by the Company, Sheridan, Vestar or any of their designated Affiliates, as applicable, no later than the last day of the 60-day period after the giving of the Transfer Notice. (c) Notwithstanding anything in this Section 3.8 to the contrary, (i) neither Vestar nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Vestar has received a written notice from the Company indicating the Company's intention not to exercise such right of first refusal (a "No ROFR Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a right of first refusal under this Section 3.8 unless Sheridan has received a No ROFR Notice from Vestar. 3.9 Participation Right. (a) Except as otherwise set forth in Section 3.9(b) hereof, the Company shall not issue (an "Issuance") to Vestar or any of its Affiliates: (i) additional shares of Common Stock or Common Stock Equivalents or capital stock of the Company other than Common Stock and Common Stock Equivalents ("Other Capital Stock"); or (ii) any warrants, rights, calls, options or other securities exchangeable for or exercisable or convertible into Other Capital Stock or any other security other than Common Stock, Common Stock Equivalents or Other Capital Stock entitled to participate in the Company's profits (collectively, "Other Capital Stock Equivalents"); unless, prior to such Issuance, the Company notifies each Management Investor in writing of the proposed Issuance and grants to such notified party or, at the election of such notified party, one of its Affiliates the right (the "Right") to subscribe for and purchase such additional shares of Common Stock or Other Capital Stock or such additional shares or units of 34 18 Common Stock Equivalents or Other Capital Stock Equivalents (collectively, "Equity Interests") so issued at the same price and upon the same terms and conditions (including, in the event such Equity Interests are issued as a unit together with other securities, the purchase of such other securities) as issued in the Issuance such that: (A) in the case of an Issuance in which shares of Common Stock or Common Stock Equivalents are to be issued, immediately after giving effect to the Issuance and exercise of the Right (including, for purposes of this calculation, the issuance of shares of Common Stock upon conversion, exchange or exercise of any Common Stock Equivalent issued in the Issuance or subject to the Right), the shares of Common Stock beneficially owned by the notified party and its Affiliates on a fully diluted basis (rounded to the nearest whole share) shall represent the same percentage of the aggregate number of shares of Common Stock outstanding on a fully diluted basis as was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(A) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance; and (B) in the case of an Issuance in which shares of Other Capital Stock or Other Capital Stock Equivalents are to be issued, the notified party and its Affiliates shall have the Right to acquire a percentage of the Other Capital Stock or Other Capital Stock Equivalents to be issued in the Issuance equal to the percentage of shares of Common Stock on a fully diluted basis that was beneficially owned by such notified party and its Affiliates and Vestar and its Affiliates, respectively, immediately prior to the Issuance; provided, that for purposes of the calculations required by this Section 3.9(a)(B) notified parties and their Affiliates shall not be deemed to beneficially own any Shares underlying unexercised Options unless such Options are vested and exercisable as of the date of the Issuance. (b) The Right may be exercised by the notified party at any time by written notice to the Company received by the Company within 20 days after the date on which such notified party receives notice from the Company of the proposed Issuance, and the closing of the purchase and sale pursuant to the exercise of the Right shall occur at least 15 days (but not later than 180 days) after the Company receives notice of the exercise of the Right and prior to or concurrently with the closing of the Issuance. Notwithstanding the foregoing provisions of this Section 3.9, the Right shall not apply to (i) any Issuance of Equity Interests pro rata to all holders of Common Stock and Other Capital Stock, (ii) any Issuance upon the conversion, exercise or exchange of any Common Stock Equivalent or any Other Capital Stock Equivalent outstanding on the Closing Date pursuant to the terms thereof, (iii) any Issuance to a Management Investor or any other employee of the Company pursuant to a management stock subscription agreement or stock option or other employee benefit plan of the Company or one of its Subsidiaries, (iv) any Issuance to a member of the Board of Directors of the Company or a Subsidiary of the Company designated by Vestar and its Permitted Transferees who is not a director, officer, general partner or employee of Vestar or Vestar Capital Partners III, L.P. for services rendered as such to the 35 19 Board of Directors of the Company or a Subsidiary of the Company, (v) any Issuance pursuant to a bona fide underwritten public offering pursuant to an effective registration statement under the Securities Act or (vi) any Issuance of Mezzanine Securities. 3.10 Partial Transfers Following a Qualified Public Offering. Each Senior Management Investor may, during the one year period commencing on the second anniversary of the first Qualified Public Offering and during each one year period commencing on each succeeding anniversary of such Qualified Public Offering thereafter (each such anniversary being referred to as a "Measurement Date"), Transfer up to 5% of the shares of Vested Purchased Shares and Option Shares beneficially owned by such Senior Management Investor on the applicable Measurement Date, subject to Section 3.1(a) hereof; provided, however, that this provision shall not permit a Senior Management Investor who has already Transferred (pursuant to any provision of this Agreement which permits Transfers by Senior Management Investors) the cumulative number of shares of Common Stock he or she otherwise would be entitled to Transfer pursuant to this Section 3.10 to Transfer any additional shares of Common Stock. 3.11 Partial Transfers to Cover Option-Related Tax Payments. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by the Management Investor with Good Reason, and thereafter such Management Investor exercises Options which would otherwise expire unless so exercised, such Management Investor may Transfer Securities; provided, that the aggregate purchase price for the Securities being Transferred shall not exceed the total amount of taxes which such Management Investor's tax consultant has reasonably advised will be due and owing in respect of such tax year by such Management Investor as a result of such Management Investor exercising such Options; and provided, further, that such Transfer shall be subject to the right of first refusal provisions of Section 3.8. 3.12 Transfers to Other Management Investors. If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then at any time after the conclusion of the Second Call Period, such Management Investor may Transfer all or any portion of the Securities beneficially owned by him to one or more of the other Management Investors; provided, however, that if the proposed purchase price for such Securities which is offered to the other Management Investors is less than the relevant purchase price under Section 3.13(c), such proposed Transfer hereunder by such Management Investor shall be subject to the right of first refusal provisions of Section 3.8. 3.13 Call Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer for Cause, then within 180 days of the employment termination date, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such 36 20 Management Investor and such Management Investor's Permitted Transferees by providing written notice of the relevant election (including the number of Securities to be purchased) to the applicable Management Investor and Permitted Transferees (a "Call Notice"). The purchase price per share for such Securities will be the lower of Cost and Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for such Securities will be the greater of Cost and Fair Market Value on the date of termination of employment. (c) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Management Investor with Good Reason, then within the later of (1) 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later) or (2) ten days after the applicable Management Investor has rescinded his election to sell all or a portion of his Purchased Shares which were to be paid for with a Junior Subordinated Note in connection with the put right set forth in Section 3.14, and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for (A) the Applicable Percentage of the Purchased Shares and for all Option Shares will be the greater of (x) Cost or (y) Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be Cost. (d) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is voluntarily terminated by such Management Investor without Good Reason, then within 180 days of the employment termination date (and, with respect to any Option Shares, within 180 days after the date of the last exercise of any Options, if later), and subject to Section 3.13(e), the Company, Vestar, Sheridan or any of their designated Affiliates shall have the option to purchase all or any portion of the Purchased Shares and Option Shares held by such Management Investor and such Management Investor's Permitted Transferees by providing a Call Notice to the applicable Management Investor and Permitted Transferees. The purchase price per share for the Applicable Percentage of the Purchased Shares and for all Option Shares will be Fair Market Value on the date of termination of employment and the purchase price for the remaining portion of the Purchased Shares, if any, will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment; provided that if such voluntary termination without Good Reason occurs prior to the second anniversary of the Closing 37 21 Date, the Purchase Price per share for all Option Shares will be the lower of (x) Cost or (y) Fair Market Value on the date of termination of employment. (e) Notwithstanding anything in this Section 3.13 to the contrary (i) neither Vestar nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Vestar has received written notice from the Company indicating the Company's intention not to exercise such call right (a "No Call Notice") and (ii) neither Sheridan nor any of its designated Affiliates may exercise a call right under this Section 3.13 unless Sheridan has received a No Call Notice from Vestar. (f) In the event that pursuant to Section 3.13(c), Cost exceeds Fair Market Value on the date of the Management Investor's termination of employment and none of the Company, Vestar or Sheridan exercises the call right with respect to the Purchased Shares and Option Shares which it could have purchased at Cost (the "Cost Securities") during the 180 day period commencing on such date of termination (the "Initial Call Period"), then the Company, Vestar or Sheridan (subject once again to the provisions of Section 3.13(e) with respect to the Second Call Period regardless of whether No Call Notices were issued in the Initial Call Period) will have an additional right to call the Cost Securities during the 90-day period commencing on the eighteen-month anniversary of the Management Investor's termination of employment (the "Second Call Period") by providing a Call Notice to the applicable Management Investor. The purchase price per share for such Securities pursuant to Section 3.13(c)(A) will be the greater of (x) Fair Market Value on the date of termination of employment and (y) Fair Market Value on the first day of the Second Call Period and the purchase price for such Securities pursuant to Section 3.13(c)(B) will be the lower of (x) Cost or (y) Fair Market Value on the first day of the Second Call Period. (g) The completion of the purchases pursuant to Sections 3.13(a), (b), (c), (d) and (f) shall take place at the principal office of Sheridan on or prior to the thirtieth (30th) day after the giving of the applicable Call Notice. The repurchase price for the Securities shall be paid by delivery to the appropriate Management Investor or Permitted Transferee of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or Permitted Transferee unless Sheridan is the party exercising such call right and a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of all indebtedness of Sheridan including, without limitation, any debt outstanding under any credit agreement and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of Sheridan (a "Junior Subordinated Note") in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan pays all or any of the purchase price for any of the Securities with a Junior Subordinated Note, and then resells such Securities for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent 38 22 that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, the payment of all or any portion of the amounts outstanding under such Junior Subordinated Note can be repaid by Sheridan without giving rise to a Financing Default (a "Permitted Payment"), Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Management Investor or Permitted Transferee by delivery of a certified bank check to the order of such Management Investor or Permitted Transferee. If Sheridan cannot pay the purchase price for any Securities subject to a Call Notice in cash or a Junior Subordinated Note due to any circumstance described in this subparagraph 9(g), Sheridan shall not be permitted to exercise the applicable call right. 3.14 Put Right. (a) If, at any time prior to the Lapse Date, a Management Investor's employment with the Company and its Subsidiaries is terminated due to the death or Disability of such Management Investor, then within 180 days of the employment termination date such Management Investor and the members of the Family Group of such Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Management Investor and the members of the Family Group of such Management Investor, all or any portion of the Purchased Shares held by such Management Investor and the members of the Family Group of such Management Investor by providing written notice of his or their election (including the number of Securities to be sold) to Sheridan (a "Put Notice"). The purchase price per share for such Securities will be Fair Market Value on the date of termination of employment. (b) If, at any time prior to the Lapse Date, a Senior Management Investor's employment with the Company and its Subsidiaries is terminated by the applicable employer without Cause or by such Senior Management Investor with Good Reason, then within 180 days of the employment termination date such Senior Management Investor shall have the option to sell to Sheridan, and Sheridan shall be obligated to purchase, on one occasion from such Senior Management Investor a number of Purchased Shares held by such Senior Management Investor the aggregate purchase price for which under this Section 3.14(b) is not in excess of the aggregate purchase price paid by such Senior Management Investor on the Closing Date for all Securities purchased by such Senior Management Investor on the Closing Date. Such Senior Management Investor shall exercise such put right by providing a Put Notice to Sheridan. The purchase price per share for (A) the Applicable Percentage of such Purchased Shares will be Fair Market Value on the date of termination of employment and (B) the remaining portion of such Purchased Shares, if any, will be the lower of Cost and Fair Market Value on the date of termination of employment. (c) The completion of the purchase pursuant to Section 3.14 (a) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Management Investor or the members of his Family Group, as applicable, of a certified bank check or checks in the appropriate amount payable to the order of such Management Investor or the members of his Family Group, as applicable, unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash 39 23 payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the purchase price with a Junior Subordinated Note, Sheridan shall give the notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment in cash to the applicable Management Investor or the members of his Family Group, as applicable, by delivery of a certified bank check to the order of such Management Investor or the members of his Family Group, as applicable. (d) The completion of the purchase pursuant to Sections 3.14 (b) shall take place at the principal office of Sheridan on or prior to the sixtieth day after the giving of the Put Notice, at which time at least fifty percent of the purchase price shall be paid. If Sheridan elects to pay less than all of the purchase price initially, the remaining portion of the purchase price shall be paid in one payment on or prior to the first anniversary of the giving of the Put Notice. The purchase price for the Purchased Shares included in the Put Notice shall be paid by delivery to the appropriate Senior Management Investor of a certified bank check or checks in the appropriate amount payable to the order of such Senior Management Investor unless a Financing Default exists or, after giving effect to such payment would exist, which prohibits such cash payment, in which case the portion of the cash payment so prohibited shall be made, to the extent permitted by any loan agreement, indenture or other agreement to which Sheridan is a party, by Sheridan's delivery of a Junior Subordinated Note in a principal amount equal to the amount of the purchase price which cannot be paid in cash, payable in five equal annual installments commencing on the first anniversary of the issuance thereof and bearing interest payable annually in arrears at the publicly announced prime rate of Chase Manhattan Bank, N.A. on the date of issuance. If Sheridan intends to pay all or any portion of the initial payment of the purchase price with a Junior Subordinated Note, Sheridan shall give the Senior Management Investor notice of the principal amount of such note at least 15 days prior to such purchase, and the relevant Senior Management Investor shall have ten days thereafter to rescind his election to sell all or a portion of his Purchased Shares to be paid for with such note. If Sheridan pays all or any portion of the purchase price for any Purchased Shares with a Junior Subordinated Note, and then resells such Purchased Shares for cash, the portion of the accrued but unpaid interest and, to the extent of any excess, the outstanding principal amount of the Junior Subordinated Note that is equal to the 40 24 amount of such cash proceeds shall become immediately due and payable, unless and to the extent that payment of such accrued interest or outstanding principal under the Junior Subordinated Note would constitute or result in a Financing Default. If at any time after the issuance by Sheridan of a Junior Subordinated Note, a Permitted Payment can be made, Sheridan shall, as promptly as practicable but not later than thirty days after such payment becomes permissible, pay the Permitted Payment (accrued interest first and then principal) in cash to the applicable Senior Management Investor by delivery of a certified bank check to the order of such Senior Management Investor. SECTION 4. REGISTRATION RIGHTS 4.1 Demand Registration. (a) Common Stock Request. Upon the written request (a "Request") of Vestar or its designated Permitted Transferees that the Company effect the registration under the Securities Act of all or part of the shares of Common Stock owned or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents by Vestar and/or its Permitted Transferees (a "Requesting Stockholder"), the Company will use its best efforts to effect the registration under the Securities Act of such shares. (b) Registration Statement Form. Registrations under this Section 4.1 shall be on such appropriate registration form of the SEC as shall (i) be selected by the Company and (ii) permit the disposition of the Common Stock being registered in accordance with the intended method or methods of disposition specified in the request for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the underwriters, the Requesting Stockholder and the Company, is required to be included. (c) Effective Registration Statement. A registration requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, or (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason not attributable to the Requesting Stockholder or any of its Affiliates and has not thereafter become effective. (d) Limitations on Registration on Request. Notwithstanding anything in this Section 4.1 to the contrary, in no event will (i) the Company be required to effect more than one registration pursuant to Section 4.1(a) within any 180 day period or (ii) the Requesting Stockholder be entitled to more than five registrations in the aggregate pursuant to Section 4.1(a); unless in the case of clause (d)(ii) above such Requesting Stockholder agrees to pay all of the costs and expenses of each such additional registration (unless either (x) a registration so requested is not deemed to have been effected pursuant to Section 4.1(c) for a reason not attributable to the Requesting Stockholder or any of its Affiliates or (y) the number of shares of Common Stock sought to be included by such Requesting Stockholder in such registration is reduced by more than 25% pursuant to the provisions of Section 4.2(b)). 41 25 4.2 Incidental Registration. (a) Right to Include Common Stock and Common Stock Equivalents. If the Company at any time proposes to register any shares of Common Stock (or Common Stock Equivalents, including any registration of Common Stock Equivalents pursuant to the exercise of rights under Section 4.2(b)) under the Securities Act (except registrations on such form(s) solely for registration of Common Stock or Common Stock Equivalents in connection with any employee benefit plan or dividend reinvestment plan or a merger or consolidation), including registrations pursuant to Section 4.1(a), whether or not for sale for its own account, it will each such time as soon as practicable give written notice of its intention to do so to all the Stockholders. Upon the written request (which request shall specify the total number of shares of Common Stock or Common Stock Equivalents intended to be disposed of by such Stockholder) of any Stockholder made within 30 days after the receipt of any such notice (15 days if the Company gives telephonic notice with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Common Stock held or to be acquired upon conversion, exercise or exchange of Common Stock Equivalents (or, if Common Stock Equivalents are proposed to be registered by the Company, Common Stock Equivalents) by the Stockholders which the Company has been so requested to register for sale in the manner initially proposed by the Company; provided that the Company shall not be obliged to register any Common Stock Equivalents which are not of the same class, series and form as the Common Stock Equivalents proposed to be registered by the Company. If the Company thereafter determines for any reason not to register or to delay registration of the Common Stock or Common Stock Equivalents (provided, however, that in the case of any registration pursuant to Section 4.1(a), such determination shall not violate any of the Company's obligations under Section 4.1 or any other provision of this Agreement), the Company may, at its election, give written notice of such determination to the Stockholders and (A) in the case of a determination not to register, shall be relieved of the obligation to register such Common Stock or Common Stock Equivalents in connection with such registration (without prejudice, however, to any right the Requesting Stockholder may have to request that such registration be effected as a registration under Section 4.1(a)) and (B) in the case of a determination to delay registering, shall be permitted to delay registering any Common Stock or Common Stock Equivalents of a Stockholder for the same period as the delay in registration of such other securities. No registration effected under this Section 4.2(a) shall relieve the Company of any obligation to effect a registration upon a Common Stock Request under Section 4.1(a). (b) Priority in Incidental Registration. In a registration pursuant to this Section 4.2, if the managing underwriter of such underwritten offering shall inform the Company and the relevant Stockholders by letter of its belief that the number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be included in such registration would adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number of shares of Common Stock or Common Stock Equivalents which it is so advised should be included in such offering. Shares of Common Stock or Common Stock Equivalents proposed by the Company to be registered for issuance by the Company shall have the first priority in a registration pursuant to Section 4.2(a) and all other shares of Common 42 26 Stock or Common Stock Equivalents to be registered (whether or not requested to be registered pursuant to Section 4.1(a) or 4.2(a) or otherwise) shall be given second priority without preference among the relevant holders. If less than all of the Stockholder's shares of Common Stock or Common Stock Equivalents are to be registered, each such Stockholder's shares of Common Stock or Common Stock Equivalents shall be included in the registration pro rata based on the total number of shares of Common Stock or Common Stock Equivalents sought to be registered by each Stockholder (as opposed to the Company). (c) Custody Agreement and Power of Attorney. Upon delivering a request under this Section 4.2, Management Investors and their Permitted Transferees will, if requested by the Company, execute and deliver a custody agreement and power of attorney in form and substance reasonably satisfactory to the Company and one of the director designees referred to in Section 2.1(a)(i) with respect to such Stockholder's shares of Common Stock or Common Stock Equivalents to be registered pursuant to this Section 4.2 (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that the Stockholder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (who shall be reasonably satisfactory to one of the director designees referred to in Section 2.1(a)(i)) a certificate or certificates representing such shares of Common Stock or Common Stock Equivalents (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Stockholder's agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Stockholder's behalf with respect to the matters specified therein. Such Stockholder also agrees to execute such other agreements as the Company may reasonably request to further evidence the provisions of this Section 4.2. 4.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use all reasonable efforts to effect such registration and the Company will promptly: (a) prepare and file with the SEC as soon as practicable after request for registration hereunder the requisite registration statement to effect such registration and use all reasonable efforts to cause such registration statement to become effective and to remain continuously effective until the earlier to occur of (i) 180 days following the date on which such registration statement is declared effective or (ii) the termination of the offering being made thereunder; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement until such Common Stock or Common Stock Equivalents have been sold or such lesser period of time as the Company, any seller of such Common Stock or Common Stock Equivalents or any underwriter is required under the Securities Act to deliver a prospectus in accordance with the intended methods of disposition by the sellers 43 27 of such Common Stock or Common Stock Equivalents set forth in such registration statement or supplement to such prospectus; (c) furnish to each Stockholder which owns shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement (the "Selling Stockholders") and the managing underwriter, if any, at least one executed original of the registration statement and such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, as may reasonably be requested by such Selling Stockholder; (d) use all reasonable efforts (i) to register or qualify all shares of Common Stock or Common Stock Equivalents covered by such registration statement under the securities or "blue sky" laws of such jurisdictions where an exemption is not available as the Selling Stockholders shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect and (iii) to take any other action which may be reasonably necessary or advisable to enable the Selling Stockholders to consummate the disposition in such jurisdictions of such Common Stock or Common Stock Equivalents; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject itself to taxation in any such jurisdiction or take any action which would subject it to general service of process in any such jurisdiction; (e) notify the Selling Stockholders and the managing underwriter, if any, promptly, and confirm such advice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the registered securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or information becoming known which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the registered securities for sale in any jurisdiction, at the earliest possible moment; (g) upon the occurrence of any event contemplated by clause (e)(v) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document 44 28 so that, as thereafter delivered to the purchasers of the securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use its best efforts to furnish to the Selling Stockholders a signed counterpart, addressed to the Selling Stockholders and the underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a "comfort" letter, signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountant's letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the accountant's letter, such other financial matters, and in the case of the legal opinion, such other legal matters, as the Selling Stockholders or the underwriters may reasonably request; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Selling Stockholders an earnings statement satisfying the provisions of Section 10(a)(i) of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days after the end of any 12-month period beginning after the effective date of a registration statement pursuant to which shares of Common Stock or Common Stock Equivalents are sold, which statement shall cover such 12-month period; (j) cooperate with the Selling Stockholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Common Stock or Common Stock Equivalents to be sold; and enable such shares of Common Stock or Common Stock Equivalents to be in such denominations and registered in such names as the Selling Stockholders or the managing underwriters, if any, may request at least two Business Days prior to any sale of shares of Common Stock or Common Stock Equivalents to the underwriters; (k) use its best efforts to cause the shares of Common Stock or Common Stock Equivalents, as the case may be, covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Stockholder(s) or the underwriters, if any, to consummate the disposition of such shares of Common Stock or Common Stock Equivalents; (l) cause all shares or units of Common Stock or Common Stock Equivalents, as the case may be, covered by the registration statement to be listed on each securities exchange, if any, on which securities of such class, series and form issued by the Company, if any, are then listed if requested by the managing underwriters, if any, or the holders of a majority of the shares or units of Common Stock or Common Stock Equivalents covered by the registration statement and entitled hereunder to be so listed; 45 29 (m) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (n) as soon as practicable prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement) provide copies of such document to counsel to the Selling Stockholders and to the managing underwriters, if any, and make the Company's representatives available for discussion of such document and consider in good faith making such changes in such document prior to the filing thereof as counsel for such Selling Stockholders or underwriters may reasonably request. The Company may require each Selling Stockholder to furnish to the Company such information regarding such Selling Stockholder and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. The Selling Stockholders agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.3(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue disposition pursuant to such registration statement of any shares of Common Stock or Common Stock Equivalents, as the case may be, covered by such registration statement or prospectus until their receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus or until they are advised in writing by the Company that the use of the applicable prospectus may be resumed (and the period of such discontinuance shall be excluded from the calculation of the period specified in clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver to the Company (at the Company's expense, except as otherwise provided in Section 4.1(d)) all copies, other than permanent file copies then in their possession, of the prospectus covering such securities in effect at the time of receipt of such notice. The Selling Stockholders agree to furnish the Company a signed counterpart, addressed to the Company and the underwriters, if any, of an opinion of counsel for the Selling Stockholders covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of selling stockholder's counsel delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions are customarily dated) and such other legal matters as the Company or the underwriters may reasonably request. 4.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In any underwritten offering pursuant to a registration requested under Section 4.1, the Company will use its best efforts to enter into an underwriting agreement for such offering with the underwriters selected by the Requesting Stockholder, such agreement and underwriters to be reasonably satisfactory in form and substance to the Company, the Requesting Stockholder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Selling Stockholders who hold shares of Common Stock to be 46 30 distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any shares of its Common Stock or Common Stock Equivalents under the Securities Act as contemplated by Section 4.2 and such Securities are to be distributed by or through one or more underwriters, the Company and the Selling Stockholders who hold shares of Common Stock or Common Stock Equivalents to be distributed by such underwriters in accordance with Section 4.2 hereof shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of them and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to their obligations. The Company may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of the Selling Stockholders to and for the benefit of such underwriters shall also be made to and for the benefit of the Company with due regard to the amount of Securities being sold by such Selling Stockholder and the nature of such representations, warranties and agreements and the underwriting. 4.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Selling Stockholders, the underwriters and their respective counsels and accountants a reasonable opportunity (but such Persons shall not have the obligation) to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and, to the extent practicable, each amendment thereof or supplement thereto, and, subject to the execution and delivery of a customary confidentiality agreement, will give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary to conduct a reasonable investigation within the meaning of the Securities Act. 4.6 Limitations, Conditions and Qualifications to Obligations under Registration Covenants. The obligations of the Company to use its reasonable efforts to cause shares of Common Stock and Common Stock Equivalents to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: 47 31 (a) The Company shall be entitled to postpone for a reasonable period of time the filing or effectiveness of, or suspend the rights of Selling Stockholders to make sales pursuant to, any registration statement otherwise required to be prepared, filed and made and kept effective by it hereunder (but the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in clauses (A) and (B) below or (ii) 120 days after the date of the determination of the Board of Directors of the Company referred to below, and the duration of such postponement or suspension shall be excluded from the calculation of the period specified in clause (i) of Section 4.3(a)) if the Board of Directors of the Company determines in good faith that (A) there is a material undisclosed development in the business or affairs of the Company (including any pending or proposed financing, recapitalization, acquisition or disposition), the disclosure of which at such time could be adverse to the Company's interests or (B) the Company has filed a registration statement with the SEC, such registration statement has not yet been declared effective, the Company is using its reasonable best efforts to have such registration statement declared effective, and the underwriters with respect to such registration advise that such registration would be adversely affected. If the Company shall so delay the filing of a registration statement, it shall, as promptly as possible, notify the Selling Stockholders of such determination, and the Selling Stockholders shall have the right (x) in the case of a postponement of the filing or effectiveness of a registration statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of the Company's notice or (y) in the case of a suspension of the right to make sales, to receive an extension of the registration period equal to the number of days of the suspension. (b) The Company shall not be required hereby to include shares of Common Stock or Common Stock Equivalents in a registration statement if, in the written opinion (to be issued to, and relied upon by, the Stockholders seeking inclusion) of outside counsel to the Company of recognized standing in securities law matters, the beneficial owners of such Common Stock or Common Stock Equivalents seeking registration would be free to sell all of such shares of Common Stock or Common Stock Equivalents within the current calendar quarter without registration under Rule 144 under the Securities Act. (c) The Company's obligations shall be subject to the obligations of the Selling Stockholders, which the Selling Stockholders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such registration statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant hereto unless such audit is requested by the underwriters with respect to such registration. 4.7 Expenses. The Company and Sheridan jointly and severally agree to pay all reasonable out-of-pocket costs and expenses incurred in connection with each registration of Common Stock or Common Stock Equivalents pursuant to this Agreement, including, without limitation, the reasonable fees and disbursements of a single firm of outside counsel retained by Selling Stockholders which beneficially own a majority of the total number of shares or units of Common Stock or Common Stock Equivalents being registered by Selling Stockholders (the 48 32 "Majority Selling Stockholders"), and any and all filing fees payable to the SEC, fees with respect to filings required to be made with stock exchanges, the NASDAQ and the NASD, fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of a single firm of outside counsel for the underwriters or the Majority Selling Stockholders in connection with blue sky qualifications of the Common Stock or Common Stock Equivalents being registered and determination of its eligibility for investment under the laws of such jurisdictions as the Selling Stockholders may designate), printing expenses, fees and disbursements of counsel and accountants of the Company, including costs associated with comfort letters, and fees and expenses of other Persons retained by the Company, but excluding underwriters' expenses (including discounts, commissions or fees of underwriters and expenses included therein, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the securities being registered or legal expenses of any Person other than the Company and the Selling Stockholders) but including the fees and expenses of any qualified independent underwriter required to participate in such registration pursuant to applicable law or the requirements of the NASD. The Company and its Subsidiaries shall, in any event in all cases, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of securities law liability insurance and rating agency fees, if any. 4.8 Indemnification. (a) Indemnification by the Company. In connection with any registration pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, the Company shall indemnify and hold harmless, to the full extent permitted by law, each holder of such Common Stock or Common Stock Equivalents to be disposed of and, when applicable, its officers, directors, agents and employees and each Person who controls such holder (within the meaning of the Securities Act or the Exchange Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, including, without limitation, any loss, claim, damage, liability or expense resulting from the failure to keep a prospectus current, except insofar as the same (i) are caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use therein or (ii) are caused by such holder's failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission or (iii) arise in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 4.3(e) (and after such holder has received in writing the notice contemplated by Section 4.3(e)). The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of such Common Stock or Common Stock Equivalents to be disposed of, and shall enter into an indemnification agreement with such Persons containing such terms, if requested. 49 33 (b) Indemnification by Stockholders. In connection with each registration statement effected pursuant hereto in which shares of Common Stock or Common Stock Equivalents are to be disposed of, each Selling Stockholder shall, severally but not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, each other Selling Stockholder and their respective directors, officers, agents and employees and each Person who controls the Company and each other Selling Stockholder (within the meaning of the Securities Act or the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in such registration statement or prospectus or preliminary prospectus or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission relates to such Selling Stockholder and is contained in any information furnished in writing by such Selling Stockholder or any of its Affiliates to the Company expressly for inclusion in such registration statement or prospectus. In no event shall the liability of any Selling Stockholder hereunder be greater in amount than the dollar amount of the proceeds actually received by such Selling Stockholder upon the sale of the securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall give prompt notice to the indemnifying party of any claim with respect to which it shall seek indemnification and shall permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (i) the indemnifying party shall have agreed to pay such fees or expenses, or (ii) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person or (iii) in the opinion of outside counsel to such Person there may be one or more legal defenses available to such Person which are different from or in addition to those available to the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party shall not be subject to any liability for any settlement made without its consent (but such consent shall not be unreasonably withheld). No indemnified party shall be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a written release in form and substance reasonably satisfactory to such indemnified party from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one firm of counsel (and, if necessary, local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the written opinion of outside counsel to an indemnified party a conflict of interest as to the subject matter exists between such indemnified party and another indemnified party with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of additional counsel for such indemnified party. 50 34 (d) Contribution. If for any reason the indemnification provided for herein is unavailable to an indemnified party or is insufficient to hold it harmless as contemplated hereby, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that in no event shall the liability of any Selling Stockholder for such contribution and indemnification exceed, in the aggregate, the dollar amount of the proceeds received by such Selling Stockholder upon the sale of securities giving rise to such indemnification and contribution obligation. 4.9 Participation in Underwritten Registrations. No Stockholder or Permitted Transferee may participate in any underwritten registration hereunder unless such Stockholder or Permitted Transferee (a) agrees to sell its shares of Common Stock or Common Stock Equivalents on the basis provided in and in compliance with any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act, and (b) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that all such documents shall be consistent with the provisions hereof. 4.10 Rule 144. The Company hereby covenants that after it has filed (and such registration statement has become effective) a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of Common Stock, the Company will file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Stockholder, make publicly available other information so long as necessary to permit sales by such Stockholder under Rule 144 under the Securities Act) and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable such Stockholder to sell shares of Common Stock under Rule 144 under the Securities Act. Notwithstanding the foregoing, no Management Investor shall Transfer shares of Common Stock under Rule 144 unless expressly permitted to do so by the terms of this Agreement. 4.11 Holdback Agreements. (a) Each Stockholder agrees that, if any of its shares of Common Stock or Common Stock Equivalents is included in a registration statement filed by the Company in connection with an underwritten public offering it shall not effect any public sale or distribution of shares of Common Stock or Common Stock Equivalents during the 30 days prior to or the 180 day period beginning on the effective date of such registration statement (except as part of such registration) if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. (b) The Company agrees not to effect any primary public sale or distribution of any Common Stock or Common Stock Equivalents, as the case may be, during the 10 days prior to and the 180 day period beginning on the effective date of any registration statement in which 51 35 any Stockholder is participating in connection with an underwritten public offering of Common Stock or Common Stock Equivalents, as the case may be, if and to the extent reasonably requested in writing (with reasonable prior notice) by the managing underwriter of the underwritten public offering. 4.12 Mezzanine Securities. Notwithstanding anything to the contrary herein, the Company may grant registration rights to holders of Mezzanine Securities which are more, as or less favorable to such holders than the registration rights of the parties hereto. To the extent that Mezzanine Securities consist of Common Stock or Common Stock Equivalents, holders of Mezzanine Securities may be given the right by the Company to participate in registrations as if such holders were Stockholders, and the Company shall not be obliged hereunder to comply with any provision of this Section 4 in respect of a registration of Mezzanine Securities. SECTION 5. MISCELLANEOUS 5.1 Additional Securities Subject to Agreement. Each Stockholder agrees that any other Securities which it shall hereafter acquire by means of a stock split, stock dividend, distribution, exercise of stock options, or otherwise (other than Mezzanine Securities or pursuant to a Public Offering or Section 3.2(a)(iii)) shall be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.2 Termination. Except as otherwise provided herein, this Agreement shall terminate, and thereby become null and void, as to any particular Securities, on the date on which they are sold in a Public Offering or are sold pursuant to Rule 144 under the Securities Act (unless such Securities are reacquired by a Stockholder). 5.3 Injunctive Relief. The Stockholders and their Permitted Transferees acknowledge and agree that a violation of any of the terms of this Agreement will cause the Stockholders and their Permitted Transferees irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each Stockholder and Permitted Transferee shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 5.4 Other Stockholders' Agreements. None of the Stockholders shall enter into any stockholder agreement or other arrangement of any kind with any Person with respect to any Securities which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. 5.5 Amendments. This Agreement may be amended only by a written instrument signed (a) by Vestar, so long as it or its Affiliates own Securities, and (b) by Stockholders other than Vestar and its Affiliates which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders other than Vestar and its Affiliates. 52 36 5.6 Successors, Assigns and Transferees. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors, each of which Permitted Transferees shall agree, in a writing in form and substance satisfactory to the Company and the owners on a fully diluted basis of Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Stockholders, to become a party hereto and be bound to the same extent as its transferor hereby, provided that no Stockholder may assign to any Permitted Transferee any of its rights hereunder other than in connection with a Transfer to such Permitted Transferee of Securities in accordance with the provisions of this Agreement. 5.7 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when delivered by a recognized courier or, in the case of telecopy notice, when received, addressed as follows to the parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: if to the Company, Sheridan or Vestar, to it: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Facsimile: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Facsimile: (212) 455-2502 if to any other Stockholder, to such Stockholder at such Stockholder's address or telecopy number set forth in the books and records of the Company. 5.8 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof and thereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 53 37 5.9 Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 5.10 Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 5.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, except for matters directly within the purview of the General Corporation Law of the State of Delaware (the "DGCL"), which shall be governed by the DGCL. 5.12 Jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the States of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the States of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 5.13 Management Investors. Each employee or director of the Company or any of its Subsidiaries who becomes party to a stock subscription agreement or option agreement with any of the Company and its Subsidiaries after the date hereof shall become a party hereto and shall be bound hereby. The Company shall not issue any securities to an employee or director of the Company or any of its Subsidiaries unless he or she enters into a supplementary agreement with the Company agreeing to be bound by the terms hereof in the same manner as the other Management Investors. Each such supplementary agreement shall become effective upon its execution by the Company and such employee or director, and it shall not require the signature or consent of any other party hereto. Such supplementary agreement may modify some of the terms hereof as they effect such employee or director; provided that the modified terms shall be no more favorable to such employee or director than the terms set forth herein. 5.14 83(b) Election. Promptly after the Closing Date, each Management Investor shall, with respect to all Securities beneficially owned by such Management Investor, make a timely election under Section 83(b) of the Code in accordance with applicable Regulations thereunder. 5.15 Management Investor Representative. Each Management Investor hereby designates and appoints (and each Permitted Transferee of each such Management Investor shall be deemed to have so designated and appointed) Mitchell Eisenberg, with full power of substitution (the "Management Investor Representative") as the representative of each such Person to perform all such acts as are required, authorized or contemplated by this Agreement to 54 38 be performed by any such Person and hereby acknowledges that the Management Investor Representative shall be the only Person authorized to take any action so required, authorized or contemplated by this Agreement by each such Person. Each such Person further acknowledges that the foregoing appointment and designation shall be deemed to be coupled with an interest and shall survive the death or incapacity of such Person. Each such Person hereby authorizes (and each Permitted Transferee shall be deemed to have authorized) the other parties hereto to disregard any notice or other action taken by such Person pursuant to this Agreement on any action so taken or any notice given by the Management Investor Representative and are and will be entitled and authorized to give notices only to the Management Investor Representative for any notice contemplated by this Agreement to be given to any such Person. A successor to the Management Investor Representative may be chosen by Management Investors which own on a fully diluted basis Securities representing at least a majority of the voting power represented by all Securities outstanding on a fully diluted basis and owned by all Management Investors, provided that written notice thereof is given by the successor to the Management Investor Representative to the Company. Whenever any action or consent (but not any forbearance) is required to be taken or given by the Management Investors, the action or consent of the Management Investor Representative shall be considered the act or consent of all the Management Investors, and Vestar and the Company shall be protected in relying on such act or consent. 5.16 Covenant Not to Compete. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision hereby covenants and agrees that, except as provided below, during the Term of Employment and the Non-Competition Period, the Management Investor shall not, without the express written consent of the Company, directly or indirectly, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, stockholder, partner, director, officer, trustee, employee, agent, independent contractor or consultant, or in any other capacity) any Competitive Enterprise, except that the Management Investor may make passive investments in a Competitive Enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include hiring or attempting to hire for or on behalf of any such Competitive Enterprise any officer or other employee of Sheridan or any Affiliate of Sheridan, encouraging any officer, Health Care Provider or employee to terminate his or her relationship or employment with Sheridan or any Affiliate of Sheridan, soliciting for or on behalf of any such Competitive Enterprise any client or customer (including any Medical Customer) of Sheridan or any Affiliate of Sheridan, and diverting to any Person, any client or business opportunity of Sheridan or any Affiliate of Sheridan. (b) In furtherance and not in limitation of the foregoing restrictions, during the Term of Employment and the Non-Competition Period, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a non-competition provision shall not devote any time to consulting, lecturing or engaging in other self-employment or employment activities without the prior written consent of Sheridan. (c) This Section 5.16 shall survive the termination of this Agreement. 55 39 5.17 Business Opportunities. Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a business opportunities provision agrees, while he is employed by any of the Company and its Subsidiaries, to offer or otherwise make known or available to the Company or any Subsidiary, as directed by the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that he may discover, find, develop or otherwise have available to him in any field in which the Company or any of its Affiliates is engaged, and further agrees that any such prospects, contracts or other business opportunities shall be the property of the Company. 5.18 Confidentiality. (a) Each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision acknowledges that the Management Investor has and will necessarily become informed of, and have access to, certain valuable and confidential information of the Company and its Affiliates, including, without limitation, trade secrets, technical information, plans, lists of patients, data, records, fee schedules, computer programs, manuals, processes, methods, intangible rights, contracts, agreements, licenses, personnel information and the identity of health care providers (collectively, the "Confidential Information"), and that the Confidential Information, even though it may be contributed, developed or acquired in whole or in part by the Management Investor, is the Company's exclusive property to be held by the Management Investor in trust and solely for the Company's benefit. Accordingly, except as required by law, the Management Investor shall not, at any time, either during or subsequent to the Term of Employment, use, reveal, report, publish, copy, transcribe, Transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential Information without the prior written consent of the Company, except to responsible officers and employees of the Company and its Subsidiaries and other responsible persons who are in a contractual or fiduciary relationship with the Company or one of its Subsidiaries and except for information which legally and legitimately is or becomes of general public knowledge from authorized sources other than the Management Investor. (b) Upon the termination of the Term of Employment, each Management Investor who is not a Senior Management Investor and who is not a party to a written employment agreement with the Company or any of its Subsidiaries that contains a confidentiality provision shall promptly deliver to the Company all property and possessions of the Company and its Subsidiaries, including all drawings, manuals, letters, notes, notebooks, reports, copies, deliverable Confidential Information and all other materials relating to the Company's and its Subsidiaries' business which are in the Management Investor's possession or control. 5.19 Effectiveness. This Agreement shall become effective on the Closing Date. 56 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner SHERIDAN HEALTHCARE, INC. By: /s/ Mitchell Eisenberg --------------------------------- Name: Mitchell Eisenberg VESTAR/CALVARY INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., By: VESTAR ASSOCIATES III, L.P., its General Partner By: VESTAR ASSOCIATES CORPORATION III, its General Partner By: /s/ Robert L. Rosner --------------------------------- Name: Robert L. Rosner 57 /s/ Mitchell Eisenberg -------------------------------------- MITCHELL EISENBERG /s/ Lewis D. Gold -------------------------------------- LEWIS D. GOLD /s/ Michael F. Schundler -------------------------------------- MICHAEL F. SCHUNDLER /s/ Jay a. Martus -------------------------------------- JAY A. MARTUS /s/ Gilbert L. Drozdow -------------------------------------- GILBERT L. DROZDOW 58 SCHEDULE 1 INITIAL OTHER MANAGEMENT INVESTORS GILBERT L. DROZDOW 59 Exhibit B Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan SECTION 1. Purpose. The purposes of the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan") are to promote the interests of Vestar/Calvary Holdings, Inc. and its stockholders by (i) attracting and retaining exceptional officers, key employees and outside directors of, and consultants to, the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: "Affiliate" shall mean any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company. "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Change of Control" shall mean the earlier to occur of (x) the date of the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Section 13(d)(3) and 14(d)(2) of the Exchange Act), other than Vestar, or (y) the date of the sale, exchange or other disposition by Vestar and its Affiliates, in one or a series of transactions (including, without limitation, by way of merger, reorganization, recapitalization, consolidation, Public Offering (as defined in the Stockholders' Agreement), sale of capital stock or assets of Sheridan or any other Subsidiary of the Company or similar transaction that results in the disposition, directly or indirectly, of the equity interests of Vestar and its Affiliates (other than the Management Investors) in the Company) (collectively, an "Exit Transaction") of 70% or more of the sum of (1) their equity interest in the Company immediately following the Closing Date (as defined in the Stockholders'sAgreement) plus (2) any additional capital contributions to, or investments in, the Company made by any of Vestar and its Affiliates after the Closing Date (clauses (1) and (2), collectively, the "Aggregate Investment"); provided that, in the case of (y) either (A) the consideration received by Vestar and its Affiliates in the Exit Transaction for 70% or more of the Aggregate Investment is cash or securities that are distributed in kind to the limited partners of Vestar Capital Partners III, L.P. and its Affiliates or a combination thereof or (B) the Exit Transaction results in (i) designees of Vestar and its Affiliates not constituting a majority of the Board of Directors (or analogous governing body) of the Company and (ii) Vestar and its Affiliates not beneficially owning securities of the Company which constitute at least a majority of the voting power of all outstanding 60 2 securities of the Company entitled to vote generally in the election of directors (or members of an analogous governing body) of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan. "Company" shall have the meaning specified in the Stockholders' Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall have the meaning specified in the Stockholders' Agreement. "Management Investor" shall have the meaning specified in the Stockholders' Agreement. "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan. "Participant" shall mean any officer, key employee or outside director of, or consultant to, the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an Option under the Plan. "Performance Option" shall mean an Option granted under the Plan which becomes exercisable, or for which the period of exercisability is accelerated, upon the satisfaction of certain performance criteria established by the Committee and set forth in the Award Agreement evidencing such option. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean (i) shares or units of Common Stock (as defined in the Stockholders' Agreement) or (ii) as may be determined by the Committee pursuant to Section 4(b). 61 3 "Stockholders' Agreement" shall mean the Agreement, dated as of March 24, 1999, among the Company and the other parties identified therein. "Subsidiary" shall mean any entity that, directly or indirectly, is controlled by the Company. "Substitute Options" shall have the meaning specified in Section 4(c). "Time Option" shall mean an Option granted under the Plan, which is not a Performance Option, and which becomes exercisable over time based on a Participant's continued employment with the Company or its Subsidiaries. "Vestar" shall mean Vestar Capital Partners III, L.P. and any of its Affiliates. SECTION 3. Administration. (a) The Plan shall be administered by the Committee. Subject to the terms of the Plan, any Award Agreement and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Options to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Options; (iv) determine the terms and conditions of any Option; (v) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Options, other property, and other amounts payable with respect to an Option shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (b) Unless otherwise expressly provided in the Plan and subject to the terms of any Award Agreement, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any holder of Shares. (c) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder. 62 4 SECTION 4. Shares Available for Options. (a) Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 1,150,000; provided, however, that in no event shall the number of Shares subject to Time Options granted under the Plan exceed 666,667. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been cancelled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder. (b) Adjustments. In the event that the Committee determines that any Exit Transaction, dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate in connection with a Change of Control, make provision for an immediate cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option. (c) Substitute Options. Options may be granted, in the discretion of the Committee, under the Plan in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan. (d) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. SECTION 5. Eligibility. Any officer, key employee or outside director of, or consultant to, the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the 63 5 number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option. None of the Options granted under the Plan are intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement. (b) Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or, with the consent of the Participant thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. (c) Payment. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment shall be made in cash or by bank check or, subject to the consent of the Committee in its sole discretion, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. SECTION 7. Amendment and Termination. (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. (b) Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment or alteration that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. In addition, with the consent of any Participant, holder or beneficiary, the Company may suspend, discontinue, cancel or terminate any Option theretofore granted, prospectively or retroactively (c) Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the performance criteria applicable to outstanding Performance Options in the event of any extraordinary and nonrecurring events affecting the Company or its Subsidiaries, or the financial statements of the Company or its Subsidiaries, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines in good faith that such adjustments are necessary in order to prevent dilution or enlargement of rights under such Performance Options. 64 6 SECTION 8. Change of Control. In the event of a Change of Control after the date of the adoption of this Plan, (i) any outstanding Time Options then held by Participants, which are unexercisable or otherwise unvested, shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control and (ii) any outstanding Performance Options, whether exercisable or not, then held by Participants, shall continue to be governed by the terms of each such Participant's Award Agreement. SECTION 9. General Provisions. (a) Nontransferability. (i) Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to: (A) the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family"); (B) a trust solely for the benefit of the Grantee and his or her Immediate Family; or (C) a partnership or limited liability company whose only partners or members are the Grantee and his or her Immediate Family members; (each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the Option. The terms of any Option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless 65 7 there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement or form is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, provided all required notices are given to the Grantee and (d) the consequences of termination of the Grantee's employment by, or services to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement. (b) No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). (c) Share Certificates. All certificates for Shares or other securities of the Company delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, any applicable Federal or state laws, and any applicable written agreements between Vestar and/or the Company and the Participants including, without limitation, the Stockholders' Agreement, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. (ii) Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 9(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee. (e) Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee. (f) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other 66 8 compensation arrangements, which may, but need not, provide for the grant of options (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of New York. (j) Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect. (k) Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration will violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws. (l) No Trust or Fund Created. Neither the Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. 67 9 (m) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (n) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 10. Term of the Plan. (a) Effective Date. The Plan shall be effective as of the date of its approval by the persons and/or entities who own, immediately after giving effect to the Effective Time (as defined in the Agreement and Plan of Merger dated as of March 24, 1999 among Vestar/Calvary Holdings, Inc., Vestar/Calvary, Inc. and Sheridan Heathcare, Inc.), more than 75% of the voting power of all outstanding stock of the Company, determined in a manner consistent with Section 280G(b)(5) of the Internal Revenue Code of 1986, as amended and the proposed regulations promulgated thereunder. If such approval is not obtained, this Plan and any Options granted under the Plan shall be null and void and of no force and effect. (b) Expiration Date. No Option shall be granted under the Plan after December 31, 2009. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 31, 2009. SECTION 11. Awards Subject to Stockholders' Agreement. Options granted under the Plan and any Shares delivered upon the exercise or settlement of any Options granted hereunder shall be subject to the Stockholders' Agreement. The terms and provisions of the Stockholders' Agreement as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and any terms or provisions of the Stockholders' Agreement, the applicable provisions of the Stockholders' Agreement will govern and prevail. 68 Exhibit C VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN PERFORMANCE OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24 , 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - ---------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 69 2 (a) Time Vesting. Subject to paragraphs (b), (c) and (d) of this Section 2, the Option shall vest and become exercisable in full on the ninth anniversary of the purchase of shares of common stock of Sheridan pursuant to the Offer (the date of such purchase being the "Purchase Date"). (b) Accelerated Vesting Based Upon Performance. (i) Subject to the Participant's continued employment with the Company, the Option shall vest and become exercisable on an accelerated basis with respect to up to twenty-five percent (25%) of the Shares initially covered by the Option (such 25% being referred to as the "Scheduled Accelerated Vesting Shares") on each of the first, second, third and fourth anniversaries of the Purchase Date (each an "Accelerated Vesting Date") as follows: (A) With respect to each Accelerated Vesting Date, 100% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share (as defined in Exhibit A) as of the last day of the fiscal year ending immediately prior to the applicable Accelerated Vesting Date (such last day of the fiscal year being referred to as the "Determination Date") equals or exceeds the Maximum Annual Price Target (described below) for such Determination Date; (B) With respect to each Accelerated Vesting Date, 0% of the Scheduled Accelerated Vesting Shares will vest if the Value of Common Equity Per Share as of the applicable Determination Date is less than or equal to the Minimum Annual Price Target (described below) for such Determination Date; and (C) With respect to each Accelerated Vesting Date, if the Common Equity Per Share as of the Determination Date is less than the Maximum Annual Price Target and greater than the Minimum Annual Price Target for such Determination Date, then the number of Scheduled Accelerated Vesting Shares which shall vest will equal the product of (x) 100% of the Scheduled Accelerated Vesting Shares times (y) the Proration Fraction. The Proration Fraction shall equal the quotient obtained by dividing (A) the excess of the Value of Common Equity Per Share as of the Determination Date over the Minimum Annual Price Target for such Determination Date by (B) the excess of the Maximum Annual Price Target as of the Determination Date over the Minimum Annual Price Target for such Determination Date. (ii) In the event that the Option does not vest on an accelerated basis with respect to all of the Scheduled Accelerated Vesting Shares on an Accelerated Vesting Date solely as a result of the failure to achieve or exceed the applicable Maximum Annual Price Target, then the number of Scheduled Vesting Shares with respect to which the Option did not vest on an accelerated basis (the "Missed Shares"), will be available for vesting on the next succeeding Accelerated Vesting Date only (the "Make-Up Vesting Date") as follows: The number of Missed Shares, if any, which will vest on an accelerated basis on the Make-Up Vesting Date will equal the excess, if any, of (x) the number of Scheduled Accelerated Vesting Shares which vest on an accelerated basis on the Make-Up Vesting Date pursuant to Section 2(b)(i) above over (y) the number of Scheduled Accelerated Vesting Shares which actually vested on an accelerated basis on the immediately preceding Accelerated Vesting Date. 70 3
Determination Minimum Maximum Vesting Date Date Annual Price Target Annual Price Target - - ------------ ---- ------------------- ------------------- 1st anniversary of FY Ending Purchase Date 12/31/99 $10.18 $10.64 2nd anniversary of FY Ending Purchase Date 12/31/00 $12.21 $13.83 3rd anniversary of FY Ending Purchase Date 12/31/01 $14.65 $17.98 4th anniversary of FY Ending Purchase Date 12/31/02 $17.58 $23.37 5th anniversary of FY Ending $21.10 $30.38 Purchase Date 2/31/03 (Used for 4th anniversary missed shares only)
The determination of the Value of Common Equity Per Share for each fiscal year shall be made by the Board in good faith based upon, and immediately following receipt of, the audited financial statements for such fiscal year and will be calculated (after giving effect to the issuance of all Time Options and all Performance Options which have previously vested or which will vest in such fiscal year) pursuant to the methodology outlined in Exhibit A. (c) Termination of Employment If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability (as each such term is defined in Section 3(a) below), and the Minimum Annual Price Target for the Determination Date applicable to the next succeeding Accelerated Vesting Date is exceeded as of such Determination Date, then the Option shall, upon the Board's determination that the Minimum Annual Price Target for such Determination Date has been exceeded, become vested with respect to, and the Vested Portion of the Option shall include a number of Shares (the "Termination Shares") equal to the sum of: (i) the product of (A) the number of Scheduled Accelerated Vesting Shares that would otherwise have vested pursuant to Section 2(b)(i) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) a fraction, the numerator of which is the number of days that passed since the immediately preceding Accelerated Vesting Date through and including the date of the Participant's 71 4 termination of employment and the denominator of which is 365 (the "Termination Fraction"); plus (ii) If there were Missed Shares with respect to the immediately preceding Accelerated Vesting Date, the product of (A) the number of Missed Shares that would otherwise have vested pursuant to Section 2(b)(ii) had the Participant remained employed by the Company through the next succeeding Accelerated Vesting Date times (B) the Termination Fraction. (d) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control, the Option shall, to the extent not previously cancelled, immediately become vested and exercisable with respect to the Scheduled Accelerated Vesting Shares for any remaining future Accelerated Vesting Dates, if, and only if, in connection with the Change of Control, Vestar receives aggregate proceeds, in cash, securities or a combination of cash and securities, having an aggregate Fair Market Value in an amount equal to or in excess of the product of (i) Vestar's Aggregate Investment (as defined below) times (ii) the Minimum Investment Multiple (as defined below) applicable to the fiscal year of the Company in which such Change of Control occurs; provided that, securities received by Vestar shall be taken into account for purposes hereof only if such securities are distributed by Vestar, in kind, to its limited partners. For purposes of this Agreement: "Vestar's Aggregate Investment" shall mean the total amount of capital invested by Vestar in the Company and its Subsidiaries, including investments made in connection with the Offer, the Merger contemplated by the Merger Agreement, or otherwise; and "Minimum Investment Multiple" shall mean with respect to the Company's fiscal years ending December 31, 1999 through December 31, 2003 as follows:
FY In Which Change of Control Occurs Minimum Investment Multiple - - ------------------------------------ --------------------------- 1999 1.22 2000 1.66 2001 2.12 2002 2.50 2003 3.26
For purposes of this Section 2(d), "Fair Market Value"shall mean, solely with respect to securities distributed by Vestar to its limited partners, the value of such securities as reported by Vestar to such limited partners. 3. Exercise of Option. 72 5 (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason and, with respect to the Termination Shares, if applicable, 30 days after the determination of the number of Termination Shares, if later; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to 73 6 time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with appliicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages 74 7 relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant. Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer 75 8 under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 76 9 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: --------------------------- Agreed and acknowledged as of the date first above written: - - ------------------------- 77 SHERIDAN HEALTHCARE, INC. EXHIBIT A METHODOLOGY FOR DETERMINING WHETHER PERFORMANCE OPTIONS ARE SUBJECT TO ACCELERATED VESTING STEP 1: CALCULATE PRO FORMA EBITDA. Upon receipt of audited financial statements for the year, the Company shall calculate (and the Board of Directors shall review and approve) EBITDA in good faith pro forma to give effect to all acquisitions and divestitures completed during the year as if they had occurred on January 1 of such year. STEP 2: CALCULATE TOTAL ENTERPRISE VALUE. Multiply Pro Forma EBITDA (calculated in Step 1) by 7.5. STEP 3: CALCULATE VALUE OF COMMON EQUITY. From Total Enterprise Value (calculated in Step 2), deduct year-end balances for Total Debt and Other Obligations, add year-end balance for Total Cash and add Total Option Proceeds. For purposes of this calculation, Other Obligations includes any debt-like instruments such as acquisition-related non-compete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. Total Option Proceeds should include options proceeds related to i) all time-based options (whether or not vested), ii) all performance-based options that have vested in prior years and iii) all performance-based options that vest in current year. STEP 4: CALCULATE ENDING FULLY-DILUTED SHARES. Add the following : i) The number of shares outstanding at the beginning of the year, ii) shares issued in current year for any reason, including those related to acquisitions, iii) all time-based options (whether or not vested), iv) all performance-based options that vest in prior years or in the current year, v) shares associated with in-the-money convertible preferred stock and vi) shares associated with other in-the-money common stock equivalents including, but not limited to, warrants and any other options. STEP 5: CALCULATE VALUE OF COMMON EQUITY PER SHARE. Divide Value of Common Equity (calculated in Step 3) by Ending Fully-Diluted Shares (calculated in Step 4). In Step 6, this number will be compared with the maximum and minimum targets listed below to determine how many (if any) performance-based options vest in current year. STEP 6: DETERMINE HOW MANY PERFORMANCE BASED OPTIONS VEST IN CURRENT YEAR. Multiply the number of options eligible for accelerated vesting in current year pursuant to the Performance Option Plan by i) if the Value of Common Equity per Share (Step 5) is greater than or equal to current year's Maximum Annual Price Target, 100%; ii) if the Value of Common Equity per Share is less than or equal to current year's Minimum Annual Price Target, 0%; iii) if the Value of Common Equity per Share is between current year's Minimum and Maximum Annual Price Targets, the quotient calculated by dividing (A) excess of the Value of Common Equity per Share over current year's Minimum Annual Price Target by (B) the excess of current year's Maximum Annual Price Target over current year's Minimum Annual Price Target.
Minimum Annual Price Maximum Annual Price Target Year Target ---------- -------------------- ----------------------------- 1999 $10.18 $10.64 2000 12.21 13.83 2001 14.65 17.98 2002 17.58 23.37 2003 21.10 30.38
78 SHERIDAN HEALTHCARE, INC. EXHIBIT A ILLUSTRATIVE METHOD FOR CALCULATING WHETHER OPTIONS VEST PURSUANT TO PERFORMANCE MEASURES
====================================================================== 1999 2000 2001 2002 2003 --------------------------------------------------------------------- Pro Forma EBITDA (a) $ 32.1 $ 40.7 $ 52.7 $ 66.9 $ 82.8 EBITDA Multiple (x) (b) 7.5 7.5 7.5 7.5 7.5 --------------------------------------------------------------------- Total Enterprise Value $ 240.8 $ 304.9 $ 395.1 $ 501.9 $ 621.3 Less: Total Debt & Other Obligations (c) (134.9) (161.2) (186.0) (215.6) (252.6) Plus: Cash & Option Proceeds (d) 7.3 8.4 9.5 10.6 10.6 --------------------------------------------------------------------- Value of Common Equity $ 113.1 $ 152.1 $ 218.6 $ 296.9 $ 379.3 Beginning # of Shares 7.317 10.105 10.225 10.346 10.467 Share Issuances for Acquisitions 2.000 0.000 0.000 0.000 0.000 Time-Based Options (e) 0.667 0.000 0.000 0.000 0.000 Performance Options Vested (f) 0.121 0.121 0.121 0.121 0.000 Shares Associated With In-the-Money Convertible Securities 0.000 0.000 0.000 0.000 0.000 Other Common Stock Equivalents 0.000 0.000 0.000 0.000 0.000 --------------------------------------------------------------------- Ending Fully Diluted Shares 10.105 10.225 10.346 10.467 10.467 Value of Common Equity Per Share $ 11.20 $ 14.88 $ 21.13 $ 28.37 $ 36.24 % appreciation 42.1% 32.9% 42.0% 34.3% 27.7% ANNUAL PRICE TARGET FOR MAXIMUM OPTION VESTING (g) $ 10.64 $ 13.83 $ 17.98 $ 23.37 $ 30.38 % APPRECIATION 30.0% 30.0% 30.0% 30.0% 30.0% ANNUAL PRICE TARGET FOR MINIMUM OPTION VESTING (h) $ 10.18 $ 12.21 $ 14.65 $ 17.58 $ 21.10 % APPRECIATION 20.0% 20.0% 20.0% 20.0% 20.0%
(a) Represents full year EBITDA adjusted to give effect to all current year acquisitions and divestitures as if they occurred on January 1. (b) For purposes of calculating Total Enterprise Value at the end of any year, the EBITDA multiple shall be 7.5x. (c) Other Obligations include any debt-like instruments such as acquisition-related noncompete, consulting or stock price guarantee payments as well as non-convertible preferred stock and out-of-the-money convertible securities. (d) Option proceeds assume exercise of all vested in-the-money options, including those options available for current year vesting. In this example, assumes all options have exercise price of $9.25. (e) For purposes of calculating value of common equity per share on this schedule, all time-based options are deemed vested and exercised. (f) 483,333 performance options are available for grant. At Closing, 333,333 of such options will be granted to existing members of management. The remaining 150,000 options will be reserved for future grant. This example assumes that all 483,333 are granted. (g) Assumes a June 30, 1999 closing. If calculated value of common equity per share exceeds the maximum annual share price target for that year, then 100% of eligible options will vest (0.121 million in this example). (h) Assumes a June 30, 1999 closing. If calculated value of common equity per share is below the minimum annual share price target for that year, then 0% of eligible options will vest (0.000 million in this example). 79 Exhibit D VESTAR/CALVARY HOLDINGS, INC. 1999 STOCK OPTION PLAN TIME OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), is made effective as of the _____ day of _____, 199_, (hereinafter called the "Date of Grant")1/, between Vestar/Calvary Holdings, Inc., a Delaware corporation (hereinafter called the "Company"), and _______ (hereinafter called the "Participant"): R E C I T A L S: WHEREAS, the Company has adopted the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan (the "Plan"), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein (the "Option") to the Participant pursuant to the Plan and the terms set forth herein. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Option. The Company hereby grants to the Participant the right and option (the "Option") to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ______ Shares, subject to adjustment as set forth in the Plan. The purchase price of the Shares subject to the Option (the "Exercise Price") shall be the per share price paid by the Company or one of its Subsidiaries for shares of common stock of Sheridan Healthcare, Inc. ("Sheridan") in the Offer referred to in the Agreement and Plan of Merger dated March 24, 1999 among the Company, Sheridan and Vestar/Calvary, Inc. The Option is intended to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting. At any time, the portion of the Option which has become vested and exercisable as described in this Section 2 is hereinafter referred to as the "Vested Portion." - - -------- (1)The Date of Grant will be the Effective Time under the Merger Agreement. 80 2 (a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries (each such anniversary being a "Vesting Date") of the purchase of shares of common stock of Sheridan pursuant to the Offer. (b) Termination of Employment. If the Participant's employment with the Company is terminated for any reason, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a); provided that if the Participant's employment is terminated by the Company without Cause, by the Participant for Good Reason or due to the Participant's death or Disability, the Option shall, as of the date of such termination, become vested with respect to, and the Vested Portion of the Option shall include, that portion of the Option which would otherwise have vested on the next Vesting Date. (c) Change of Control. Notwithstanding any other provisions of this Agreement to the contrary, in the event of a Change of Control the Option shall, to the extent not then vested and not previously canceled, immediately become fully vested and exercisable. 3. Exercise of Option. (a) Period of Exercise. Subject to the provisions of the Plan and this Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of: (i) the tenth anniversary of the Date of Grant; (ii) six months following the date of the Participant's termination of employment as a result of death or Disability; (iii) ninety days following the date of the Participant's termination of employment by the Company without Cause (other than as a result of death or Disability) or by the Participant for Good Reason; and (iv) the date of the Participant's termination of employment by the Company for Cause or by the Participant without Good Reason. For purposes of this Agreement: "Cause" shall mean "cause" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in 81 3 effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, "Cause" shall exist if a Participant has (i) committed an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against Vestar, Sheridan, the Company or any Subsidiary or a felony involving the business, assets, customers or clients of Vestar, Sheridan, the Company or any Subsidiary or has been convicted by a court of competent jurisdiction or has plead guilty or nolo contendere to any other felony; (ii) committed a material breach of any written confidentiality, non-compete, non-solicitation or business opportunity covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any of their Affiliates; (iii) substantially failed to perform the Participant's duties to Sheridan, the Company or any Subsidiary, including by committing a material breach of any written covenant contained in any agreement entered into by the Participant and Vestar, Sheridan, the Company or any Subsidiary (other than a confidentiality, non-compete, non-solicitation or business opportunity covenant), which failure or breach has not been remedied within a reasonable time specified by Sheridan (it being understood that Sheridan can act on behalf of its Affiliates) that is not less than thirty (30) days after delivery to the Participant by Sheridan of written notice thereof; or (iv) breached the Participant's obligations pursuant to Sheridan's, the Company's or any Subsidiary's substance abuse policy; "Disability" shall mean "disability" as defined in any employment agreement entered into by and between the Participant and the Company or any of its Subsidiaries which is in effect as of or after the Date of Grant (as the same may be amended in accordance with the terms thereof) or if not defined therein or if there shall be no such agreement, as defined in Sheridan's long-term disability plan as in effect from time to time, or if there shall be no plan or if not defined therein, the Participant's becoming physically or mentally incapacitated and consequent inability for a period of six (6) months in any twelve (12) consecutive month period to perform the Participant's duties to Sheridan, the Company or any Subsidiary; "Good Reason" shall mean, if the Participant has entered into an employment agreement with Sheridan, the Company or any of its Subsidiaries which is in effect as of the Date of Grant, the occurrence of such events which, under the terms of such employment agreement (as the same may be amended in accordance with the terms thereof), would expressly enable the Participant to resign from employment and be treated under such employment agreement as though the Participant's employment had been terminated by the Company without "cause" or, if the employment agreement does not include such provisions or if there shall be no such employment agreement, "Good Reason" shall mean: (i) Sheridan, the Company or any Subsidiary has failed to pay the Participant his salary; (ii) the office where the Participant performs his duties is moved more than 30 miles from where the Participant performed the Participant's duties on the Date of Grant; (iii) a substantial reduction of the Participant's base salary (other than an across the board reduction similarly affecting other comparable employees of Sheridan, the Company or its Subsidiaries) or a substantial diminution of the Participant's duties, which, in each case, has not been remedied within a reasonable time specified by the Participant that is not less than thirty (30) days after delivery to Sheridan of written notice describing the event constituting Good Reason; and 82 4 "Vestar" shall mean, solely for purposes of the Cause definition, Vestar Capital Partners III, L.P. (b) Method of Exercise. (i) Subject to Section 3(a), the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that, the Option may be exercised with respect to whole Shares only. Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. The payment of the Exercise Price shall be made in cash or, subject to the consent of the Committee, in Shares which have been owned by the Participant for at least six months, such Shares to be valued at their Fair Market Value as of the date of exercise. (ii) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares that is required to comply with applicable state and federal securities or any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine in good faith to be necessary or advisable. (iii) Upon the Company's determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant's name for such Shares. However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves. (iv) In the event of the Participant's death, the Vested Portion of the Option shall remain exercisable by a Permitted Transferee, the Participant's executor or administrator, or the person or persons to whom the Participant's rights under this Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof. (v) As a condition to exercising the Option, the Participant shall become a party to the Stockholders' Agreement. 4. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 5. Legend on Certificates. To the extent provided by the Stockholders' Agreement, the certificates representing the Shares purchased by exercise of the Option shall 83 5 contain a legend stating that they are subject to the Stockholders' Agreement and may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Committee may cause an additional legend or legends to be put on any such certificates to make appropriate reference to such other restrictions. 6. Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. During the Participant's lifetime, the Option is exercisable only by the Participant Notwithstanding the foregoing, the Participant may transfer all or any portion of the Option to a Permitted Transferee in accordance with Section 9(a)(ii) of the Plan. 7. Withholding. A Participant shall be required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of an Option, its exercise or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such withholding taxes. 8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of the Option, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 9. Notices. Any notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the personnel records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11. Option Subject to Plan and Stockholders' Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders' Agreement. The Option is subject to the Plan and the 84 6 Stockholders' Agreement. The terms and provisions of the Plan and the Stockholders' Agreement as they may be amended from time to time in accordance with their respective terms are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan or the Stockholders' Agreement, the applicable terms and provisions of the Plan or the Stockholders' Agreement, as applicable, will govern and prevail. In the event of a conflict between any term or provision of the Plan and any term or provision of the Stockholders' Agreement, the applicable terms and provisions of the Stockholders' Agreement will govern and prevail. 12. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. VESTAR/CALVARY HOLDINGS, INC. By: ------------------------------ Agreed and acknowledged as of the date first above written: - - ------------------------------ EX-99.C.12 14 TENDER AGREEMENT 1 TENDER AGREEMENT TENDER AGREEMENT, dated as of March 24, 1999 (this "Agreement"), between Vestar/Calvary Holdings, Inc., a Delaware corporation (the "Company"), and Robert J. Coward (the "Executive"). WHEREAS, concurrently herewith, the Company, Vestar/Calvary, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition"), and Sheridan Healthcare, Inc., a Delaware corporation ("Sheridan"), are entering into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") pursuant to which, among other things, Acquisition agrees (x) to make an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share, and Class A Common Stock, par value $.01 per share, of Sheridan (collectively, the "Sheridan Common Stock") and (y) to merge (the "Merger") into Sheridan; WHEREAS, as a condition to their willingness to enter into the Merger Agreement and make the Offer, the Company and Acquisition have required the Executive and certain other Management Investors referred to below to enter into this Agreement and the other Executive Documents referred to in the Merger Agreement; WHEREAS, the Executive has agreed, among other things, to tender pursuant to the Offer and not withdraw all outstanding shares of Sheridan Common Stock owned by him as of the date hereof and all shares of Sheridan Common Stock, if any, acquired by him after the date hereof and prior to the expiration of the Offer (the "Tender Shares"); WHEREAS, this Agreement is one of several agreements being entered into by the Company on or after the date hereof with certain persons who are or will be key employees of the Company or one of its subsidiaries (collectively with the Executive, the "Management Investors"); NOW, THEREFORE, in order to implement the foregoing and in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: 1. Agreements Relating to Tender Shares. 1.1. Agreement to Tender. The Executive hereby agrees to validly tender pursuant to the Offer and not withdraw from the Offer all Tender Shares; provided that the Merger Agreement has not been terminated. 1.2. Voting of Tender Shares. The Executive hereby agrees, so long as the Executive is required to tender Tender Shares pursuant to Section 1.1 hereof, to vote all Tender Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of 2 any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of shares of Sheridan Common Stock pursuant to the Offer. The Executive shall not, so long as the Executive is required to tender Tender Shares pursuant to Section 1.1 hereof, purport to vote (or execute a written consent with respect to) Tender Shares other than in accordance with this Agreement or grant any proxy or power of attorney with respect to Tender Shares, deposit any Tender Shares into a voting trust, or enter into any agreement, arrangement or understanding with any person (other than this Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of Tender Shares, or agree to do any of the foregoing. 1.3. Disposition of Tender Shares. The Executive shall not, so long as the Executive is required to tender Tender Shares pursuant to Section 1.1 hereof, sell, transfer or otherwise dispose of, pledge or otherwise encumber, any Tender Shares after the date hereof (except to tender Tender Shares to Acquisition pursuant to the Offer), or agree to do any of the foregoing. 1.4. Stop Transfer Order. The Executive hereby agrees to cause Sheridan's transfer agent to be notified that there is a stop transfer order (except to tender Tender Shares to Acquisition pursuant to the Offer) with respect to all Tender Shares so long as the Executive is required to tender Tender Shares pursuant to Section 1.1 hereof. 2. Options. 2.1. Adoption of Option Plan. Immediately following the Effective Time (as defined in the Merger Agreement), the Company shall duly adopt the Vestar/Calvary Holdings, Inc. 1999 Stock Option Plan in substantially the form attached hereto as Exhibit B. 2.2. Grant of Performance Options. Immediately following the Effective Time, the Company and the Executive shall duly execute and deliver a Performance Option Agreement in substantially the form attached hereto as Exhibit C pursuant to which the Executive will be granted performance options to purchase the number of shares of common stock, par value $.01 per share, of the Company ("Common Stock") set forth opposite his name on Schedule I hereto at an exercise price equal to the per share price paid by the Executive for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Performance Option Agreement shall constitute a valid and binding obligation of each of the Company and the Executive, enforceable against each of the Company and the Executive in accordance with its terms. 2.3. Grant of Time Options. Immediately following the Effective Time, the Company and the Executive shall duly execute and deliver a Time Option Agreement in substantially the form attached hereto as Exhibit D pursuant to which the Executive will be granted time options to purchase the number of shares of Common Stock set forth opposite his name on Schedule I hereto at an exercise price equal to the per share price paid by the Executive for Common Stock pursuant hereto. Following such due execution and delivery thereof, the Time Option Agreement shall constitute a valid and binding obligation of each of the Company 2 3 and the Executive, enforceable against each of the Company and the Executive in accordance with its terms. 2.4. Conditions to the Obligations of the Parties. The obligations of the Company under this Section 2 shall be subject to the conditions that (i) the Executive shall have executed and delivered a supplementary agreement (a "Supplement") to the Stockholders Agreement dated as of the date hereof among the Company and its stockholders party thereto in substantially the form attached hereto as Exhibit A (the "Stockholders Agreement") pursuant to Section 5.13 hereof, (ii) the representations and warranties of the Executive in Section 3 of this Agreement shall be true and correct as of the Closing Date (as defined in the Stockholders Agreement) in all material respects and (iii) the Executive shall not have breached his obligations under Section 1 hereof. 3. Representations, Warranties and Covenants of the Executive. 3.1. Residence and Competency; Power; Enforceability; Noncontravention. The Executive is competent to and has sufficient capacity to execute and deliver this Agreement and the Stockholders Agreement and to perform his obligations hereunder and thereunder. This Agreement has been and the Supplement will be duly executed and delivered by the Executive. Assuming the due execution and delivery of this Agreement and the Supplement by the Company, this Agreement constitutes and the Stockholders Agreement, as modified by the Supplement, will constitute valid and binding obligations of the Executive, enforceable against the Executive in accordance with their terms. The execution, delivery and performance of this Agreement and the Supplement by the Executive will not (i) conflict with or violate any law, rule, regulation, ordinance, writ, injunction, judgment or decree applicable to the Executive or by which any of his assets may be bound or affected or (ii) result in any breach of any terms or conditions of, or constitute a default under, any contract, agreement or instrument to which the Executive is a party or by which the Executive is bound. 4. Miscellaneous. 4.1. Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Common Stock, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for Common Stock, by reason of any stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted, in good faith, by the Board of Directors of the Company. 4.2. Executive's Employment by the Company. Nothing contained in this Agreement shall be deemed to obligate the Company or any subsidiary of the Company to 3 4 employ the Executive in any capacity whatsoever or to prohibit or restrict the Company (or any such subsidiary) from terminating the employment, if any, of the Executive at any time or for any reason whatsoever, with or without Cause (as defined in the Stockholders Agreement). 4.3. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. No assignment of any of the rights or obligations of the Executive shall be permitted except as expressly contemplated hereby; any purported assignment in violation of this provision shall be null and void ab initio. 4.4. Amendment; Waiver. This Agreement may be amended only by a written instrument signed by the parties hereto. No waiver by either party hereto of any of the provisions hereof shall be effective unless set forth in a writing executed by the party so waiving. 4.5. Governing Law. This Agreement shall be governed by and construed in all respects under the laws of the State of New York. Any action to enforce which arises out of or in any way relates to any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by New York law. 4.6. Notices. Any notices or communications permitted or required hereunder shall be deemed sufficiently given if hand-delivered, or sent by (x) registered or certified mail return receipt requested, (y) telecopy or other electronic transmission service (to the extent receipt is confirmed) or (z) by overnight courier, in each case to the parties at their respective addresses and telecopy numbers set forth below, or to such other address of which any party may notify the other party in writing. (a) If to the Company, to it at the following address: Vestar/Calvary Holdings, Inc. c/o Vestar Capital Partners 245 Park Avenue 41st Floor New York, NY 10167 Attention: James L. Elrod, Jr. Telecopy: (212) 808-4922 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Peter J. Gordon, Esq. Telecopy: (212) 455-2502 4 5 (b) If to the Executive, to him at Robert J. Coward, 821 SE Court, #7, Fort Lauderdale, FL 33316. 4.7. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 4.8. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 4.9. Injunctive Relief. The Executive, on behalf of himself and his permitted transferees, and the Company, on its own behalf and on behalf of its successors and assigns, each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company or the Executive, as the case may be, shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it or he may be entitled at law or equity. 4.10. Rights to Negotiate. Nothing in this Agreement shall be deemed to restrict or prohibit the Company from purchasing shares of Common Stock from the Executive at any time upon such terms and conditions and at such price as may be mutually agreed upon between the Company and the Executive, whether or not at the time of such purchase circumstances exist which specifically grant the Company the right to purchase, or the Executive the right to sell, shares of Common Stock pursuant to the terms of this Agreement or the Stockholders Agreement. 4.11. Rights Cumulative; Waiver. The rights and remedies of the Executive and the Company under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party's other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 5 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. VESTAR/CALVARY HOLDINGS, INC. By: /s/ James L. Elrod, Jr. ---------------------------------- Name: James L. Elrod, Jr. Title: President 6 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EXECUTIVE: /s/ Robert J. Coward ----------------------------- Robert J. Coward 7 8 Robert J. Coward SCHEDULE I
Number of Shares Subject Number of Shares Subject to Time Options to Performance Options - - --------------- ---------------------- 33,333 16,667
EX-99.C.13 15 GUARANTY AGREEMENT 1 HOLDING PAGE ONLY ----------------- THIS DOCUMENT IS MISSING COPY TO COME EX-99.D.1 16 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. AT $9.25 NET PER SHARE BY VESTAR/SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN HOLDINGS, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN INVESTORS, LLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED BY PARENT OR PURCHASER, OR ANY CONTROLLED AFFILIATE THEREOF, CONSTITUTES AT LEAST A MAJORITY OF THE VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), ON THE DATE OF PURCHASE, OF ALL THE SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION") AND (ii) (1) PURCHASER SHALL HAVE RECEIVED FUNDING FOR THE OFFER SUFFICIENT TO PAY FOR ALL SHARES TENDERED PURSUANT TO THE OFFER AND NOT VALIDLY WITHDRAWN AND TO PAY ALL FEES AND EXPENSES RELATED TO THE OFFER AND OTHERWISE ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE NATIONSBANK COMMITMENT LETTER (AS DEFINED IN THE MERGER AGREEMENT) AND (2) THE PERMANENT FACILITIES (AS DEFINED IN THE MERGER AGREEMENT) SHALL HAVE BEEN FULLY EXECUTED AND DELIVERED AND SHALL BE IN FULL FORCE AND EFFECT AND ALL CONDITIONS TO FUNDING THEREUNDER THAT ARE REQUIRED TO BE, OR ARE CAPABLE OF BEING, SATISFIED PRIOR TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER SHALL HAVE BEEN SATISFIED AND THERE IS NO REASON TO BELIEVE THAT ANY OF THE OTHER CONDITIONS TO FUNDING UNDER THE PERMANENT FACILITIES WILL NOT BE SATISFIED PRIOR TO THE TERMINATION OF THE MERGER AGREEMENT OR THE PERMANENT FACILITIES (THE "FINANCING CONDITION"). THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (EXCLUDING ABSTAINING DIRECTORS WHO WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER THE DGCL) DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS OF SHARES, APPROVED THE MERGER AGREEMENT AND THE OFFER AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, DECLARED THE MERGER TO BE ADVISABLE AND RESOLVED TO RECOMMEND THAT THE HOLDERS OF THE SHARES ACCEPT THE OFFER, TENDER THEIR SHARES TO PURCHASER AND ADOPT THE MERGER AGREEMENT. ------------------------ THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION IS UNLAWFUL. ------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (1) complete and sign the enclosed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and any other required documents to American Stock Transfer & Trust Company (the "Depositary"), and either deliver the certificates evidencing the tendered Shares and any other required documents to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in "The Tender Offer -- Section 3" ("Procedures for Tendering Shares") or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE TENDER OFFER -- SECTION 3" ("PROCEDURES FOR TENDERING SHARES"). Questions and requests for assistance may be directed to Innisfree M&A Incorporated (the "Information Agent") at its address and telephone number set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. ------------------------ March 31, 1999 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION................................................ 1 SPECIAL FACTORS............................................. 4 Background of the Transactions............................ 4 Recommendation of the Board of Directors; Fairness of the Transactions........................................... 6 Opinions of the Financial Advisors........................ 8 Purpose and Structure of the Transactions................. 19 Appraisal Rights.......................................... 19 Certain Effects of the Transactions....................... 20 Future Plans in Addition to the Merger.................... 21 Interests of Certain Persons in the Transactions.......... 21 Financing of the Transactions............................. 25 The Merger Agreement and the Management Agreement......... 26 Certain Federal Income Tax Consequences................... 34 Effect of the Offer on the Markets for the Shares; Nasdaq Listing; Exchange Act Registration..................... 35 THE TENDER OFFER............................................ 37 1. Terms of the Offer; Expiration Date................... 37 2. Acceptance for Payment and Payment for Shares......... 38 3. Procedure for Tendering Shares........................ 39 4. Withdrawal Rights..................................... 41 5. Price Range of Shares; Dividends...................... 42 6. Certain Information Concerning the Company............ 43 7. Certain Information Concerning Purchaser, Parent and Holdings............................................... 45 8. Dividends and Distributions........................... 47 9. Certain Conditions of the Offer....................... 47 10. Certain Legal Matters and Regulatory Approvals........ 49 11. Fees and Expenses..................................... 51 12. Miscellaneous......................................... 51
Annex A Opinion of Salomon Smith Barney Inc. Annex B Opinion of Bowles Hollowell Conner Schedule I. Financial Information from the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1998 Schedule II. Directors and Executive Officers of the Company Schedule III. Directors and Executive Officers of Holdings, Parent and the Purchaser Schedule IV. Section 262 of the Delaware General Corporation Law Schedule V. Agreement and Plan of Merger, dated as of March 24, 1999, among Parent, the Purchaser and the Company
i 3 To the Stockholders of Sheridan Healthcare, Inc. INTRODUCTION Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Vestar/ Sheridan Holdings, Inc., a Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/ Sheridan Investors, LLC, a Delaware limited liability company ("Holdings"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. Purchaser will pay all fees and expenses of American Stock Transfer & Trust Company, which is acting as the Depositary (the "Depositary"), and Innisfree M&A Incorporated, which is acting as the Information Agent (the "Information Agent"), incurred in connection with the Offer. See "The Tender Offer -- Section 11" ("Fees and Expenses"). THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), AT A MEETING DULY CALLED AND HELD ON MARCH 24, 1999, HAS UNANIMOUSLY (EXCLUDING DIRECTORS WHO WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER SECTION 144 OF THE DELAWARE GENERAL CORPORATION LAW (THE "DGCL") AND WHO ABSTAINED) (A) DETERMINED THAT THE MERGER AGREEMENT (AS DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW), ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS OF THE SHARES, (B) APPROVED THE MERGER AGREEMENT AND THE OFFER AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, (C) DECLARED THE MERGER TO BE ADVISABLE AND DIRECTED THAT THE MERGER BE SUBMITTED FOR CONSIDERATION AT A SPECIAL MEETING OF THE STOCKHOLDERS OF THE COMPANY, (D) RESOLVED TO RECOMMEND THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER, TENDER THEIR SHARES TO PURCHASER THEREUNDER AND ADOPT THE MERGER AGREEMENT AND (E) APPROVED THE MERGER AGREEMENT AND THE STOCKHOLDER DOCUMENTS (AS DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY FOR PURPOSES OF SECTION 203 OF THE DGCL. The Company Board has received the written opinions of Salomon Smith Barney Inc. ("Salomon Smith Barney") and Bowles Hollowell Conner ("Bowles Hollowell Conner"), a division of First Union Capital Markets Corp., financial advisors to the Company, that the consideration to be received by the holders of Shares (other than Parent and its affiliates and the Executives referred to below) pursuant to each of the Offer and the Merger is fair to such stockholders from a financial point of view. A copy of the opinions of Salomon Smith Barney and Bowles Hollowell Conner are attached hereto as Annexes A and B. The Salomon Smith Barney and Bowles Hollowell Conner opinions should be read in their entirety for the assumptions made, the procedures followed, the matters considered and the limits of the review made by Salomon Smith Barney and Bowles Hollowell Conner in connection with such opinions. The Salomon Smith Barney and Bowles Hollowell Conner opinions were prepared for the Company Board and do not constitute a recommendation to any stockholder as to whether to tender Shares into the Offer. Salomon Smith Barney and Bowles Hollowell Conner were not retained as advisors or agents to the Company's stockholders. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF EACH OF THE MINIMUM CONDITION AND THE FINANCING CONDITION. SEE "SPECIAL FACTORS -- FINANCING OF THE TRANSACTIONS." IF PURCHASER PURCHASES AT LEAST THAT NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. SEE "SPECIAL FACTORS -- PURPOSE AND STRUCTURE OF THE TRANSACTIONS" AND "THE TENDER OFFER -- SECTION 9" ("CERTAIN CONDITIONS OF THE OFFER"). 1 4 The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of March 24, 1999 (the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the DGCL, Purchaser will be merged into the Company (the "Merger"). Following the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and become a wholly owned subsidiary of the Parent, and the separate corporate existence of Purchaser will cease. Six officers of the Company who own, as of the date hereof, approximately 7.2% (11.8% after giving effect to the exercise of their options to purchase Common Stock at prices less than $9.25 per share) of the outstanding shares of Common Stock of the Company (the "Executives") have agreed with Parent, among other things, to tender their Shares into the Offer and vote their Shares in favor of the adoption of the Merger Agreement and against any action or agreement that would impede, interfere with, delay or prevent the purchase of Shares pursuant to the Offer or the consummation of the Merger or would result in a breach of any covenant, representation or warranty contained in the Merger Agreement and five of the Executives also have agreed to purchase shares of common stock of Parent ("Parent Common Stock") following the purchase of Shares pursuant to the Offer (the "Tender Agreement" and the "Subscription and Tender Agreements," respectively) and have executed a Stockholders Agreement with Parent (the "Stockholders Agreement"). Four of the Executives also have entered into new employment agreements with the Company which shall become effective upon the purchase of Shares pursuant to the Offer (the "Employment Agreements" and, together with the Tender Agreement, the Subscription and Tender Agreements and the Stockholders Agreement, the "Stockholder Documents"). Parent has agreed in the Tender Agreement and in the Subscription and Tender Agreements to grant each of the Executives time and performance options upon the consummation of the Merger. See "Special Factors -- Interests of Certain Persons in the Transactions" for a discussion of the Stockholder Documents. In accordance with the Merger Agreement, if required by law and its Certificate of Incorporation and By-laws, the Company will convene a meeting of its stockholders as soon as practicable following consummation of the Offer for the purpose of adopting the Merger Agreement. The Company also has agreed to include in any proxy or information statement required for such meeting the unanimous recommendation of the Company Board that the stockholders of the Company vote in favor of the adoption of the Merger Agreement and to otherwise use its reasonable best efforts to obtain the necessary approval of the Merger Agreement by the stockholders. See "Special Factors -- The Merger Agreement and the Management Agreement." At the effective time of the Merger (the "Effective Time"), each then outstanding Share (other than Shares owned by Parent and its subsidiaries and Shares held by stockholders who have not voted in favor of or consented to the Merger and who have properly demanded appraisal of their Shares in accordance with Section 262 of the DGCL (the "Dissenting Shares")) will be cancelled, extinguished and converted into the right to receive $9.25 in cash, or any higher price that may be paid pursuant to the Offer (the "Merger Consideration"), payable to the holder thereof, without interest, upon surrender of the certificate formerly representing such Shares, less any withholding taxes required under applicable law. The Company has represented to Purchaser and Parent that as of March 24, 1999, there were 6,290,178 shares of Common Stock and 296,638 shares of Class A Common Stock outstanding, and 1,382,863 shares of Common Stock and no shares of Class A Common Stock reserved for issuance upon the exercise of outstanding stock options, warrants and other rights to acquire Shares. Based upon the foregoing, Purchaser and Parent believe that 3,984,840 Shares would constitute a majority of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger and would therefore satisfy the Minimum Condition. The Company has advised Purchaser and Parent that, to the knowledge of the Company, all the directors and officers of the Company intend to tender their Shares pursuant to the Offer. The Merger Agreement is more fully described in "Special Factors -- The Merger Agreement and the Management Agreement" and is attached hereto as Schedule V. Certain federal income tax consequences of 2 5 the sale of the Shares pursuant to the Offer and the conversion of Shares into the Merger Consideration pursuant to the Merger are described in "Special Factors -- Certain Federal Income Tax Consequences". For information concerning pending litigation against the Company and its directors and an affiliate of Purchaser, Parent and Holdings seeking, among other things, to enjoin the transactions contemplated by the Merger Agreement, see "The Tender Offer -- Section 10" ("Certain Legal Matters and Regulatory Approvals"). The Offer to Purchase includes information required to be disclosed pursuant to Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which Rule governs so-called "going private" transactions by certain issuers or their affiliates. Holdings, Parent and the Purchaser do not concede as a result of providing such information or otherwise complying with Rule 13e-3 that they (or any of their affiliates) are affiliates of the Company or subject to the requirements of such Rule. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 3 6 SPECIAL FACTORS BACKGROUND OF THE TRANSACTIONS On August 5, 1998, the Company Board met to discuss various strategic alternatives for the Company. At that time, because of the depressed market for healthcare securities generally, and the current trading price of the Common Stock in particular, the Company Board concluded that the Company would no longer be able to pursue its acquisition growth strategy through the issuance of Common Stock. The Company believed that to continue such a strategy would have an undesired dilutive effect for the Company's stockholders. Consequently, the Company Board instructed the Company's management to consider various means of securing additional capital. On October 29, 1998 the Company publicly announced that it had engaged Salomon Smith Barney and Bowles Hollowell Conner (collectively, the "Financial Advisors") as its financial advisors to evaluate the strategic alternatives available to the Company, including, among other things, a possible recapitalization, a secondary offering of securities to the public, a private placement of debt or equity securities, a stock repurchase and a sale of the Company. After exploring various alternatives, the Financial Advisors determined that they would solicit indications of interest in a possible sale transaction from a select group of potential purchasers who the Financial Advisors believed might be interested in acquiring the Company. On December 1, 1998, executives of the Company met James L. Elrod, Jr. of Vestar Capital Partners III, L.P., a Delaware limited partnership ("Vestar"), for the first time at a health care conference. Throughout the day, Mr. Elrod and the executives discussed their respective businesses and the executives indicated the Company's willingness to enter into a transaction that would enable the Company to continue its growth strategy. Vestar and the Company's management thereafter considered a possible merger, recapitalization or similar transaction. As the discussions between Vestar and the Company continued, the Company and Vestar executed a confidentiality agreement dated as of December 1, 1998 (the "Confidentiality Agreement") pursuant to which the Company agreed to provide Vestar with non-public information and Vestar agreed to treat such information as confidential. Thereafter, in December, 1998, the Company directed the Financial Advisors to provide Vestar with a copy of the Confidential Information Memorandum which the Financial Advisors had prepared on behalf of the Company. Throughout December, 1998, Vestar and the Company were in frequent contact discussing the Company's business and the possible structure of a transaction. On December 15, 1998, Mr. Elrod visited the Company's headquarters in Hollywood, Florida and met with Dr. Mitchell Eisenberg, the Chairman, President and Chief Executive Officer of the Company, to discuss a possible transaction. On January 7, 1999, Vestar submitted a preliminary, non-binding indication of interest to Salomon Smith Barney that stated that Vestar would consider a possible acquisition of the Company for a price of $11.00 to $13.00 per Share. The Financial Advisors evaluated the price range which Vestar was considering relative to the Company's then current trading price and determined that the Company should continue negotiations with Vestar. Additionally, the Financial Advisors considered Vestar's standing in the investment community, its track record with respect to the companies in which it had made equity investments and the capabilities of its partners and employees. On January 18, 1999, Dr. Eisenberg and Dr. Lewis D. Gold, Executive Vice President of the Company, met with James Elrod, Arthur J. Nagle and Daniel S. O'Connell of Vestar to further discuss the Company's business. On January 27, 1999, the executive officers of the Company made a formal presentation to Vestar's representatives. Vestar continued its business due diligence investigation of the Company. On February 12, 1999, Salomon Smith Barney requested by letter that Vestar formally submit an offer to acquire the Company. On February 19, 1999, Vestar submitted an offer to purchase for cash not less than 70% of the Company's outstanding Shares in a recapitalization transaction structured as a one-step merger at a price of $11.50 per Share, provided a sufficient number of Shares were retained by the Company's existing stockholders to ensure that the transaction would qualify for recapitalization accounting treatment. The offer was subject to, among other things, Vestar's satisfactory completion of its due diligence investigation of the 4 7 Company. Along with the letter, Vestar provided the Company with the written comments of Vestar's outside legal counsel to the form of merger agreement previously provided to Vestar and other bidders. On February 19, 1999, the Company Board held a meeting to review various proposals that had been obtained by the Financial Advisors. At this meeting, the Company Board, after consultation with management, determined that, due to the likelihood that management would continue with the Company following an acquisition transaction, management might be presented with a potential conflict of interest. Accordingly, it was agreed that Drs. Eisenberg and Gold, the only members of management serving on the Company Board, would abstain from voting on any proposal for the acquisition of the Company that was considered by the Company Board. The Company's outside directors determined that Drs. Eisenberg's and Gold's abstinence from voting on potential transactions would facilitate the Company Board's independent judgment but requested that the management directors participate in certain future discussions and be available to advise the Company Board as it considered the various proposals. Because the three outside directors would be the only directors voting on an acquisition proposal, the Company Board determined that an independent committee of the Company Board was unnecessary. At its February 19, 1999 meeting, the Company Board determined that the proposed recapitalization transaction from Vestar was the most attractive proposal that it had received. Following discussions as to whether to pursue negotiations with other potential acquirors, the Company Board determined that pursuing an acquisition transaction exclusively with Vestar would be most likely to benefit its stockholders' interests and achieve the Company's objectives. On February 26, 1999, at the request of Vestar, the Company entered into an exclusivity agreement with Vestar. Vestar had stated to the Company's representatives that such an agreement was necessary in order to justify Vestar's continued investment of time and financial resources in connection with the transaction. The exclusivity agreement was subsequently extended on March 9, 1999 and during this period Vestar's legal, accounting, tax, insurance and other advisers commenced their due diligence review of the Company and its operations. The exclusivity agreement expired on March 15, 1999. On February 27 and February 28, 1999, representatives of management, the Financial Advisors and outside counsel to the Company commenced negotiations with respect to a definitive acquisition agreement and related documentation with representatives of Vestar and its outside legal counsel. In addition, representatives of Vestar and its legal counsel began discussions with certain members of management regarding employment with, and equity investments in, Parent and the Company. As discussions and negotiations with respect to the proposed transaction continued, the Company Board met on March 2, 1999 to assess, among other items, the status of negotiations and the likelihood of the completion of the transaction on terms favorable to the Company's stockholders. The Company Board reviewed in detail the proposed terms of the transaction and Vestar's requirement that senior management invest in and remain employed by the Company following the consummation of the transaction. After discussions with respect to potential conflicts of interest, it was determined that the senior managers who would participate in the transaction should obtain counsel separate from the Company's outside legal counsel. In light of Vestar's insistence that its obligation to consummate the transaction be conditioned upon satisfactory employment agreements and equity investment agreements with management being agreed upon, the Company Board also directed management to negotiate fully the scope and terms of all such arrangements prior to such time as the Company Board was asked to consider a definitive transaction. During this time, Vestar continued to review the transaction and conduct its due diligence review of the Company. Based on the results of Vestar's due diligence review, Mr. Elrod telephoned Dr. Eisenberg on March 14, 1999 to tell him that the results of Vestar's due diligence review did not support consummating a transaction at a price of $11.50 per Share but that Vestar was willing to consider a transaction at a price of approximately $9.00 per Share. Robert L. Rosner of Vestar subsequently had discussions with the Financial Advisors outlining the results of Vestar's due diligence review and Vestar's rationale for proposing to reduce the per Share price that would be offered to the Company's stockholders. After various discussions among Vestar, the Company's management, the Financial Advisors and others, Vestar agreed to submit in writing its revised proposal to consummate a merger transaction, at its current price per Share of $9.25 and as it is 5 8 currently structured, and the Company's representatives agreed to present that proposal to the Company Board for its consideration. The Company's Board met on March 16, 1999 to review with the Company's management and financial and legal advisors the terms and conditions of the revised proposal. The Company Board queried the Company's management and the Financial Advisors as to the likelihood that another suitor would pursue a transaction with the Company on more favorable terms. The Financial Advisors indicated that no other potential acquiror had expressed interest in the Company to the extent that Vestar had and that, in their opinion, beginning the sale process again or pursuing additional leads was unlikely to result in a proposal that would be more adventageous to the Company's stockholders than Vestar's revised proposal. In light of the timing of Vestar's proposed transaction, Vestar's willingness to purchase all outstanding Shares and Vestar's willingness to structure the transaction as a tender offer followed by a merger (which the Company Board believed would be more expeditious than the structure originally proposed), the Company Board instructed management to continue negotiations with Vestar. Negotiations regarding the terms of the Merger Agreement and the other agreements contemplated thereby continued through March 24, 1999. That night the Company Board held a meeting at which management indicated that the parties had reached definitive agreements with respect to the transaction. The Company's outside legal counsel, outside counsel for the Executives, and the Financial Advisors each gave presentations to the Company Board. The Company Board also received fairness opinions from each of the Company's Financial Advisors, which were delivered orally and subsequently confirmed in writing. See "Opinions of Financial Advisors." Following discussions, the Company Board unanimously (excluding directors who would be considered "interested directors" under Section 144 of the DGCL, who abstained) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to, and in the best interests of, the Company and its stockholders, approved the Merger Agreement and the Offer and the Merger and the other transactions contemplated thereby, declared the Merger to be advisable, directed that the Merger be submitted for consideration at a special meeting of the stockholders of the Company, resolved to recommend that the stockholders of the Company accept the Offer, tender their Shares to Purchaser thereunder and adopt the Merger Agreement, and approved the Merger Agreement and the Stockholder Documents and the transactions contemplated thereby for purposes of Section 203 of the DGCL. The Merger Agreement and the Stockholder Documents were executed and delivered by the parties thereto following the meeting. A joint press release was issued by the Company and Vestar the next morning announcing the transaction. RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTIONS. The Company. At a meeting held on March 24, 1999, the Company Board unanimously (with the interested directors abstaining) (i) determined that the Offer and the Merger, taken together, are fair to and in the best interests of the Company's stockholders, (ii) approved the Merger Agreement and the transactions contemplated thereby, and (iii) decided to recommend to the Company's stockholders that they accept the Offer and tender their Shares pursuant to the Offer and adopt the Merger Agreement. In reaching its conclusion, the Company Board considered a number of factors, including the following: 1. The fact that Vestar's proposal represented the best offer received by the Company Board after the Financial Advisors had contacted a select group of potential purchasers who had been given an opportunity to receive confidential information about the Company and either declined to submit a proposal or submitted a proposal that the Company Board considered to be less attractive to the Company's stockholders than the Vestar proposal. 2. The fact that the cash consideration that the Company's stockholders would receive for each Share under the Vestar proposal was at a premium to the Company's then current market price. 6 9 3. The fact that the Company Board had explored the possibility of pursuing various other possible transactions that would secure the necessary capital to finance future acquisitions in fulfillment of the Company's growth strategy and no alternative transaction was as favorable to the Company's stockholders as the Vestar proposal. 4. The Company's business, prospects, financial condition, current business strategy and competitive position in the healthcare industry. 5. The presentations and fairness opinions of its Financial Advisors described in "Special Factors -- Opinions of the Financial Advisors." 6. The terms and conditions of the Merger Agreement, including the fact that the Offer is subject to various conditions, including the Financial Condition, and that the Merger Agreement contemplates the payment or reimbursement to Parent and Purchaser of certain fees and expenses (including financing commitment fees and related expenses) and a termination fee under certain circumstances . In analyzing the conditions to this Offer, the Board of Directors considered, among other things, the risks of failing to consummate the Offer and the Merger. In assessing the expense payment and termination fee provision, the Board of Directors recognized that its effect would be to increase by the amount of such fees and expenses the cost of acquiring the Company by a third party other than the Purchaser. 7. The nature of the financing commitments received by Parent and Purchaser with respect to the Offer and the Merger, including the identity of the institutions providing such commitments and their proven experience in consummating transactions such as the Offer and the Merger and the conditions to the obligations of such institutions to fund such commitments, as well as the fact that consummation of the Offer and the Merger will not be dependent on the ability of Parent and the Purchaser to raise funds through the high yield debt or other securities market. 8. The likelihood of soliciting a firm offer from a third party to acquire the Company at a price in excess of that to be paid in the Offer and the Merger, the timing of the receipt of any such offer, and the possible consequences of unsuccessfully seeking to solicit such an offer. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Company Board did not find it practicable to, and did not, qualify or otherwise assign relative weights to the individual factors considered in reaching its determinations. Because only the disinterested directors of the Company voted on the Vestar proposal and because of the engagement of the Financial Advisors and outside legal counsel by the Company Board, the Company Board did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the unaffiliated stockholders of the Company for the purpose of negotiating the terms of the Merger Agreement. As discussed above, the Merger Agreement does not require the transactions contemplated thereby to be approved by a majority of the unaffiliated stockholders of the Company. Purchaser, Parent and Holdings. Purchaser, Parent and Holdings regard the acquisition of the Company as an attractive investment opportunity because they believe that the Company's future business prospects are favorable. Although the investment will involve a substantial risk to holders of Parent Common Stock, Parent believes that the long-term value of the equity investment could appreciate significantly. Purchaser, Parent and Holdings believe that the price per share offered hereby and the Merger Consideration is fair to the Company's stockholders. In reaching this conclusion, they have taken into consideration the recent and historical prices of the Shares, see "The Tender Offer -- Section 5" ("Price Range of Shares; Dividends"), and their due diligence review of the Company. Their conclusion as to the fairness of the Offer and the Merger also is supported by the conclusions of the Company Board and by the fact that the terms of the transactions were negotiated with the Company Board and its representatives at a time when Purchaser, Parent and Holdings did not beneficially own any Shares and after representatives of the Company had solicited proposals to purchase the Company from third parties. Purchaser, Parent and Holdings did not assign a particular weight to any one factor. 7 10 OPINIONS OF THE FINANCIAL ADVISORS Opinion of Bowles Hollowell Conner. Pursuant to an engagement letter dated November 5, 1998 (the "Bowles Hollowell Conner Engagement Letter"), the Company retained Bowles Hollowell Conner, a division of First Union Capital Markets Corp., to act as its financial advisor in considering the Company's strategic and financial alternatives for maximizing stockholder value, including the possible sale of all or a portion of the Company. The Company had previously retained Salomon Smith Barney Inc. to also act as its financial advisor. See "Special Factors -- Background of the Transactions." Bowles Hollowell Conner is a nationally recognized firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with merger transactions and other types of acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Company selected Bowles Hollowell Conner as its financial advisor on the basis of Bowles Hollowell Conner's experience and expertise in transactions similar to the Offer and the Merger and its reputation in the healthcare industry. In connection with the consideration by the Company Board of the merits of the Offer and the Merger, Bowles Hollowell Conner was asked under the terms of the Bowles Hollowell Conner Engagement Letter to perform various financial analyses and deliver to the Company Board its opinion based on such analyses. THE OPINION OF BOWLES HOLLOWELL CONNER WAS DIRECTED TO THE COMPANY BOARD FOR ITS CONSIDERATION IN CONNECTION WITH THE PROPOSED OFFER AND MERGER, AND IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AGREEMENT NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES AS TO WHETHER THE OFFER OR THE MERGER IS IN SUCH HOLDER'S BEST INTERESTS OR AS TO WHETHER HOLDERS OF SHARES SHOULD TENDER THEIR SHARES OR VOTE FOR OR AGAINST THE MERGER. THE FULL TEXT OF SUCH WRITTEN OPINION OF BOWLES HOLLOWELL CONNER DATED MARCH 24, 1999, IS ATTACHED HERETO AS ANNEX B AND SETS FORTH CERTAIN IMPORTANT QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED, AREAS OF RELIANCE ON OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION. THE SUMMARY DESCRIPTION OF SUCH OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF THE OPINION ATTACHED HERETO AS ANNEX B, AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THE TENDER OFFER MATERIAL. In arriving at its opinion, Bowles Hollowell Conner, among other things, (i) reviewed certain publicly available business and financial information relating to the Company; (ii) reviewed certain other information, including financial forecasts, provided to Bowles Hollowell Conner by the Company, and met with the Company's management to discuss the business and prospects of the Company; (iii) considered certain financial data of the Company and compared that data with similar data for publicly held companies in businesses similar to those of the Company; (iv) considered the financial terms of certain other business combinations and other transactions which had recently been effected; (v) reviewed the financial terms and conditions of the Merger Agreement; and (vi) considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which Bowles Hollowell Conner deemed relevant. Based upon and subject to its review of the foregoing, its work described below, its experience as investment bankers and other factors it deemed relevant, but subject to the limitations set forth below and in reliance upon the assumptions set forth below, Bowles Hollowell Conner provided the Company Board with its opinion as investment bankers that as of the date of its opinion (which was the date that Bowles Hollowell Conner presented its financial analyses to the Company Board), the aggregate consideration to be received by the holders of Shares (other than the Executives, as to whom Bowles Hollowell Conner expressed no opinion) pursuant to the Offer and the Merger was fair to such holders from a financial point of view. 8 11 In connection with its opinion, Bowles Hollowell Conner made a presentation to the Company Board on March 24, 1999 (the "Bowles Hollowell Conner Presentation") as to the fairness of the Offer and the Merger based on the foregoing analyses. A copy of the Bowles Hollowell Conner Presentation is filed as Exhibit (b)(4) to the Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") filed by Holdings, Parent, Purchaser, the Company and the Executives with the Commission and incorporated herein by reference. The Bowles Hollowell Conner Presentation is available for inspection and copying at the principal executive offices of the Company during its regular business hours to any stockholder or his representative who has been so designated in writing. No limitations were imposed by the Company on Bowles Hollowell Conner with respect to the investigations made or procedures followed in rendering its opinion. In connection with its review, Bowles Hollowell Conner did not assume any obligation for independent verification of financial and other information reviewed by it and relied on such information being accurate and complete in all material respects. With respect to the financial forecasts for the Company provided to Bowles Hollowell Conner by the Company's management, Bowles Hollowell Conner assumed that the forecasts had been reasonably prepared on bases reflecting the best available estimates and judgments of the Company's management as to the future financial performance of the Company and that such projections provided a reasonable basis upon which Bowles Hollowell Conner could form its opinion. Bowles Hollowell Conner also assumed that there had been no material changes in the Company's assets, financial condition, results of operations, business or prospects since the dates of the last financial statements made available to Bowles Hollowell Conner. Bowles Hollowell Conner relied on advice of the counsel and the independent accountants to the Company as to all legal and financial reporting matters with respect to the Company, this Offer to Purchase, the Offer, the Merger and the Merger Agreement. Bowles Hollowell Conner assumes that the Offer and the Merger will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act of 1933, as amended, the Exchange Act and all other applicable federal and state statutes, rules and regulations. In addition, Bowles Hollowell Conner did not assume responsibility for making an independent evaluation, appraisal or physical inspection of any of the assets or liabilities (contingent or otherwise) of the Company, nor was Bowles Hollowell Conner furnished with any such appraisals. Finally, Bowles Hollowell Conner's opinion was based on economic, monetary, market and other conditions as in effect on, and the information made available to Bowles Hollowell Conner as of, the date of the opinion (March 24, 1999). Accordingly, although subsequent developments may affect its opinion, Bowles Hollowell Conner did not assume and does not have any obligation to update, revise or reaffirm its opinion. Bowles Hollowell Conner also assumed that the Offer and the Merger will be consummated in accordance with the terms described in the Merger Agreement, without any further amendments thereto, and without waiver by the Company of any of the conditions to its obligations thereunder. The terms of the Merger Agreement and the conditions to the Company's obligations thereunder should be reviewed and understood by holders of Shares in connection with their consideration of the Offer and the Merger. Set forth below is a brief summary of selected analyses presented by Bowles Hollowell Conner to the Company Board on March 24, 1999 in connection with its March 24, 1999 opinion described above. Historical Stock Price Analysis Bowles Hollowell Conner reviewed the trading performance of the Common Stock for the period from November 1, 1995, to March 23, 1999, relative to the performance of the Standard & Poor's 500 Index, the Russell 2000 Index, a Multi-Specialty PPM Index and a Single Specialty PPM Index. The Multi-Specialty and Single Specialty PPM Indexes were comprised of publicly traded multi-specialty and single specialty physician practice management companies that Bowles Hollowell Conner deemed to be similar to the Company. While the Company provides both specialist physician and practice management services in the areas of women's and children's health, Bowles Hollowell Conner regards the Company as more comparable to multi-specialty physician practice management organizations due to the number of specialist physician services it provides within women's and children's health. The multi-specialty comparable companies were MedPartners, Inc., Phycor, Inc., PhyMatrix Corp. and Promedco Management Co. (collectively, the "Multi- 9 12 Specialty Comparable Companies"). The single specialty comparable companies were American Oncology Resources, Inc., American Physician Partners, Inc., AmeriPath, Inc., Pediatrix Medical Group, Inc. and Physician Reliance Network, Inc. (collectively, the "Single Specialty Comparable Companies"). Bowles Hollowell Conner noted that during this period the price of the Company's Common Stock declined 35%, while the Standard & Poor's 500 Index increased 116%, the Russell 2000 Index increased 29%, the Multi-Specialty Comparable Companies declined 86% and the Single Specialty Comparable Companies declined 52%. Additionally, Bowles Hollowell Conner noted that a significant amount of the price declines in the Multi-Specialty and Single Specialty PPM Indexes has occurred since January 1, 1998. Bowles Hollowell Conner noted that during this period the price of the Common Stock declined 46%, while the Standard & Poor's 500 Index increased 30%, the Russell 2000 Index declined 12%, the Multi-Specialty Comparable Companies declined 83% and the Single Specialty Comparable Companies declined 48%. Comparable Company Analysis Using publicly available information and information provided by the Company, Bowles Hollowell Conner compared the historical financial and operating performance of the Company with the corresponding performance of the Multi-Specialty Comparable Companies and the Single Specialty Comparable Companies. In comparing the Company's financial performance to that of the Comparable Companies, Bowles Hollowell Conner made the following observations, among others: (i) the Company had a latest twelve months' ("LTM") earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA") margin of 16.9%, compared to median LTM EBITDA margins of 10.4% and 30.1%, respectively, for the Multi-Specialty and Single Specialty Comparable Companies; (ii) the Company had a LTM earnings (loss) before interest and taxes ("EBIT") margin of 13.1%, compared to median LTM EBIT margins of 9.7% and 22.7%, respectively, for the Multi-Specialty and Single Specialty Comparable Companies; and (iii) the Company had a LTM net income margin of 5.6%, compared to median LTM net income margins of 5.0% and 10.3%, respectively, for the Multi-Specialty and Single Specialty Comparable Companies. In order to arrive at an implied valuation for the Company, Bowles Hollowell Conner calculated the adjusted market value, defined as aggregate equity value plus debt and preferred stock less cash and cash equivalents ("Adjusted Market Value"), of the Comparable Companies as a multiple of (i) LTM sales, (ii) LTM EBITDA and (iii) LTM EBIT. An analysis of the multiples of Adjusted Market Value to LTM sales yielded a range of multiples from 0.3x to 0.7x for the Multi-Specialty Comparable Companies, with a median multiple of 0.5x, and a range of multiples from 1.1x to 2.3x for the Single Specialty Comparable Companies, with a median multiple of 1.7x. An analysis of the multiples of Adjusted Market Value to LTM EBITDA yielded a range of multiples from 4.5x to 39.8x, with a median multiple of 5.0x (excluding the 39.8x high end of the range) for the Multi-Specialty Comparable Companies and a range of multiples from 5.6x to 7.4x, with a median multiple of 6.7x for the Single Specialty Comparable Companies. An analysis of the multiples of Adjusted Market Value to LTM EBIT yielded a range of multiples from 6.3x to 9.9x, with a median multiple of 7.1x for the Multi-Specialty Comparable Companies and a range of multiples from 7.3x to 10.1x, with a median multiple of 8.8x for the Single Specialty Comparable Companies. Bowles Hollowell Conner noted that these multiples could be compared to LTM sales, LTM EBITDA and LTM EBIT multiples implied by the Merger Consideration of 1.3x, 7.7x and 10.0x, respectively, for the Company. Bowles Hollowell Conner applied the median LTM Sales, LTM EBITDA and LTM EBIT multiples for the Multi-Specialty and Single Specialty Comparable Companies to the corresponding historical results of the Company to calculate the implied Adjusted Market Value range and the implied equity value range for the Shares ("Equity Value"). This analysis indicated an Adjusted Market Value range for the Company of $94.9 million to $130.0 million and an implied Equity Value range of $1.44 to $6.69 per Share. As noted above, Bowles Hollowell Conner regards the Company as more comparable to multi-specialty physician practice management organizations. Comparable Acquisitions Analysis Using publicly available information and certain other information and estimates drived in the ordinary course of Bowles Hollowell Conner's business, Bowles Hollowell Conner reviewed selected recent merger and 10 13 acquisition transactions in the physician practice management industry. These transactions included: Madison Dearborn/Cornerstone/Beecken Petty & Co.'s acquisition of MedPartners Team Health Operations; American Oncology Resources, Inc.'s acquisition of Physician Reliance Network, Inc.; an acquisition in which Bowles Hollowell Conner acted as financial advisor and for which financial information is not publicly available (the "Private Deal"); Phycor, Inc.'s acquisition of First Physician Care; MedPartners, Inc.'s acquisition of Talbert Medical Management; FPA Medical Management Inc.'s acquisition of Health Partners, Inc.; CRA Managed Care's acquisition of Occusystems, Inc.; MedPartners, Inc.'s acquisition of InPhynet Medical Management; FPA Medical Management's acquisition of AHI Healthcare Systems, Inc.; and Physician Resource Group's acquisition of American Opthalmic, Inc. (collectively, the "Comparable Transactions"). Bowles Hollowell Conner compared the Adjusted Market Value of the acquired companies as implied by the consideration paid in each such transaction to the corresponding LTM Sales, LTM EBITDA and LTM EBIT for the acquired companies at the time of transaction announcement. As physician practice management company stock prices and forward earnings multiples have declined particularly since early 1998, Adjusted Market Value to LTM Sales, LTM EBITDA and LTM EBIT multiples have similarly declined. Thus, Bowles Hollowell Conner believes acquisition transaction multiples since January 1, 1998 are more relevant to the Company's proposed transaction. Multi-Specialty comparable transactions since that time include Madison Dearborn/Cornerstone/Beecken Petty & Co.'s acquisition of MedPartners' Team Health Operations and the Private Deal while the only Single Specialty comparable transaction since that time was the American Oncology Resources, Inc.'s acquisition of Physician Reliance Network, Inc. Based on these comparable Multi-Specialty transactions, Adjusted Market Value as a multiple of: (i) LTM Sales ranged from 0.4x to 0.6x with a median value of 0.5x; (ii) LTM EBITDA ranged from 6.2x to 8.5x with a median value of 7.3x; and (iii) LTM EBIT was 7.5x. Based on the comparable Single Specialty transaction, Adjusted Market Value as a multiple of: (i) LTM Sales was 1.8x; (ii) LTM EBITDA was 9.3x; and (iii) LTM EBIT was 14.0x. Bowles Hollowell Conner applied median LTM Sales, LTM EBITDA and LTM EBIT multiples for the Comparable Transactions to the corresponding historical results of the Company, yielding an implied Adjusted Market Value range for the Company of $111.1 million to $199.0 million and an implied Equity Value range of $3.87 to $16.99 per Share. As noted above, Bowles Hollowell Conner regards the Company as more comparable to multi-specialty physician practice management organizations. No other company or transaction used in the comparable company analysis or the comparable acquisitions analysis as a comparison is identical to the Company or the Offer and the Merger. Accordingly, an analysis of the results of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the companies to which the Company and the Offer and the Merger are being compared. Earnings Impact Analysis Based on the Company's results for fiscal year 1998, Bowles Hollowell Conner analyzed the potential pro-forma earnings impact of an acquisition of the Company by a potential acquiror assuming an all cash purchase. Bowles Hollowell Conner calculated the maximum cash purchase price that an acquiror could pay which would result in no earnings dilution for fiscal year 1998, assuming costs of financing ranging from 7% to 8%. This analysis indicated an Adjusted Market Value range for the Company of $127.3 million to $144.2 million and an Equity Value range of $6.27 to $7.60 per Share at 8% and 7% cost of financing, respectively. Discounted Cash Flow Analysis Bowles Hollowell Conner performed a discounted cash flow analysis to estimate the present value of the projected unlevered free cash flows for the Company based on the Company's projections (the "Base Case"). The Base Case assumes that the Company grows through a combination of internal growth initiatives and acquisitions. Internal growth initiatives include internal hospital outsourcing contract growth, new hospital outsourcing contracts, physician startups within existing multi-specialty physician group practices and the addition of ancillary surgery centers. Acquisitions of hospital-based and office-based physician practices are assumed to be completed within the Company's integrated physician networks at multiples of 5.0x practice 11 14 EBITDA in aggregate amounts of $60.0 million, $35.0 million, $40.0 million, $50.0 million and $65.0 million for the years 1999 through 2003, respectively. Based on the Base Case assumptions, Bowles Hollowell Conner calculated the estimated future free cash flows that the Company would produce for the fiscal years 1999 through 2003 and a terminal value of the Company at the end of the forecasting period. The terminal value was computed by multiplying the Company's year 2003 estimated EBITDA by a range of multiples between 5.5x and 6.5x, chosen to reflect current acquisition multiples of comparable multi-specialty physician practice management companies. The projected free cash flows and terminal values were discounted using a range of discount rates of 9.3% to 13.3%, chosen to reflect assumptions regarding the Company's cost of capital. This analysis indicated an Adjusted Market Value range for the Company of $169.0 million to $215.0 million and an implied Equity Value range of $12.45 to $19.35 per Share. Sensitivity of Discounted Cash Flow Analyses Bowles Hollowell Conner relied on the Company's Base Case to perform the Discounted Cash Flow Analysis. These projections reflect the best judgments of the Company's management as to the future financial performance of the Company and include assumptions regarding the impact of the integration of internal growth initiatives and acquired physician practices. The Company has projected it will realize certain revenue growth from increased local market density of integrated networks and certain economies of scale. For purposes of comparison and to test the sensitivity of the Discounted Cash Flow Analysis to changes in the Base Case, Bowles Hollowell Conner reviewed scenarios that assumed the Company: (i) completed no practice acquisitions going forward, and due to lower projected revenue and earnings growth rates relative to the Base Case, applied EBITDA terminal multiples of 4.0x to 5.0x; and (ii) completed the internal growth initiatives and acquisitions contemplated in the Base Case, however, the Company acquired physician practices at a multiple of 6.0x practice EBITDA, resulting in acquisitions in aggregate amounts of $72.0 million, $42.0 million, $48.0 million, $60.0 million and $78.0 million for the years 1999 through 2003, respectively. Bowles Hollowell Conner performed these selected sensitivity analyses on the Company's Base Case. The Discounted Cash Flow Analysis based on the no acquisitions scenario resulted in an Adjusted Market Value range for the Company of $100.0 million to $117.0 million and an implied Equity Value range of $2.18 to $4.80 per Share. The Discounted Cash Flow Analysis based on the 6.0x EBITDA acquisition multiple scenario resulted in an Adjusted Market Value range for the Company of $135.0 million to $179.0 million and an implied Equity Value range of $7.41 to $14.05 per Share. Leveraged Buyout Analysis Bowles Hollowell Conner analyzed a series of scenarios involving hypothetical recapitalizations of the Company. Each scenario provided for the distribution of an amount of cash in respect of each Share. The analysis assumed the Company's Base Case projections and a terminal value at the end of the forecasting period. The terminal value was computed by multiplying the Company's year 2003 estimated EBITDA by a range of multiples between 5.5x and 6.5x, chosen to reflect current acquisition multiples of comparable multi-specialty physician practice management companies. The analyses assumed leverage levels appropriate for physician practice management companies. Based on these and other assumptions, an offer of $9.25 per Share could produce an internal rate of return in the range of 25% to 30% over a five year period. Bowles Hollowell Conner analyzed these scenarios in light of various factors affecting the feasibility of a leveraged buyout of the Company. Healthcare LBO Premium Analysis Bowles Hollowell Conner reviewed the consideration paid in U.S. healthcare leveraged buyouts announced since May 7, 1996. Bowles Hollowell Conner calculated the premiums paid in those transactions over: (i) the acquired entity's applicable stock price one day prior to either the announcement of the acquisition offer or the announcement by the acquired entity of information relating to a possible corporate transaction, including its intention to evaluate its strategic alternatives ("unaffected price"), (ii) the acquired entity's 52-week high trading value as of the announcement date; (iii) the acquired entity's 52-week low trading value as of the announcement date; and (iv) the acquired entity's applicable stock price one day prior 12 15 to announcement of the acquisition offer ("affected price"). Seven transactions were reviewed and the following premium ranges were observed: premium of offer price to unaffected price, 15.2% to 88.2%; premium of offer price to 52-week high, (52.9)% to 4.2%; premium of offer price to 52-week low, 53.5% to 170.9%; and premium of offer price to affected price, 11.0% to 88.2%. The Bowles Hollowell Conner analysis indicated that the consideration to be paid pursuant to the Offer was 41.0% above the unaffected price, 47.1% below the 52-week high, 42.3% above the 52-week low and 12.1% above the price of the Company's stock as of the close of business on March 22, 1998. While the foregoing summary describes all analyses and examinations that Bowles Hollowell Conner deemed material to the preparation of its opinion to the Company Board, it does not purport to be a comprehensive description of all analyses and examinations actually conducted by Bowles Hollowell Conner. The preparation of a fairness opinion necessarily is not susceptible to partial analysis or summary description; and selecting portions of the analyses and of the factors considered by Bowles Hollowell Conner, without considering all analyses and factors, would create an incomplete view of the process underlying the analyses set forth in the presentation of Bowles Hollowell Conner to the Company Board on March 24, 1999. In addition, Bowles Hollowell Conner may have given some analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions. Accordingly, the ranges of valuations resulting from any particular analysis described above should not be taken to be Bowles Hollowell Conner's view of the actual value of the Company or the Shares. To the contrary, Bowles Hollowell Conner expressed no opinion on the actual value of the Company or the Shares, and its opinion that is addressed and limited to the Company Board extends only to the belief expressed by Bowles Hollowell Conner that the immediate value to holders of Shares (other than the Executives, as to whom Bowles Hollowell Conner expressed no opinion), from a financial point of view under the Offer and the Merger, is within the range of values that might fairly be ascribed to the Shares as of the date of the opinion of Bowles Hollowell Conner (March 24, 1999), and as of the date of the Company Board's consideration of the Offer and the Merger (March 24, 1999). At the time of the delivery of its oral opinion, Bowles Hollowell Conner provided a draft form of opinion that was the same in all material respects as the executed opinion later provided to the Company Board. In performing its analyses, Bowles Hollowell Conner made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. The analyses performed by Bowles Hollowell Conner are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by such analyses. Such analyses were prepared solely as part of Bowles Hollowell Conner's analysis for the Company Board of the fairness of the Offer and the Merger to the holders of Shares from a financial point of view, and were provided solely to the Company Board in connection with the Company Board's consideration of the Offer and the Merger. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at any time in the future. Bowles Hollowell Conner used in its analyses various projections of future performance prepared by the management of the Company. The projections are based on numerous variables and assumptions which are inherently unpredictable and must be considered not certain or accurate as projected. Accordingly, actual results could vary significantly from those set forth in such projections. As described above, the opinion of Bowles Hollowell Conner and the Bowles Hollowell Conner Presentation summarized above were presented to the Company Board. Bowles Hollowell Conner, however, does not make any recommendation to holders of Shares (or to any other person or entity) as to whether such stockholders should tender their Shares pursuant to the Offer or vote for or against the Merger. Pursuant to the Bowles Hollowell Conner Engagement Letter, the Company agreed to pay Bowles Hollowell Conner (i) an opinion fee of $60,000 upon the delivery of its opinion described above and (ii) a transaction fee payable upon consummation of the Offer and the Merger (or another transaction) equal to 40% of 1.0% of up to $100 million of the total proceeds payable to holders of Shares and Company Options pursuant to the Offer and the Merger and (y) 1.5% of any such proceeds in excess of $100 million. The opinion fee will be credited against the transaction fee payable to Bowles Hollowell Conner if the Merger is effected. The Company will be obligated to pay the Transaction Fee only if the Offer and the Merger (or 13 16 another transaction) are consummated. Accordingly, the payment of a substantial majority of Bowles Hollowell Conner's total fee is subject to the consummation of the Offer and the Merger. The Bowles Hollowell Conner Engagement Letter also calls for the Company to reimburse Bowles Hollowell Conner for its reasonable out-of-pocket expenses and for the Company to indemnify Bowles Hollowell Conner, its affiliates, and their respective directors, agents, employees and controlling persons against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of Bowles Hollowell Conner's engagement. Bowles Hollowell Conner and its affiliates may maintain business relationships with the Company, Holdings, Parent, other bidders for the Company and their respective affiliates. In the ordinary course of business, Bowles Hollowell Conner or its affiliates may actively trade the debt and equity securities of the Company, Holdings, Parent, other bidders for the Company or their respective affiliates for its or any such affiliate's own account or for the account of customers and, accordingly, may hold a long or short position in such securities. In addition, Bowles Hollowell Conner and its affiliates in the past may have provided investment and commercial banking products and services for the Company, Holdings, Parent, other bidders for the Company, their respective affiliates and other related persons. Bowles Hollowell Conner is not affiliated with the Company, Holdings or Parent. Opinion of Salomon Smith Barney Salomon Smith Barney Inc. has acted as a Financial Advisor to the Company in connection with the Offer and the Merger. On March 24, 1999, Salomon Smith Barney stated to the Company Board its oral opinion as investment bankers that, as of such date and based upon and subject to the factors and assumptions set forth in its presentation, the consideration to be received by the holders of Shares (other than Parent and its affiliates and the Executives) (the "Public Stockholders") was fair, from a financial point of view, to the Public Stockholders. Such opinion was subsequently confirmed in a written opinion dated March 24, 1999. The opinion and presentation of Salomon Smith Barney to the Company Board, in connection with which Salomon Smith Barney was requested to evaluate the fairness from a financial point of view of the consideration to the Public Stockholders, was only one of many factors taken into consideration by the Company Board in making its determination to approve the Merger Agreement. The terms of the Merger were determined through negotiations between the Company and Vestar and were approved by the Company Board. THE FULL TEXT OF SALOMON SMITH BARNEY'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY, IS ATTACHED TO THIS DOCUMENT AS ANNEX A. SALOMON SMITH BARNEY'S OPINION SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. IT IS DIRECTED ONLY TO THE COMPANY BOARD AND RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE PUBLIC STOCKHOLDERS AND DOES NOT ADDRESS THE COMPANY'S UNDERLYING BUSINESS DECISION TO EFFECT THE OFFER AND THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES AS TO WHETHER SUCH STOCKHOLDER SHOULD TENDER SHARES INTO THE OFFER OR AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF SALOMON SMITH BARNEY'S OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. In connection with rendering its opinion, Salomon Smith Barney, among other things: - reviewed the March 23, 1999 draft of the Merger Agreement, in the form provided to Salomon Smith Barney, and assumed that the final form of such agreement would not vary in any respect that is material to Salomon Smith Barney's analysis; - reviewed certain publicly available business and financial information relating to the Company that Salomon Smith Barney deemed relevant; - reviewed certain other information, primarily financial in nature, provided to Salomon Smith Barney by the Company relating to the Company's business, including certain financial forecasts; - reviewed certain publicly available information with respect to certain other companies that Salomon Smith Barney believed to be comparable to the Company and the trading markets for such other companies' securities; 14 17 - reviewed and analyzed certain publicly available information concerning the trading of, and the trading market for, the Common Stock; - reviewed certain publicly available information concerning the nature and terms of certain other transactions that Salomon Smith Barney deemed to be relevant to Salomon Smith Barney's inquiry; - considered and took into account the Company's lack of, and likely difficulty in raising, adequate capital to fund its growth and acquisition plans if the Offer and the Merger were not effected; - discussed with certain officers and employees of the Company and Vestar the foregoing, as well as other matters Salomon Smith Barney believed relevant to its inquiry, and - considered such other information, financial studies, analyses, investigations and financial, economic and market criteria as Salomon Smith Barney deemed relevant to its inquiry. In its review and analysis and in arriving at its opinion, Salomon Smith Barney assumed and relied upon, without assuming any responsibility for verification, the accuracy and completeness of all of the financial and other information provided to, discussed with, or reviewed by or for Salomon Smith Barney, or publicly available. With respect to the Company's financial forecasts, Salomon Smith Barney was advised by management of the Company and assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments on the part of the management of the Company, as to the future financial performance of the Company. Salomon Smith Barney expressed no view as to such forecasts or the assumptions on which they are based. Salomon Smith Barney did not assume any responsibility for making or obtaining any independent evaluations or appraisals of the Company, nor for conducting a physical inspection of, the properties and facilities of the Company. The Salomon Smith Barney opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on March 24, 1999, and Salomon Smith Barney assumed no responsibility to update or revise their opinion based upon circumstances or events occurring after March 24, 1999. For purposes of rendering its opinion, Salomon Smith Barney assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement, and that all conditions to the consummation of the Merger would be satisfied without waiver thereof. Salomon Smith Barney also assumed that all material governmental, regulatory or other consents and approvals would be obtained and that in the course of obtaining any necessary governmental, regulatory or other consents and approvals, or any amendments, modifications or waivers to any documents to which either the Company or Holdings is a party, as contemplated by the Merger Agreement, no restrictions would be imposed, or amendments, modifications or waivers made that would have any material adverse effect on the contemplated benefits of the Merger. The preparation of financial analyses and fairness opinions is a complex process involving subjective judgments with respect to, among other things, appropriate comparable companies and transactions, appropriate multiples of various selected financial data, appropriate discount rates and other financial and other factors and is not necessarily susceptible to partial analysis or summary description. Salomon Smith Barney made no attempt to assign specific weights to particular analyses or factors considered, but rather made qualitative judgments as to the significance and relevance of the analyses and factors considered. Accordingly, Salomon Smith Barney believes that its analyses (and the summary set forth above) must be considered as a whole, and that selecting portions of such analyses and of the factors considered by Salomon Smith Barney, without considering all of such analyses and factors, could create a misleading or incomplete view of the processes underlying the analyses conducted by Salomon Smith Barney and its opinion. With regard to the comparable company analysis summarized below, Salomon Smith Barney selected comparable companies on the basis of various factors, including the size of the company and similarity of the line of business; however, no company utilized as a comparison in such analysis is identical to the Company, any business segment of the Company or the Merger. As a result, these analyses are not purely mathematical, but also take into account differences in financial and operating characteristics of the comparable companies 15 18 and other factors that could affect the value of the comparable companies and transactions to which the Company and the Merger are being compared. In its analyses, Salomon Smith Barney made numerous assumptions with respect to the Company, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in Salomon Smith Barney's analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the prices at which companies may actually be sold. Salomon Smith Barney's analyses were prepared solely as part of Salomon Smith Barney's analysis of the fairness of the consideration to the Public Stockholders and were provided to the Company Board in that connection. The projections furnished to Salomon Smith Barney and used in formulating Salomon Smith Barney's opinion were provided to Salomon Smith Barney, in connection with the review of the Merger, by the management of the Company. The projections were based on numerous variables and assumptions which are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projection. THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY IN CONNECTION WITH PROVIDING ITS OPINION TO THE COMPANY BOARD. IT DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE ANALYSES PERFORMED BY SALOMON SMITH BARNEY OR OF ITS PRESENTATION TO THE COMPANY BOARD. THE SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY, THE TABLES MUST BE READ WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. In conducting its analyses, Salomon Smith Barney assumed that total debt and Shares outstanding were as at March 19, 1999, that excess cash was not available and that no acquisition expenditures were incurred in the first quarter of 1999. Comparable Company Analysis. Using publicly available information, Salomon Smith Barney compared the Company to the following five multispecialty physician practice management companies: Advanced Health Corporation, MedPartners, Inc., PhyCor, Inc., PhyMatrix Corporation and ProMedCo Management based on various measures of performance. Salomon Smith Barney noted that the Company's market value as a multiple of 1998 net income was 10.6x, compared with a median of 7.1x for the selected group. Salomon Smith Barney also noted that the Company's market value as a multiple of estimated 1999 net income and estimated 2000 net income was 8.6x and 7.4x, respectively, compared with a median of 7.3x and 5.5x, respectively, for the selected group.
MARKET VALUE AS MULTIPLE OF: ---------------------------------- 1998 1999 2000 NET ESTIMATED ESTIMATED INCOME NET INCOME NET INCOME ------ ---------- ---------- Company..................................................... 10.6x 8.6x 7.4x Median for Multispecialty Group............................. 7.1x 7.3x 5.5x Premium (Discount) to Multispecialty Median................. 49.1% 18.1% 33.6%
Salomon Smith Barney also calculated multiples of adjusted market value to last twelve months net revenues, to last twelve months earnings before interest, taxes, depreciation and amortization and to last twelve months earnings before interest and taxes. The multiple of adjusted market value to last twelve months net revenues for the Company was 1.2x compared with a median of 0.4x for the selected group. The multiple of adjusted market value to last twelve months earnings before interest, taxes, depreciation and amortization for the Company was 7.3x compared with a median of 4.8x for the selected group. The multiple of adjusted market value to last twelve months earnings before interest and taxes for the Company was 9.5x compared with a median of 7.1x for the selected group. 16 19
ADJUSTED MARKET VALUE(1) AS MULTIPLE OF: ----------------------------------------- LTM NET REVENUE LTM EBITDA LTM EBIT --------------- ---------- -------- Company........................................... 1.2x 7.3x 9.5x Median for Multispecialty Group(2)................ 0.4x 4.8x 7.1x Premium (Discount) to Multispecialty Median....... 198.7% 52.2% 33.9%
- - --------------- (1) Adjusted market value equals fully diluted market value plus outstanding debt minus cash. (2) MedPartners, Inc. was excluded from the EBITDA and EBIT median calculation because of its announced plan to exit the physician practice management business. Salomon Smith Barney also compared the Company to the following five single specialty physician practice management companies: American Oncology Resources, American Physician Partners, AmeriPath, Inc., Pediatrix Medical Group and Response Oncology, Inc. based on various measures of performance. Salomon Smith Barney noted that the Company's market value as a multiple of 1998 net income was 10.6x, compared with a median of 8.6x for the selected group. Salomon Smith Barney also noted that the Company's market value as a multiple of estimated 1999 net income and estimated 2000 net income was 8.6x and 7.4x, respectively, compared with a median of 7.4x and 6.2x, respectively, for the selected group.
MARKET VALUE AS MULTIPLE OF: ---------------------------------------------------------- 1998 1999 2000 NET INCOME ESTIMATED NET INCOME ESTIMATED NET INCOME ---------- -------------------- -------------------- Company.................................... 10.6x 8.6x 7.4x Median for Single Specialty Group.......... 8.6x 7.4x 6.2x Premium (Discount) to Single Specialty Median................................... 23.4% 16.9% 18.8%
Salomon Smith Barney also calculated multiples of adjusted market value to last twelve months net revenues, to last twelve months earnings before interest, taxes, depreciation and amortization and to last twelve months earnings before interest and taxes. The multiple of adjusted market value to last twelve months net revenues for the Company was 1.2x compared with a median of 1.5x for the selected group. The multiple of adjusted market value to last twelve months earnings before interest, taxes, depreciation and amortization for the Company was 7.3x compared with a median of 6.4x for the selected group. The multiple of adjusted market value to last twelve months earnings before interest and taxes for the Company was 9.5x compared with a median of 8.5x for the selected group.
ADJUSTED MARKET VALUE(1) AS MULTIPLE OF: ----------------------------------------- LTM NET REVENUE LTM EBITDA LTM EBIT --------------- ---------- -------- Company........................................... 1.2x 7.3x 9.5x Median for Single Specialty Group................. 1.5x 6.4x 8.5x Premium (Discount) to Single Specialty Median..... (18.7%) 14.3% 11.7%
- - --------------- (1) Adjusted market value equals fully diluted market value plus outstanding debt minus cash. Discounted Cash Flow Valuation of the Company. Using a discounted cash flow methodology, Salomon Smith Barney calculated a range of firm values of the Company as of March 22, 1999 based on the estimated unlevered free cash flows that the Company could produce on a stand-alone basis, which includes management's projected acquisitions at a 5.0x EBITDA purchase price, at a 6.0x EBITDA purchase price and at a 7.0x EBITDA purchase price, in each case over the five-year period from fiscal year 1999 through fiscal year 2003. Salomon Smith Barney also calculated a range of firm values based on the estimated unlevered free cash flows that the Company could produce on a stand-alone basis, excluding management's projected acquisitions, over the five-year period from fiscal year 1999 through fiscal year 2003. Salomon Smith Barney discounted these cash flows by a range of discount rates representing the weighted average cost of capital from 10% to 11%. Salomon Smith Barney calculated firm values as of March 22, 1999 based on discount rates from 10.3% to 10.8%. These calculations resulted in firm values ranging (i) from $187 million to $218 million using projections provided by the Company's management 17 20 which included projected acquisitions at a 5.0x purchase price; (ii) from $149 million to $180 million using projections provided by the Company's management which included projected acquisitions at a 6.0x purchase price; (iii) from $111 million to $142 million using projections provided by the Company's management which included projected acquisitions at a 7.0x purchase price; and (iv) from $110 million to $121 million using projections provided by the Company's management which excluded projected acquisitions. These correspond to a range of implied per share equity values (i) from approximately $15.00 to $19.50; (ii) from approximately $9.50 to $14.00; (iii) from approximately $4.00 to $8.50; and (iv) from approximately $3.75 to $5.50, respectively.
IMPLIED PER SHARE IMPLIED FIRM VALUE(1) EQUITY VALUE --------------------- ----------------- (IN MILLIONS) Based on Management Projections (including management's projected acquisitions at 5.0x EBITDA)................ $187 - $218 $14.99 to $19.56 Based on Management Projections (including management's projected acquisitions at 6.0x EBITDA)................ $149 - $180 $ 9.50 to $14.02 Based on Management Projections (including management's projected acquisitions at 7.0x EBITDA)................ $111 - $142 $ 4.02 to $ 8.48 Based on Management Projections (excluding projected acquisitions)......................................... $110 - $121 $ 3.83 to $ 5.47
- - --------------- (1) Firm value equals equity value plus debt and contingencies of $85.2 million less option proceeds of $2.0 million. Implied Private Market Valuation of the Company. Salomon Smith Barney derived an implied private market valuation for the Company based on the Company's 1998 revenues and earnings before interest, taxes, depreciation and amortization according to management data. Salomon Smith Barney reviewed publicly available information regarding 9 selected merger transactions in the physician practice management industry. The median transaction values as multiples of last twelve month revenues and last twelve months earnings before interest, taxes, depreciation and amortization in the three transactions occurring since October, 1997 were 1.5x and 6.0x, respectively. Salomon Smith Barney applied a range of multiples of 1.2x to 1.5x to 1998 revenues, resulting in a range of implied equity value per Share of $7.58 to $12.48. Salomon Smith Barney applied a range of multiples of 6.0x to 9.0x to 1998 earnings before interest, taxes, depreciation and amortization, resulting in a range of implied equity value per Share prices of $4.58 to $12.89.
IMPLIED EQUITY VALUE PER SHARE(1) ------------------ Based on 1998 Revenues.................................... $7.58 - $12.48 Based on 1998 EBITDA...................................... $4.58 - $12.89
- - --------------- (1) Equity value per Share reflects 6.916 million diluted Shares. Salomon Smith Barney is an internationally recognized investment banking firm that regularly engages in the valuation of companies and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, and corporate, estate and other purposes. The Company retained Salomon Smith Barney as a financial advisor because of its reputation, expertise in the valuation of companies and substantial experience in transactions such as the Merger. In the past Salomon Smith Barney has rendered certain investment banking services to the Company for which it has been paid fees. Pursuant to an engagement letter dated October 9, 1998, the Company agreed to pay Salomon Smith Barney (i) an opinion fee of $90,000 upon the delivery of its opinion and (ii) a transaction fee payable upon consummation of the Merger equal to 60% of (x) 1.0% of up to $100 million of the total proceeds payable to holders of Shares and Company Options in the Offer and the Merger and (y) 1.5% of any 18 21 such proceeds in excess of $100 million. Any opinion fee paid will be credited against the transaction fee. Additionally, the Company has agreed to reimburse Salomon Smith Barney for reasonable out-of pocket expenses, including, without limitation, fees and expenses of Salomon Smith Barney's legal counsel and agreed to indemnify Salomon Smith Barney and certain related persons against certain liabilities, including liabilities under the federal securities laws, related to or arising out of its engagement. In the ordinary course of business, Salomon Smith Barney or its affiliates may actively trade the securities of the Company for its own account and for the accounts' of its customers and, accordingly, at any time may hold a long or short position in such securities. Salomon Smith Barney and its affiliates (including Citigroup Inc. and its affiliates) may have other business and financial relationships with the Company and Holdings. PURPOSE AND STRUCTURE OF THE TRANSACTIONS. The purpose of the Merger Agreement and the transactions contemplated thereby is to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement in order to more promptly transfer ownership of Shares to the Purchaser. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger set forth in the Merger Agreement, Purchaser intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. As described above, the Company Board has approved the Merger and the Merger Agreement in accordance with the DGCL and rendered inapplicable the restrictions on mergers contained in Section 203 of the DGCL. Except in the case described in the next sentence, the Company Board will be required to submit the Merger Agreement to the Company's stockholders for adoption at a stockholders' meeting convened for that purpose in accordance with the DGCL. However, if the Purchaser acquires more than 90% of the outstanding Shares, the Purchaser intends to effect the Merger without a meeting of the Company's stockholders under Section 253 of the DGCL. If the Purchaser cannot effect the Merger pursuant to Section 253 of the DGCL and stockholder approval is required, under the DGCL and the Company's Certificate of Incorporation the Merger Agreement must be adopted by the affirmative vote of holders of a majority of the outstanding shares of Common Stock. If required, the Company has agreed to convene a meeting of its stockholders as soon as practicable following the consummation of the Offer for the purpose of adopting the Merger Agreement and to include in any proxy or information statement required for such meeting the unanimous recommendation of the Company Board that the Company's stockholders vote in favor of the adoption of the Merger Agreement. If the Minimum Condition is satisfied, the Purchaser will have the power, which it intends to exercise, to approve the Merger Agreement without the affirmative vote or written consent of any other stockholder. THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO ANY MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION, IF REQUIRED, WHICH THE PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE ACT. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE MINIMUM CONDITION BEING SATISFIED. Following the consummation or termination of the Offer, Purchaser or one of its affiliates may seek to acquire additional Shares through open market purchases, privately negotiated transactions, a tender or exchange offer, or otherwise, upon such terms and at such prices as it shall determine, which may be more or less than the price to be paid pursuant to the Offer. APPRAISAL RIGHTS Stockholders do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, stockholders of the Company at the time of the Merger who do not vote in favor of the adoption of the Merger Agreement will have the right under the DGCL to dissent and demand appraisal of, and receive payment in cash of the fair value of, their Shares outstanding immediately prior to the effective date of the Merger in accordance with Section 262 of the DGCL. 19 22 Under the DGCL, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of such merger or similar business combination) and to receive payment of such fair value in cash. Any such judicial determination of the fair value of such Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Stockholders should recognize that the value so determined could be higher or lower than the per Share price to be paid pursuant to the Offer or the Merger Consideration. In addition, several decisions by Delaware courts have held that in certain circumstances a controlling stockholder of a corporation involved in a merger has a fiduciary duty to other stockholders that requires that the merger be fair to other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of the consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above. However, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT PURPORT TO STATE ALL OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRES STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL. A COPY OF SECTION 262 OF THE DGCL IS ATTACHED HERETO AS SCHEDULE IV AND THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SCHEDULE IV. CERTAIN EFFECTS OF THE TRANSACTIONS. As a result of the Offer, the Purchaser will acquire an interest in the Company's net book value and net earnings to the extent of the number of Shares acquired in the Offer. If the Merger is consummated, Parent's direct and indirect common equity interest in the Company would increase to 100% and Parent would be entitled to all benefits resulting from that interest, including all income generated by the Company's operations and any future increase in the Company's value. As a result of the indebtedness to be incurred in connection with the financing of the Offer and the Merger (the "Financing"), the consolidated indebtedness (including guaranteed indebtedness) of the Company may be greater than it was prior to the Financing, the equity of the Company may be lower than its equity prior to the Financing, the interest rates on such debt may be higher than the interest rates on the Company's current consolidated indebtedness, a substantial portion of the Company's assets will be pledged to secure such indebtedness and the new debt may contain more restrictions on the Company's operations than the Company's existing consolidated debt, thereby possibly reducing the Company's financial and operating flexibility. In addition, substantial cash payments will be necessary to repay the Financing. See "SPECIAL FACTORS -- Financing of the Transactions." For other effects of the consummation of the Offer and the Merger, See SPECIAL FACTORS -- The Merger Agreement and the Management Agreement" and "Effect of the Offer on the Markets for the Shares; Nasdaq Listing; Exchange Act Registration." Following the consummation of the Offer, the Shares may be delisted from the Nasdaq Stock Market and the registration of the Shares under the Exchange Act may be terminated. If the listing of the Shares is discontinued, the markets for the Shares could be adversely affected. In addition, if the Shares were delisted or the registration of the Shares under the Exchange Act was terminated, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Board of Governors of the Federal Reserve System and, therefore, could no longer be used as collateral for loans made by brokers. See "SPECIAL FACTORS -- Effect of the Offer on the Markets for the Shares; Stock Exchange Listings and Exchange Act Registration." 20 23 The primary benefit of the Offer to stockholders of the Company is that they are being afforded an opportunity to sell all of their Shares for cash at a price which, in the opinion of Parent, Purchaser and the Company, is fair to such holders and is at a premium to the trading prices of the Shares prior to the announcement of the Offer. FUTURE PLANS IN ADDITION TO THE MERGER. It is currently expected that initially following the purchase of the Shares and the consummation of the Offer, the business and operations of the Company will continue as they currently are conducted without substantial change. Holdings will continue to evaluate all aspects of the business, operations and management of the Company during the pendency of the Offer and after the consummation of the Offer and will take such further actions as it deems appropriate under the circumstances then existing. Except as described in this Offer to Purchase, none of Purchaser, Parent, Holdings, nor, to the best knowledge of Purchaser, Parent and Holdings, any of the persons listed on Schedule III have any present plans or proposals that would relate to or result in an extraordinary corporate transaction such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries or a sale or other transfer of a material amount of assets of the Company or any of its subsidiaries, any material change in the capitalization or dividend policy of the Company or any other material change in the Company's corporate structure or business or the composition of its Company Board or management. Purchaser, Parent, Holdings and the Company expect to attempt to implement the Company's strategic plan, which among other things contemplates the growth of the Company through acquisitions. The Purchaser presently intends following the purchase of Shares pursuant to the Offer to exercise its rights under the Merger Agreement to designate a number of persons to be elected to the Company Board sufficient to give the Purchaser representation on the Company Board proportional to its percentage ownership of Shares. The Company has agreed to promptly take all action necessary to cause Purchaser's nominees to be elected, including either increasing the size of the Company Board or securing resignations of incumbent directors or both. The Company also has agreed to use its reasonable efforts to cause Purchaser to have representation on each committee of the Company Board, each board of directors of a Controlled Entity of the Company and each committee thereof equal to its representation on the Company Board. Until Purchaser acquires a majority of the outstanding Shares on a fully diluted basis, the Company has agreed to use its reasonable best efforts to ensure that all members of the Company Board and such other boards and committees as of March 24, 1999 who are not employees of the Company remain members thereof. In connection with the designation by Purchaser of representatives to the Company Board, the Company will file with the Commission and mail to its stockholders an Information Statement pursuant to Section 14(f) of the Exchange Act. INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS. In considering the recommendations of the Company Board with respect to the Offer and the Merger, stockholders of the Company should be aware that the Executives have certain interests in the transactions contemplated by the Merger Agreement that are different from, or in addition to, the interests of stockholders of the Company in general. As discussed above, the two Executives who are members of the Company Board abstained from voting on whether or not to approve such transactions and the disinterested members of the Company Board were aware of the interests of the Executives in the proposed transactions when deciding to approve the transactions. See "Special Factors -- Background of the Transactions" and "-- Recommendation of the Board of Directors; Fairness of the Transactions" and "The Tender Offer -- Section 10" ("Certain Legal Matters and Regulatory Approvals"). SUBSCRIPTION AND TENDER AGREEMENTS. Concurrently with the execution and delivery of the Merger Agreement, Parent entered into the Subscription and Tender Agreements with each of Dr. Eisenberg, Dr. Gold, Michael F. Schundler, the Chief Operating Officer and Chief Financial Officer of the Company, Jay A. Martus, the Vice President, Secretary and General Counsel of the Company, and Dr. Gilbert L. Drozdow, the Vice President -- Hospital Based Services of the Company, and the Tender Agreement with 21 24 Robert J. Coward, the Vice President-Finance of the Company. The following is a summary of the Subscription and Tender Agreements and the Tender Agreement, which summary is qualified in its entirety by reference to the Subscription and Tender Agreements and the Tender Agreement, copies of which are filed as exhibits to the Schedule 13E-3 and the Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D (the "Schedule 14D-1") filed by Holdings, Parent and Purchaser with the Commission and are incorporated herein by reference. The Subscription and Tender Agreements and the Tender Agreement provide that each Executive will validly tender his Shares in the Offer and will not withdraw any Shares so tendered; provided that the Merger Agreement has not been terminated. Each Executive also agrees, so long as such Executive is required to tender his Shares, to vote the Shares (a) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and (b) against any action or agreement that would result in a breach of any covenant, representation or warranty contained in the Merger Agreement or would impede, interfere with, delay or prevent the consummation of the Merger or the purchase of Shares pursuant to the Offer. Each Executive has agreed not to, so long as such Executive is required to tender his Shares, purport to vote (or execute a consent with respect to) such Shares (other than in accordance with the requirements of the Subscription and Tender Agreement or the Tender Agreement) or grant any proxy or power of attorney with respect to any Shares, deposit any Shares into a voting trust or enter into any agreement, arrangement or understanding with any person (other than the Subscription and Tender Agreements and the Tender Agreement), directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of such Shares, or agree to do any of the foregoing. The Subscription and Tender Agreement and the Tender Agreement also provide that no Executive shall, so long as such Executive is required to tender Shares pursuant to the Subscription and Tender Agreement or Tender Agreement, sell, transfer or otherwise dispose of, pledge or otherwise encumber any Shares after the date of such agreement (except to tender Shares to Purchaser pursuant to the Offer), or agree to do any of the foregoing. Pursuant to the Subscription and Tender Agreements, each Executive party thereto has agreed to subscribe for and purchase, and Parent has agreed to issue and sell to such Executive, on the date Purchaser purchases Shares pursuant to the Offer (the "Closing Date") a specific number of shares of Parent Common Stock at a price equal to the per Share price paid pursuant to the Offer. The Stockholders have agreed to purchase an aggregate number of shares of Parent Common Stock that are expected to constitute approximately 4.8% of the shares of Parent Common Stock expected to be outstanding upon the consummation of the Merger. Notwithstanding any other provision of the Subscription and Tender Agreements, Parent shall have no obligations to issue, sell or deliver any of its shares to any Executive (i) who is not a full-time employee of, or consultant to, Parent or any of its subsidiaries on the Closing Date, (ii) whose representations and warranties contained in his Subscription and Tender Agreement are not true and correct as of the Closing Date in all material respects or (iii) who has breached his obligations under his Subscription and Tender Agreement. The Subscription and Tender Agreements and the Tender Agreement also provide that upon the consummation of the Merger (a) Parent shall adopt the Vestar/Sheridan Holdings, Inc. 1999 Stock Option Plan (the "Option Plan") in substantially the form attached to the Subscription and Tender Agreements and the Tender Agreement and (b) Parent shall enter into stock option agreements with each Executive in substantially the forms attached to the Subscription and Tender Agreements and the Tender Agreement pursuant to which the Executives will be granted options to purchase an aggregate of 950,000 shares of Parent Common Stock, at an exercise price per share equal to the per Share price paid pursuant to the Offer, subject to the satisfaction of certain time vesting requirements or targets relating to the financial performance of the Company which are described in the option agreements. STOCKHOLDERS AGREEMENT. Concurrently with the execution and delivery of the Merger Agreement, Parent, Holdings, the Company and the Executives party to Subscription and Tender Agreements entered into the Stockholders Agreement. Mr. Coward will enter into the Stockholders Agreement upon the consummation of the Merger. The following is a summary of the Stockholders Agreement, which summary is qualified in its entirety by reference to the Stockholders Agreement, a copy of which is filed as an exhibit to the Schedule 14D-1 and the Schedule 13E-3 and is incorporated herein by reference. 22 25 Pursuant to the Stockholders Agreement, the shares of Parent Common Stock beneficially owned by the Executives and any other employees of Parent and its subsidiaries who become beneficial owners of Parent Common Stock (collectively, the "Management Investors") are subject to restrictions on transfer, as well as the other provisions described below. The Stockholders Agreement provides that Holdings and the Management Investors will vote all of their shares of Parent Common Stock to elect and continue in office a Board of Directors of Parent and each subsidiary of Parent (other than subsidiaries of the Company) consisting solely of the following: (a) three designees of Holdings; (b) two designees of the Management Investors (who shall be Mitchell Eisenberg and Lewis Gold so long as each of them is an executive officer of the Company); and (c) two persons to be designated by Holdings in its sole discretion after consultation with the representative of the Management Investors. In addition, each Management Investor has agreed that until the Lapse Date (as defined in the Stockholders Agreement), he will vote all of his shares of Parent Common Stock (i) consistent with the vote of Holdings with respect to its shares of Parent Common Stock and (ii) to ratify, approve and adopt any and all actions adopted or approved by the Board of Directors of Parent. The Stockholders Agreement provides for customary "tag-along" and "drag-along" rights with respect to shares of Parent Common Stock beneficially owned by the Management Investors. In addition, Holdings has certain rights to require Parent to register shares of Parent Common Stock held by it under the Securities Act of 1933 (the "Securities Act"), and Holdings and the Management Investors have certain rights to participate in publicly registered offerings of Parent Common Stock initiated by Parent or other third parties. The Stockholders Agreement provides that upon termination of a Management Investor's employment with Parent and its subsidiaries, (a) Parent, Holdings and the Company will have call rights with respect to shares of Parent Common Stock owned by such Management Investor and certain transferees and (b) such Management Investor and certain transferees in certain limited circumstances will have a right to put shares of Parent Common Stock to the Company. The amount paid for shares of Parent Common Stock upon a put or a call will vary depending on the reason for the termination of such Management Investor's employment. The Stockholders Agreement also contains non-competition, non-solicitation and confidentiality provisions agreed to by each Management Investor who is not party to a written employment agreement with Parent or one of its subsidiaries which contains such provisions. EMPLOYMENT AGREEMENTS. Concurrently with the execution and delivery of the Merger Agreement, the Company entered into Employment Agreements with each of Dr. Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus. The following is a summary of the Employment Agreements, which summary is qualified in its entirety by reference to the Employment Agreements, copies of which are filed as exhibits to the Schedule 14D-1 and the Schedule 13E-3 and are incorporated herein by reference. The Employment Agreements shall become effective upon the purchase of Shares pursuant to the Offer. Each Employment Agreement has a five year term with automatic one year renewals thereafter, unless either party gives the other six months' written notice prior to the end of the applicable term. The Employment Agreements supersede all prior agreements and understandings between each Executive and the Company and its affiliates; provided that it shall not supersede the Executives' rights under the Company's employee benefit plans. The Employment Agreements provide for a one-time cash bonus at the Effective Time in the amounts of $650,000, $600,000, $250,000, and $245,000 for Dr. Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus, respectively. In addition, the Employment Agreements provide for annual base salaries of $375,000, $350,000, $275,000 and $275,000 for Dr. Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus, respectively. The Company has also agreed to establish an annual incentive compensation plan pursuant to which the Executives shall be eligible to receive bonuses equal to 50%, in the case of Dr. Eisenberg and Dr. Gold, or 23 26 25%, in the case of Mr. Schundler and Mr. Martus, of their annual salaries based upon satisfaction of annual performance targets established by the Company Board. If an Executive's employment pursuant to his Employment Agreement is terminated (i) by the Company without cause (as defined in the Employment Agreements), (ii) upon the death or permanent disability of the Executive or (iii) by the Executive upon the occurrence of certain events, including the failure of the Company to pay the Executive's salary or provide certain benefits to which the Executive is entitled, certain relocations of the Company's offices or a material breach of the Employment Agreement by the Company, the Company shall make cash severance payments over a one year period following any such termination in an aggregate amount equal to the relevant Executive's base salary (twice the base salary in the case of Dr. Eisenberg and Dr. Gold) plus the pro rata portion of the annual bonus to which the Executive would otherwise have been entitled for the fiscal year in which such termination occurs if such Executive had remained employed by the Company for the entire fiscal year. In addition, Dr. Eisenberg's and Dr. Gold's Employment Agreements provide that if their employment is terminated due to any of the foregoing events within one year following a Change of Control (as defined), such Executive shall receive in addition to the severance amounts described above the excess of (A) the greater of (i) $1 million and (ii) twice the sum of such Executive's current base salary and the bonus he received in the prior year less (B) twice his current base salary. Payment of all severance amounts is subject to the Executive's continued compliance with his covenant not to compete with the Company. Each Employment Agreement also provides for termination upon mutual consent, for cause, and by the Executive upon 90 days' written notice or upon due notice not to renew at the end of his term of employment, in which event the Company has no further obligation to the Executive other than the obligations to pay accrued but unpaid salary, to provide certain continuing medical malpractice insurance coverage and to pay Executive his accrued and unpaid bonus in respect of prior completed fiscal years. If an Executive's employment is terminated because the Company decides not to renew at the end of his term of employment, such Executive shall be entitled to his accrued and unpaid salary and bonus and, provided he complies with his covenant not to compete with the Company, an amount equal to his base salary (twice the base salary in the case of Dr. Eisenberg and Dr. Gold). Each of the Executives is subject to certain non-competition, non-solicitation and confidentiality provisions with respect to the Company and its Controlled Entities (as defined in the Merger Agreement). INDEMNIFICATION. The Merger Agreement provides that for a period of six years after the Effective time the Surviving Corporation will indemnify each person who is an officer or director of the Company or its Controlled Entities on March 24, 1999 against all liabilities based upon or arising out his or her capacity as such an officer or director prior to the Effective Time, to the same extent he or she would have been indemnified under the Certificate of Incorporation or By-laws of the Company or such Controlled Entity as in effect on March 24, 1999 and to the extent permitted by law. The Surviving Corporation also is obliged to honor indemnification agreements in existence between the Company and its officers and directors. Messrs. Eisenberg, Lewis and Martus and Levey & Martus, PA and Levey, Martus & Gilbert, PA are parties to indemnification agreements with the Company with respect to certain litigation pending against them and the Company. The Merger Agreement also obligates the Surviving Corporation to maintain a specified level of directors' and officers' liability insurance for six years after the Effective Time covering acts and omissions alleged to have occurred before the Effective Time. See "Special Factors -- The Merger Agreement and the Management Agreement." EMPLOYEE BENEFITS. The Merger Agreement also requires the Surviving Corporation to maintain until the first anniversary of the consummation of the Merger benefit plans substantially comparable in the aggregate to the benefit plans in place on March 24, 1999 and disclosed to Parent. See "Special Factors -- The Merger Agreement and the Management Agreement." SHARE OWNERSHIP. As of the date hereof the Executives own the following number of Shares: Dr. Eisenberg -- 208,041; Dr. Gold -- 168,826; Mr. Schundler -- 36,200; Mr. Martus -- 10,782; 24 27 Dr. Drozdow -- 48,537; and Mr. Coward -- 0. As of the date hereof the Executives beneficially own Shares issuable upon exercise of Company Options granted to them as follows: Dr. Eisenberg -- 50,000; Dr. Gold -- 37,499; Mr. Schundler -- 37,500; Mr. Martus -- 46,174; Dr. Drozdow -- 30,000; and Mr. Coward -- 25,200. STOCK OPTIONS. Under the Merger Agreement, each option to purchase Shares (a "Company Option") outstanding immediately prior to the Effective Time shall become immediately vested. Each Company Option with an exercise price per Share less than the Merger Consideration shall automatically be converted into the right to receive cash in the amount of the product of (a) the Merger Consideration minus such exercise price, multiplied by (b) the number of Shares underlying each such Company Option. Based on Merger Consideration of $9.25, the officers and directors of the Company will receive $556,058 in the aggregate in respect of their Company Options, and Messrs. Eisenberg, Gold, Schundler, Martus, Drozdow and Coward will receive $30,168, $20,618, $185,618 $179,779, $39,551, and $86,250, respectively, in respect of their Company Options. FINANCING OF THE TRANSACTIONS. The total amount of funds required by Purchaser to purchase all of the outstanding Shares pursuant to the Offer, to consummate the proposed Merger and to pay fees and expenses related to the Offer and the proposed Merger is estimated to be approximately $158 million. Purchaser plans to obtain all funds needed for the Offer and the proposed Merger through capital contributions by Parent and its affiliates and through borrowings under two credit facilities with one or more commercial banks in respect of which Purchaser has obtained a commitment letter from NationsBank, N.A. (the "NationsBank Commitment Letter") providing for a $33.2 million senior tender offer facility (the "Tender Facility") and a $125 million permanent senior secured credit facility (the "Permanent Facilities" and, together with the Tender Facility, the "Credit Facilities"). Such commitment letter indicates the bank's willingness to provide funding on customary terms and conditions. The Offer will be financed in part pursuant to the Tender Facility, with the proposed Merger being financed in part pursuant to the Permanent Facilities, under which the Company, as the Surviving Corporation in the Merger, will be the Borrower. As used herein, "Borrower" refers to Purchaser under the Tender Facility and the Company, as the Surviving Corporation in the Merger, under the Permanent Facilities. In addition, the Borrower, in lieu of utilizing a portion of the Permanent Facilities, may choose to offer debt securities to the public on terms not yet determined, (the "Alternate Financing"). Unless the Alternate Financing is utilized, Vestar will be required to provide $20 million in junior subordinated debt financing or common or preferred equity financing in lieu thereof. Proceeds of the revolving credit portion of the Permanent Facilities may be used to finance permitted acquisitions in an amount aggregating up to $50 million; provided that, if the Alternate Financing is implemented, only $45 million of such proceeds will be available to finance permitted acquisitions and only during the first three years of the Permanent Facilities. Any debt incurred to fund the purchase of the Shares in the Offer is expected to be repaid at the Effective Time from funds obtained under the Permanent Facilities. Based upon the commitment letter and related term sheet, the Credit Facilities will contain restrictive covenants that limit the Borrower with respect to, among other things, creating liens upon its assets and disposing of material amounts of assets other than in the ordinary course of business. The Borrower will be required to prepay the Permanent Facilities from the net cash proceeds of non-ordinary course asset sales and debt and equity issuances, with certain limited exceptions. In addition, if the Alternate Financing is utilized, the Borrower will be required to prepay the Permanent Facilities with 50% of excess cash flow commencing after the third anniversary. The Borrower will also be required to meet certain financial tests under the Credit Facilities. Obligations under the Tender Facility will be guaranteed by Parent and secured by an interest in the Shares. The Permanent Facilities will be guaranteed by Parent and subsidiaries of the Borrower (the "Guarantors") and secured by substantially all present and future assets of the Borrower and the Guarantors. Purchaser has obtained a commitment letter from Vestar providing for the common equity financing required to complete the transactions and for the $20 million in junior subordinated debt financing (or common or preferred equity financing in lieu thereof) that will be required if the Alternate Financing is not utilized. 25 28 THE MERGER AGREEMENT AND THE MANAGEMENT AGREEMENT. THE MERGER AGREEMENT. The following is a summary of the Merger Agreement, which summary is qualified in its entirety by reference to the Merger Agreement, which is attached hereto as Schedule V. Capitalized terms used and not otherwise defined below have the meanings set forth in the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer and for the acceptance for payment, purchase and payment for Shares validly tendered on or prior to the expiration of the Offer and not withdrawn, subject to the satisfaction or waiver of the Offer Conditions. Purchaser has the right, in its sole discretion, to waive any such condition and make any other changes in the terms and conditions of the Offer; provided, however, without the written consent of the Company, Purchaser may not amend or waive the Minimum Condition, decrease the price per Share payable in the Offer, change the form of consideration payable in the Offer (other than by adding consideration), reduce the maximum number of Shares to be purchased in the Offer, or impose conditions to the Offer in addition to those set forth in the Merger Agreement which are materially adverse to the holders of Shares. Purchaser has the right in its sole discretion to extend the Offer for up to five business days, notwithstanding the prior satisfaction of the Offer Condition, in order to attempt to satisfy the requirements of Section 253 of the DGCL. The Merger. The Merger Agreement provides that, at the Effective Time and subject to the conditions set forth therein (including the Offer Conditions described in "The Tender Offer -- Section 9" ("Certain Conditions of the Offer") and in accordance with the provisions of the DGCL, Purchaser shall merge into the Company and the separate corporate existence of Purchaser shall cease, and the Company shall continue as the Surviving Corporation of the Merger. Certificate of Incorporation, By-laws, Directors and Officers. The Merger Agreement provides that at the Effective Time the Certificate of Incorporation of the Company as in effect immediately prior to the Effective Time shall be amended so as to read in its entirety in the form set forth as Exhibit A to the Merger Agreement and, as so amended, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter further amended as provided therein and under the DGCL. At the Effective Time, the By-laws of the Purchaser as in effect immediately prior to the Effective Time in the form set forth as Exhibit B to the Merger Agreement shall be the By-laws of the Surviving Corporation following the Merger and thereafter may be amended or repealed in accordance with their terms or the certificate of incorporation of the Surviving Corporation following the Merger and as provided under the DGCL. The Merger Agreement further provides that the directors of Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation following the Merger, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation following the Merger, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed (as the case may be) and qualified. Conversion of Securities. Pursuant to the Merger Agreement, as of the Effective Time, each Share outstanding immediately prior to the Effective Time (other than any Shares owned by Parent or Purchaser and any Dissenting Shares) shall be cancelled, extinguished and converted into the right to receive the Merger Consideration, without interest, upon surrender of the certificate formerly representing such Share in the manner described in the Merger Agreement, less any withholding taxes required under applicable law. Each share of common stock of Purchaser outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of identical common stock of the Surviving Corporation. Company Options. At the Effective Time, each Company Option outstanding immediately prior to the Effective Time shall become immediately vested. Each Company Option with an exercise price per Share less than the Merger Consideration shall automatically be converted into the right to receive cash in the amount of the product of (a) the Merger Consideration minus such exercise price, multiplied by (b) the number of Shares for which such Company Option is exercisable. All other Company Options outstanding as of the Effective Time shall automatically be terminated effective as of the Effective Time. 26 29 Dissenters' Rights. The Merger Agreement provides that any Shares outstanding immediately prior to the Effective Time held by a holder who has demanded and perfected the right, if any, for appraisal of those Shares in accordance with the provisions of Section 262 of the DGCL and as of the Effective Time has not withdrawn or lost such right to such appraisal shall not be converted into or represent a right to receive Merger Consideration, but the holder shall only be entitled to such rights as are granted by the DGCL. If a holder of Shares who demands appraisal of those Shares under the DGCL shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the Effective Time or the occurrence of such event, whichever last occurs, those Shares shall be converted into and represent only the right to receive the Merger Consideration without interest, upon the surrender of the certificate or certificates representing those Shares. Interim Operations. The Company has agreed that, from March 24, 1999 until the earlier of the termination of the Merger Agreement and the time persons nominated by Parent or Purchaser constitute a majority of the Board of Directors of the Company, except as set forth in the Company Disclosure Statement (as defined in the Merger Agreement) or unless Parent shall otherwise agree in writing, the businesses and operations of the Company and its Controlled Entities will be conducted only in the ordinary course of business and in a manner consistent with past practice. The Company has also agreed that the Company and its Controlled Entities shall use their commercially reasonable efforts during such period to preserve intact the business organization and goodwill of the Company and its Controlled Entities, to keep available the services of their present officers and employees and to maintain satisfactory relationships with those persons having business relationships with them. The Company has also agreed that the Company and its Controlled Entities shall refrain from directly or indirectly taking various actions without Parent's consent until the time persons nominated by Parent or Purchaser constitute a majority of the Company's Board of Directors. These prohibitions cover, among other things, limitations on making changes to their organizational documents, selling their capital stock or their property or assets (other than in the ordinary course of business), declaring or paying any dividend or other distribution, entering into any material agreement or transaction, including acquisitions and dispositions, incurring debt other than in the ordinary course of business beyond specified limits, making capital expenditures beyond specified limits, increasing the compensation payable to its directors, officers and employees (except normal increases in the ordinary course of business for employees who are not directors or officers of the Company), granting any severance or termination pay (except to the extent required under existing policies or agreements), changing accounting or tax policies, settling any litigation beyond specified limits, changing the composition of the Company Board, amending, modifying or terminating any rights to intellectual property, and failing to maintain the existing insurance policies covering the Company and its subsidiaries. Stockholders Meeting. Pursuant to the Merger Agreement, the Company, acting through the Company Board, shall, if required in accordance with applicable law and the Company's Certificate of Incorporation and By-Laws, (i) duly call, give notice of, convene and hold a meeting of its stockholders as soon as practicable following consummation of the Offer for the purpose of adopting the Merger Agreement (the "Stockholders Meeting") and (ii) subject to its fiduciary duties under applicable law (A) include in the proxy or information statement relating to the Stockholders Meeting the unanimous recommendation of the Company Board that the stockholders of the Company vote in favor of the adoption of the Merger Agreement and the written opinions of Salomon Smith Barney and Bowles Hollowell Conner that the consideration to be received by the stockholders of the Company pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view and (B) use its reasonable best efforts to obtain the necessary stockholder approval of the Merger Agreement. Parent and Purchaser have agreed to cause all Shares then beneficially owned by them and their subsidiaries to be voted in favor of adoption of the Merger Agreement at any Stockholders Meeting. The Merger Agreement provides that, notwithstanding the foregoing, if Purchaser acquires at least 90% of the outstanding Shares pursuant to the Offer, the Company and Parent shall, subject to the provisions of the Merger Agreement, take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's stockholders, in accordance with Section 253 of the DGCL. 27 30 Proxy Statement. The Merger Agreement provides that, if required by applicable law, as soon as practicable following Parent's request, the Company shall file with the Commission under the Exchange Act and the rules and regulations promulgated thereunder, and shall use its reasonable good faith efforts to have cleared by the Commission and mailed to the Company's stockholders, the proxy or information statement relating to the Stockholders Meeting. Parent, Purchaser and the Company have agreed to cooperate with each other in the preparation of the proxy or information statement. Without limiting the generality of the foregoing, each of Parent and Purchaser is obliged to furnish to the Company the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Proxy Statement. The Company has agreed to use its best efforts, after consultation with the other parties hereto, to respond promptly to any comments made by the Commission with respect to the proxy or information statement and any preliminary version thereof filed by it and cause such proxy or information statement to be mailed to the Company's stockholders at the earliest practicable time. Company Board Representation. The Merger Agreement provides that, promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to time thereafter, Purchaser shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board as shall give Purchaser representation on the Company Board equal to the product of the total number of directors on the Company Board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Purchaser or any affiliate of Purchaser bears to the total number of Shares then outstanding and the Company shall, at such time, promptly take all action necessary to cause Purchaser's designees to be so elected, including either increasing the size of the Company Board or securing the resignations of incumbent directors or both. The Company has agreed to use its reasonable best efforts to cause persons designated by Purchaser to constitute the same percentage as is on the Company Board of (i) each committee of the Company Board, (ii) each board of directors of each Controlled Entity of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. Until Purchaser acquires a majority of the outstanding Shares on a fully diluted basis, the Company shall use its reasonable best efforts to ensure that all the members of the Company Board and such boards and committees as of March 24, 1999 who are not employees of the Company or its Controlled Entities shall remain members of the Company Board and such boards and committees. Following the election or appointment of Purchaser's designees pursuant to the Merger Agreement and prior to the Effective Time, any amendment of the Merger Agreement or the Certificate of Incorporation or By-Laws of the Company, any termination of the Merger Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Purchaser or waiver of any of the Company's rights thereunder, will require the concurrence of a majority of the directors of the Company then in office who are neither designated by Purchaser or Parent nor are employees of the Company or any of its Controlled Entities (the "Disinterested Directors"). Notwithstanding the immediately preceding paragraph, the number of Disinterested Directors shall be not less than two; provided, however, that, in such event, if the number of Disinterested Directors is reduced below two for any reason, the remaining Disinterested Director is entitled to designate a person to fill the vacancy, and such person will be deemed to be a Disinterested Director. If no Disinterested Director remains, the other directors who were directors prior to March 24, 1999 will designate two persons to fill such vacancies who cannot be employees of any of the Company and its Controlled Entities or employees, stockholders or affiliates of Parent or Purchaser, and such persons will be deemed to be Disinterested Directors. No Solicitations. The Merger Agreement provides that neither the Company nor any of its Controlled Entities will (whether directly or indirectly through advisors, agents or other intermediaries), nor will the Company or any of its Controlled Entities authorize or permit any of its or their officers, directors, agents, representatives, advisors or subsidiaries to, (a) solicit, initiate, encourage (including by way of furnishing information) or take any action knowingly to facilitate the submission of any inquiries, proposals or offers (whether or not in writing) from any person (other than Parent and its affiliates) relating to, other than the transactions contemplated by the Merger Agreement, (i) any acquisition or purchase of 5% or more of the consolidated assets of the Company and its Controlled Entities or of any class of equity securities of the Company or any of its Controlled Entities, (ii) any tender offer (including a self tender offer) or exchange 28 31 offer that if consummated would result in any person beneficially owning any class of equity securities of the Company or any of its Controlled Entities, (iii) any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its Controlled Entities whose assets, individually or in the aggregate, constitute 5% or more of the consolidated assets of the Company, or (iv) any other transaction the consummation of which would or would reasonably be expected to impede, interfere with, prevent or materially delay the Merger or which would or would reasonably be expected to materially dilute the benefits to Parent or Purchaser of the transactions contemplated by the Merger Agreement (collectively, "Transaction Proposals"), or agree to or endorse any Transaction Proposal, or (b) enter into or participate in any discussions or negotiations regarding any of the foregoing, or furnish to any other person any information with respect to its business, properties or assets in connection with the foregoing, or otherwise cooperate in any way with, or knowingly assist or participate in, facilitate or encourage, any effort or attempt by any other person (other than any of Parent and its affiliates) to do or seek any of the foregoing; provided, however, that the foregoing shall not prohibit the Company, prior to the receipt of stockholder approval of the transactions contemplated hereby, (A) from complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a bona fide tender offer or exchange offer or (B) from participating in negotiations or discussions with or furnishing information to any person in connection with a Transaction Proposal not solicited after March 24, 1999 which is submitted in writing by such person to the Company Board after March 24, 1999; provided, however, that prior to participating in any such discussions or negotiations or furnishing any information, the Company receives from such person an executed confidentiality agreement on terms not less favorable to the Company than the Confidentiality Agreement; and provided, further, that the Company Board shall have concluded in good faith, after consultation with its outside financial advisors, that such Transaction Proposal is reasonably likely to constitute a Superior Proposal (as defined below) and, after consultation with its outside legal counsel, that participating in such negotiations or discussions or furnishing such information is required in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; and provided, further, that the Company Board shall not (unless it is prohibited from doing so by the terms of the Transaction Proposal), take any of the foregoing actions prior to two business days after it provides Parent with prompt (but in no event later than 24 hours after the occurrence or commencement of such action) written notice thereof. If the Company Board receives a Transaction Proposal, then the Company shall, to the extent not prohibited in good faith by the terms of such Transaction Proposal, promptly inform Parent of the terms and conditions of such proposal and the identity of the person making it. The Merger Agreement required the Company to cease and cause its advisors, agents and other intermediaries to cease any and all activities, discussions or negotiations with any parties conducted prior to March 24, 1999 with respect to any of the foregoing and to use its reasonable best efforts to cause any such parties in possession of confidential information about the Company that was furnished by or on behalf of the Company to return or destroy all such information in the possession of any such party or in the possession of any agent or advisor of any such party. The Company has agreed not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party. "Superior Proposal" is defined as any of the transactions described in clause (i), (ii) or (iii) of the definition of Transaction Proposal (with all of the percentages included in the definition of such term raised to 51% for purposes of the definition) with respect to which the Company Board shall have concluded in good faith, after consultation with its outside legal counsel and financial advisors, is reasonably likely to be completed, taking into account all legal, financial, regulatory and other aspects of the Transaction Proposal, including the status of the financing therefor, and the person making the proposal, and would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by the Merger Agreement, including the Merger. Employee Benefits Plans. The Merger Agreement provides that the Surviving Corporation must maintain benefit plans substantially comparable in the aggregate to the benefit plans in place on March 24, 1999 and disclosed to Parent for a period of at least one year following the Effective Time. For purposes of satisfying the terms and conditions of such plans, the Surviving Corporation must give full credit for eligibility and vesting (but not benefit accrual) for each participant's period of service with the Company prior to the Effective Time. To the extent the Surviving Corporation's benefit plans provide medical or dental welfare 29 32 benefits after the Effective Time, the Surviving Corporation must cause all pre-existing condition exclusions and actively at work requirements to be waived to the extent such exclusions and work requirements have been satisfied under medical and dental plans in place on March 24, 1999 and the Surviving Corporation must provide that any expenses incurred on or before the Effective Time will be taken into account under the Surviving Corporation's benefit plans for purposes of satisfying the applicable deductible, coinsurance and maximum out-of-pocket provisions for such employees and their covered dependents. Indemnification of Directors and Officers. The Merger Agreement provides that for a period of six years after the Effective Time the Surviving Corporation must indemnify and hold harmless, and to honor its separate indemnification agreements with, each person who is an officer or director of the Company or its Controlled Entities on March 24, 1999 (an "Indemnified Person") from and against all damages, liabilities, judgments and claims (and related expenses including, but not limited to, attorney's fees and amounts paid in settlement) based upon or arising from his or her capacity as an officer or director of the Company or its Controlled Entities prior to the Effective Time, to the same extent he or she would have been indemnified under the Certificate of Incorporation or By-laws of the Company or the applicable Controlled Entity as such documents were in effect on March 24, 1999 and to the extent permitted under applicable law. The Merger Agreement also provides that for a period of six years after the Effective Time the Surviving Corporation must maintain in full force and effect (i) the Company's directors' and officers' liability insurance policy in existence on February 19, 1999 or (ii) a substantially similar policy maintained by the Surviving Corporation providing for coverages of not less than $5,000,000 for acts and/or omissions alleged to have occurred prior to the Effective Time; provided that (x) the Surviving Corporation is not required to spend an aggregate amount for such coverage in excess of $380,000; and provided, further, that if the aggregate premiums of such insurance coverage exceed such amount, the Surviving Corporation is obligated to obtain a policy with the best coverage available, in the reasonable judgment of the Board of Directors of the Surviving Corporation, for an aggregate cost not exceeding such amount, and (y) such policies may in the sole discretion of the Surviving Corporation be one or more "tail" policies for all or any portion of the full six year period. Further Action; Reasonable Best Efforts. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, each of the parties thereto shall use its reasonable best efforts to take, or cause to be taken, all action, and to do or cause to be done, and to assist and cooperate with the parties in doing, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by the Merger Agreement and the Stockholder Documents in the most expeditious manner practicable. The Merger Agreement further provides that the Company must use its commercially reasonable best efforts to obtain all consents, approvals, agreements, extensions or other waivers of rights necessary to ensure that all Leases (as defined in the Merger Agreement) and other Material Contracts (as defined in the Merger Agreement) remain in full force and effect for the benefit of the Company after the Effective Time on substantially the same terms and conditions as in effect on the date of the Merger Agreement (without any material increase in amounts payable by the Company thereunder). The Company must file with the Internal Revenue Service a Form 3115 in form and substance satisfactory to Parent and duly executed and acknowledged requesting permission for the Company and each of the entities with which the Company files a consolidated Federal income tax return to change the method of accounting for taxable gross revenues to the non-accrual experience method as defined in Internal Revenue Code Section 448(d)(5). Representations and Warranties. The Merger Agreement contains various customary representations and warranties of the parties thereto. Representations and warranties of the Company include, without limitation, certain matters concerning the Company's capitalization, the Company's authority to execute, deliver and perform under, and the Company Board's approval of, the Offer, the Merger, the Merger Agreement, the Stockholder Documents and the transactions contemplated thereby, absence of any conflicts with charter documents and contracts, required filings and consents, compliance with law, Commission filings and financial statements, absence of certain changes or events, absence of litigation, employee benefit plans, tax matters, environmental matters, interim conduct of business, billing and coding, properties, 1998 financial statements, brokers and year 2000 issues. Some of the representations are qualified by a "Material Adverse Effect" clause. "Material Adverse Effect" means (a) any change or effect that individually or in the aggregate would be materially adverse to the business, operations, assets, liabilities, financial condition or results of 30 33 operations of such entity and its subsidiaries and controlled entities taken as a whole or (b) a material impairment on the ability of such entity or its subsidiaries and controlled entities taken as a whole to perform any of their material obligations under the Merger Agreement or to consummate the Merger. Representations and warranties of Parent and Purchaser include, without limitation, certain matters relating to their organization and qualification to do business, their authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby, their filings with the Commission in connection with the Offer, consents and approvals required for the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby, brokers and commitment letters. Some of the representations are qualified by a "Material Adverse Effect" clause. Conditions of the Merger. Under the Merger Agreement, the respective obligations of Parent and Purchaser, on the one hand, and the Company, on the other hand, to consummate the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) if required by the DGCL, the Merger Agreement shall have been adopted by the requisite vote of the stockholders of the Company; (b) no preliminary or permanent injunction or other order, decree, statute, rule or regulation by any federal or state court or federal, state, local or other governmental authority which prevents the consummation of the Merger shall have been issued and remain in effect; (c) any waiting period applicable to the consummation of the Merger under the HSR Act shall have terminated or expired; and (d) Purchaser shall have purchased Shares pursuant to the Offer. In addition, the obligations of Parent and Purchaser to effect the Merger are subject to the additional condition that funding under the Permanent Facilities in the amounts and on the other terms and conditions set forth in the NationsBank Commitment Letter shall have been received. Termination. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption of the Merger Agreement by the stockholders of the Company: (a) By mutual written consent of Parent, Purchaser and the Company; (b) By Parent or the Company, if any court of competent jurisdiction or other governmental authority located or having jurisdiction within the United States shall have issued an order, injunction, decree, judgment or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Offer or the Merger and such order, injunction, decree, judgment, ruling or other action is or shall have become final and nonappealable; (c) By Parent, if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a material breach by Parent or Purchaser of any of its obligations under the Merger Agreement), Purchaser shall have (i) terminated the Offer or (ii) failed to pay for Shares pursuant to the Offer on or prior to May 31, 1999 (the "Outside Date"); (d) By the Company, prior to the purchase of Shares pursuant to the Offer, if (i) pursuant to and in compliance with the Merger Agreement, the Company Board withdraws, modifies or amends in a manner adverse to Parent or Purchaser any of its recommendations described in the Merger Agreement (or publicly announces its intention to do so), or (ii) the Company or the Company Board approves a Superior Proposal; provided, however, that (A) the Company shall have complied with the Merger Agreement, (B) the Company Board shall have concluded in good faith, after consultation with its outside legal counsel and financial advisors, that such proposal is a Superior Proposal and (C) the Company Board shall have concluded in good faith, after consultation with its outside legal counsel, that approving and entering into an agreement in connection with, and consummating, such Superior Proposal is required in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; provided, that the Merger Agreement may not be terminated pursuant thereto unless (x) concurrently with such termination, the Company pays to Parent the Termination Fee (as hereinafter defined) and (y) the Company shall have provided Parent with at least two business days advance notice of such termination. (e) By Purchaser, prior to the purchase of Shares pursuant to the Offer, if the Company or the Company Board shall have (i) withdrawn, modified or amended in any respect adverse to Parent or 31 34 Purchaser any of its recommendations described in the Merger Agreement (or publicly announced its intention to do so), (ii) failed as promptly as reasonably practicable to mail the Company's Solicitation/Recommendation Statement on Schedule 14D-9 in respect of the Offer (the "Schedule 14D-9") to its stockholders or failed to include in such Schedule 14D-9 such recommendations, (iii) approved, recommended or entered into an agreement with respect to, or consummated, any Transaction Proposal from a person other than Parent or any of its affiliates, (iv) resolved to do any of the foregoing, or (v) in response to the commencement of any tender offer or exchange offer (other than the Offer) for outstanding Shares, not recommended rejection of such tender offer or exchange offer. (f) By the Company, prior to the purchase of Shares pursuant to the Offer, if (i) Parent or Purchaser breaches any of its representations, warranties, covenants or agreements contained in the Merger Agreement and such breach is reasonably likely to have a Material Adverse Effect on Parent and, with respect to any such breach that it is reasonably capable of being remedied, the breach is not remedied prior to the earlier of (x) 20 days after the Company has furnished Parent with written notice of such breach or (y) two business days prior to the date on which the Offer expires, or (ii) Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (unless such failure is caused by or results from the breach by the Company of any of its representations, warranties, covenants or agreements contained in the Merger Agreement). (g) By Parent, if (i) the Company breaches any of its representations, warranties, covenants or agreements contained in the Merger Agreement and such breach is reasonably likely to have a Material Adverse Effect on the Company and, with respect to any such breach that is reasonably capable of being remedied, the breach is not remedied prior to the earlier of (x) 20 days after Parent has furnished the Company with written notice of such breach or (y) two business days prior to the date on which the Offer expires, or (ii) the Minimum Condition shall not have been satisfied by the expiration date of the Offer as it may have been extended pursuant to the Merger Agreement and on or prior to such date (A) any person (including the Company but not including any of Parent and its other affiliates) shall have made a public announcement, public disclosure or other formal communication to the Company or its stockholders with respect to a Transaction Proposal or (B) any person (including the Company or any of its Controlled Entities), other than Parent or any of its affiliates, shall have become (and remain at the time of termination) the beneficial owner of 19.9% or more of the Shares (provided that any person who on March 24, 1999 beneficially owns 19.9% or more of the Shares shall not have become the beneficial owner of an additional 3% of the Shares) (unless such person shall have tendered and not withdrawn such person's Shares pursuant to the Offer). Termination Fee and Expenses. (a) The Company shall (provided that neither Parent nor Purchaser is then in material breach of its obligations under the Merger Agreement) upon the termination of the Merger Agreement if such termination shall have occurred, in whole or in part, by reason of the failure of any of the Offer Conditions set forth in paragraphs (a), (b), (d), (e), (f) and (i) thereof or the Financing Condition (unless such financing is not received due to (i) the occurrence of a material disruption of or material adverse change in financial, banking or capital market conditions, (ii) a competing offering, placement or arrangement of debt securities or bank financing by or on behalf of the Company or any Controlled Entity thereof that was undertaken by, on behalf of (with Parent's or Purchaser's consent), or at the direction of Parent or its affiliates, or (iii) a material disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general), or paragraphs (d), (e) or (f) (ii) under "Termination" above if Parent could have terminated the Merger Agreement and such termination would have occurred, in whole or in part, for any of the reasons set forth earlier in this sentence with respect to a termination pursuant to paragraphs (c) or (g) under "Termination" above, promptly, but in no event later than two business days following written notice thereof, together with reasonable supporting documentation, reimburse Parent and Purchaser, in an aggregate amount of up to $3,000,000, for all reasonable out-of-pocket expenses and fees (including fees payable to all banks, investment banking firms and other financial institutions, and their respective agents and counsel, and all fees of counsel, accountants, financial printers, advisors, experts and consultants to Parent and its affiliates), whether incurred prior to, concurrently with or after the execution of the Merger Agreement in connection with the Offer or the Merger or the consummation 32 35 of any other transaction contemplated by the Merger Agreement or the Stockholder Documents, the financing thereof or consents related thereto (collectively, the "Expenses"). Such payment, together with any Termination Fee which may be paid, shall serve as full liquidated damages in respect of such breach, and Parent and Purchaser have waived all claims against the Company and its Controlled Entities in respect of breach or breaches occasioning the payment pursuant hereto. It is understood that if Purchaser is paid a Termination Fee (as defined below), to the extent not previously paid, no amounts shall be payable as Expenses. (b) If the Merger Agreement is terminated by the Company pursuant to paragraph (d) under "Termination" or by Purchaser pursuant to paragraph (e) under "Termination" above, the Company shall pay to Parent by wire transfer of immediately available funds to an account designated by Parent on the next business day following such termination (or, in the case of a termination pursuant to paragraph (d) under "Termination" above, prior to the effectiveness of such termination) an amount equal to $6,400,000 (the "Termination Fee") less any amount previously paid to Parent in respect of Expenses. (c) If all of the following events have occurred: (i) a Transaction Proposal is commenced, publicly disclosed, publicly proposed or otherwise formally communicated to the Company or its stockholders at any time on or after March 24, 1999 but prior to any termination of the Merger Agreement and either (A) Parent terminates the Merger Agreement pursuant to paragraph (c) under "Termination" above (unless such termination shall have occurred, in whole or in part, due to the failure of the condition set forth in paragraph (c) of the Offer Conditions or of the Financing Condition due to, in the case of the failure of the Financing Condition, (i) the occurrence of a material disruption of or material adverse change in financial, banking or capital market conditions, (ii) a competing offering, placement or arrangement of debt securities or bank financing by or on behalf of the Company or any Controlled Entity thereof that was undertaken by or on behalf of (with Parent's or Purchaser's consent), or at the direction of Parent or any of its affiliates, or (iii) a material disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general) or (B) the Company terminates the Merger Agreement pursuant to paragraph (f)(ii) under "Termination" above or (C) Parent terminates the Merger Agreement pursuant to paragraph (g) under "Termination" above; and (ii) thereafter, within 12 months of the date of such termination, the Company enters into a definitive agreement with respect to, or consummates, the Transaction Proposal referred to in clause (i) above or a Superior Proposal (whether or not such Superior Proposal was commenced, publicly disclosed, publicly proposed or otherwise communicated to the Company or its stockholders prior to such termination); then, the Company shall pay to Parent, concurrently with the earlier of the execution of such definitive agreement or the consummation of such Transaction Proposal, an amount equal to the Termination Fee (less any amount previously paid to Parent in respect of Expenses). (d) Purchaser shall (provided that the Company is not then in material breach of any of its representations, warranties or obligations under the Merger Agreement), following the termination of the Merger Agreement in accordance with paragraph (f) under "Termination" above (if such termination shall have occurred by reason of a material breach by Parent or Purchaser of any of its material obligations under the Merger Agreement), promptly, but in no event later than two business days following written notice thereof, together with reasonable supporting documentation, reimburse the Company, in an aggregate amount of up to $1,000,000, for all reasonable out-of-pocket expenses and fees (including those payable to investment banking firms and other financial institutions, and their respective agents and counsel and all fees of counsel, accountants, financial printers, advisors, experts and consultants to the Company and its affiliates), whether incurred prior to, concurrently with or after the execution of the Merger Agreement, in connection with the Offer or the Merger or the consummation of any other transaction contemplated thereby or by the Stockholder Documents, the financing thereof or consents related thereto. Such payment shall serve as full liquidated damages in respect of such breach and the Company has waived, on behalf of itself and its 33 36 Controlled Entities, all claims against Parent and its affiliates in respect of the breach or breaches occasioning the payment pursuant to such provisions. (e) Except as otherwise specifically provided in the Merger Agreement, each party thereto shall bear its own expenses in connection with the Merger Agreement and the transactions contemplated thereby; provided that all expenses of Parent and Purchaser shall be paid by the Surviving Corporation at or following the Effective Time. Guaranty. Concurrently with the execution and delivery of the Merger Agreement, Vestar entered into a Guaranty Agreement with the Company pursuant to which Vestar irrevocably guaranteed the payment of Parent's obligations to the Company described in paragraph (d) under "Termination Fee and Expenses." The foregoing summary of the Guaranty Agreement is qualified in its entirety by reference to the Guaranty Agreement, a copy of which is filed as an exhibit to the Schedule 14D-1 and the Schedule 13E-3 and is incorporated herein by reference. MANAGEMENT AGREEMENT. Concurrently with the execution and delivery of the Merger Agreement, Vestar Capital Partners, a New York general partnership affiliated with Vestar ("Vestar Capital"), the Company and Parent entered into a Management Agreement (the "Management Agreement"). The following is a summary of the Management Agreement, which summary is qualified in its entirety by reference to the Management Agreement, a copy of which is filed as an exhibit to the Schedule 14D-1 and the Schedule 13E-3 and is incorporated herein by reference. Pursuant to the Management Agreement, Vestar Capital has agreed commencing upon the Effective Time to render to each of Parent and the Company (and their subsidiaries) certain advisory and consulting services. In consideration of those services, Parent and the Company jointly and severally agreed to pay to Vestar Capital an aggregate per annum management fee equal to the greater of (i) $300,000 and (ii) an amount per annum equal to 1.5% of the consolidated earnings before depreciation, interest, taxes and amortization of Parent and its subsidiaries for such fiscal year, determined in accordance with generally accepted accounting principles, commencing at the Effective Time. Parent and the Company also jointly and severally agreed to pay Vestar Capital at the Effective Time a transaction fee equal to $1.6 million plus all out-of-pocket expenses incurred by Vestar Capital prior to the Effective Time for services rendered by Vestar Capital in connection with the consummation of the Offer and the Merger. Parent and the Company also jointly and severally agreed to indemnify Vestar Capital and its affiliates from and against all losses, claims, damages and liabilities arising out of the performance by Vestar Capital of its services pursuant to the Management Agreement. The Management Agreement shall terminate upon the earlier to occur of (i) the termination of the Merger Agreement or (ii) such time after the Effective Time as Vestar Capital and its partners and their respective affiliates thereof hold, in the aggregate, less than 20% of the voting power of the Company's outstanding voting stock. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The summary of tax consequences set forth below is for general information only and is based on the law as currently in effect. The tax treatment of each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, insurance companies, foreign corporations, foreign partnerships, foreign trusts, foreign estates, persons who are not citizens or residents of the United States, tax- exempt entities, stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who received payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS. The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and may also be a taxable transaction under applicable state, local, foreign income or other tax laws. Generally, for federal income tax purposes, a stockholder will recognize gain or loss in an amount equal to the difference between the cash 34 37 received by the stockholder pursuant to the Offer or the Merger and the stockholder's adjusted tax basis in the Shares purchased pursuant to the Offer or converted into cash in the Merger. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted in the Merger, as the case may be. For Federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year as of the date Purchaser accepts such Shares for payment pursuant to the Offer or the Effective Time of the Merger, as the case may be. In the case of a non-corporate stockholder, capital gain is currently eligible for a maximum Federal income tax rate of 20% (10% for non-corporate stockholders in the 15% tax bracket) if the Shares were held for more than one year. There are limitations on the deductibility of capital losses. EFFECTS OF THE OFFER ON THE MARKETS FOR THE SHARES; NASDAQ LISTING; EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Following the completion of the Offer, a majority of the outstanding Shares will be owned by Purchaser. Depending upon the number of Shares purchased pursuant to the Offer, the Common Stock may no longer meet the requirements of the National Association of Securities Dealers, Inc. (the "NASD") for continued inclusion in Nasdaq, which requires that for each class of shares listed by an issuer, there must be at least 200,000 publicly held shares, held by at least 400 stockholders or 300 stockholders of round lots, with a market value of at least $1,000,000 and the issuer must have net tangible assets of at least $1,000,000, $2,000,000 or $4,000,000, depending on profitability levels during the issuer's four most recent fiscal years. If these standards are not met, the Common Stock might nevertheless continue to be included in the NASD's Nasdaq Stock Market (the "Nasdaq Stock Market") with quotations published in Nasdaq "additional list" or in one of the "local lists," but if the number of holders of the Common Stock were to fall below 300, or if the number of publicly held shares of Common Stock were to fall below 100,000 or there were not at least two registered and active market makers for the Common Stock, the NASD's rules provide that the Common Stock would no longer be "qualified" for Nasdaq Stock Market reporting and Nasdaq Stock Market would cease to provide any quotations with respect thereto. Shares of Common Stock held directly or indirectly by directors, officers or beneficial owners of more than 10% of the outstanding Common Stock are not considered as being publicly held for this purpose. As of March 16, 1999, there were approximately 950 holders of record or through nominee or street name accounts with brokers of Common Stock and there were 6,290,178 shares of Common Stock outstanding. As of March 24, 1999 there was one holder of all outstanding shares of Class A Common Stock. If as a result of the purchase of Shares pursuant to the Offer or otherwise, the Common Stock no longer meets the requirements of the NASD for continued inclusion in Nasdaq or in any other tier of Nasdaq Stock Market and the Common Stock is no longer included in Nasdaq or in any other tier of Nasdaq Stock Market, as the case may be, the market for Common Stock could be adversely affected. If Nasdaq were to delist the Common Stock, it is possible that the Common Stock would continue to trade in the over-the-counter market and that price or other quotations would be reported through other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Common Stock on the part of the securities firms, the possible termination of registration under the Exchange Act as described below and other factors. Purchaser cannot predict whether the reduction in the number of shares of Common Stock that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of Common Stock or whether it would cause future market prices to be greater or less than the Offer price. The Common Stock is currently registered under the Exchange Act and the Class A Common Stock is not so registered. The purchase of Shares pursuant to the Offer may result in the Common Stock becoming eligible for deregistration under the Exchange Act. Registration of the Common Stock may be terminated upon application of the Company to the Commission if the Common Stock is not listed on a national 35 38 securities exchange and there are fewer than 300 holders of record. The termination of the registration of the Common Stock under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of shares of Common Stock and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Common Stock or the holders thereof, as the case may be. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of the securities pursuant to Rule 144 under the Securities Act. The shares of Common Stock, but not the Class A Common Stock, are currently "margin securities" under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Common Stock for the purpose of buying, carrying or trading in securities ("purpose loans"). Depending upon factors similar to those described above with respect to listing and market quotations, it is possible that, following the Offer, the Common Stock might no longer constitute "margin securities" for the purpose of the Federal Reserve Board's margin regulations and therefore could no longer be used as collateral for purpose loans made by brokers. 36 39 THE TENDER OFFER 1. Terms of the Offer; Expiration Date. Upon the terms and subject to the conditions of the Offer (including if the Offer is extended or amended, the terms and conditions of such extension or amendment), Purchaser will accept for payment, purchase and pay for all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn as permitted by Section 4 ("Withdrawal Rights"). The term "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, April 27, 1999, unless and until Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE MINIMUM CONDITION AND THE FINANCING CONDITIONS. SEE SECTION 9 ("CERTAIN CONDITIONS OF THE OFFER"), WHICH SETS FORTH IN FULL THE OFFER CONDITIONS. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, PURCHASER RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION) AND TO MAKE ANY OTHER CHANGES IN THE TERMS AND CONDITIONS OF THE OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE ANY OR ALL OF SUCH OFFER CONDITIONS HAVE NOT BEEN SATISFIED, PURCHASER RESERVES THE RIGHT (BUT SHALL NOT BE OBLIGATED) TO (i) TERMINATE THE OFFER AND RETURN ALL TENDERED SHARES TO TENDERING STOCKHOLDERS, (ii) WAIVE SUCH UNSATISFIED CONDITIONS (OTHER THAN THE MINIMUM CONDITION) AND PURCHASE ALL SHARES VALIDLY TENDERED OR (iii) EXTEND THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN TENDERED, UNTIL THE OFFER, AS SO EXTENDED BY PURCHASER, SHALL EXPIRE. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the Commission, Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the Offer Conditions shall have occurred or shall have been determined by Purchaser to have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Under the terms of the Merger Agreement, however, without the written consent of the Company, Purchaser may not amend or waive the Minimum Condition, decrease the price per Share payable in the Offer, change the form of consideration payable in the Offer (other than by adding consideration), reduce the maximum number of Shares to be purchased in the Offer, or impose conditions to the Offer in addition to those set forth in the Merger Agreement which are materially adverse to the holders of Shares. Purchaser shall have no obligation to pay interest on the purchase price of tendered Shares, including in the event Purchaser exercises its right to extend the period of time during which the Offer is open. The foregoing rights reserved by Purchaser are in addition to Purchaser's rights to terminate the Offer upon the failure of the Offer Conditions to be satisfied on the Expiration Date. Notwithstanding the foregoing, Purchaser shall extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer, and Purchaser may extend the Offer for up to the five business days, notwithstanding the prior satisfaction of the Offer Conditions, in order to attempt to satisfy the requirements of Section 253 of the DGCL. Subject to the terms and conditions of the Offer, Purchaser will accept for payment, purchase and pay for all Shares validly tendered and not withdrawn as soon as it is permitted to do so in accordance with the provisions of the Merger Agreement and under applicable law. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, and such announcement in the case of an extension will be made in accordance with Rule 14e-1(d) under the Exchange Act, no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Purchaser may choose to make any public announcement, except as provided by applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that material changes be promptly disseminated to holders of Shares), Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. 37 40 If Purchaser makes a material change in the terms of the Offer or if it waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the Offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the materiality, of the changes. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought, a minimum 10 business day period from the day of such change is generally required to allow for adequate dissemination to stockholders. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday, or a federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time. The Company has provided Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. The obligation of Purchaser to accept for payment Shares tendered shall be subject to the satisfaction of the Offer Conditions. Purchaser covenants and agrees that, subject to the terms and conditions of the Merger Agreement, including the Offer Conditions, it will accept for payment and pay for Shares validly tendered and not withdrawn pursuant to the Offer as promptly as reasonably practicable. In addition, subject to the applicable rules of the Commission, Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares pending receipt of any other regulatory approvals specified in Section 10 ("Certain Legal Matters and Regulatory Approvals"). Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act. For information with respect to approvals required to be obtained prior to the consummation of the Offer, including the HSR Act, see Section 10 ("Certain Legal Matters and Regulatory Approvals"). In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing such Shares ("Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 ("Procedure for Tendering Shares"), (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to and received by the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID OR ACCRUED FOR THE BENEFIT OF HOLDERS OF SHARE CERTIFICATES ON THE PRICE PER SHARE PAYABLE UPON THE SURRENDER OF THE SHARE CERTIFICATES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any reason acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed or Purchaser is unable to accept for payment or pay for Shares 38 41 tendered pursuant to the Offer, then without prejudice to Purchaser's rights set forth herein, the Depositary may nevertheless, on behalf of Purchaser and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to and duly exercises withdrawal rights as described in Section 4 ("Withdrawal Rights"). If any tendered Shares are not accepted for payment for any reason or if Share Certificates are submitted for more Shares than are tendered, Share Certificates evidencing unpurchased or untendered Shares will be returned without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3 ("Procedure for Tendering Shares"), such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES. Valid Tenders. Except as set forth below, in order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at its address set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date and either (i) Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date or (ii) the guaranteed delivery procedures described below must be complied with. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each such delivery. Book-Entry Transfer. The Depositary will make a request to establish accounts with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by the Letter of Transmittal, must in any case be received by the Depositary at its address set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and 39 42 brokerage houses) which is a member of a recognized Medallion Program approved by The Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange, Inc. Medallion Signature Program (MSP) (any such financial institution an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder of the Shares tendered and such holder has not completed the box entitled "Special Payment Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the Share Certificates are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or Share Certificates not accepted for payment or not tendered are to be returned, to a person other than the registered holder, the Share Certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name of the registered holder appears on such certificates, with the signatures on such certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 of the Letter of Transmittal. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and any other documents required by the Letter of Transmittal must accompany each such delivery. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available, or such stockholder cannot deliver the Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by Purchaser is received by the Depositary as provided below on or prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation), representing all tendered Shares in proper form for transfer, together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three Nasdaq trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution and a representation that the stockholder owns the Shares tendered within the meaning of, and that the tender of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of Share Certificates for, or of Book-Entry Confirmation with respect to, such Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Accordingly, payment might not be made to all tendering stockholders at the same time and will depend upon when Share Certificates or Book-Entry Confirmations of such Shares are received into the Depositary's account at the Book-Entry Transfer Facility. Appointment as Proxy. By executing the Letter of Transmittal, a tendering stockholder irrevocably appoints designees of Purchaser and each of them as such stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such 40 43 stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Purchaser (and with respect to any and all other Shares, other securities or rights issued or issuable in respect of such Shares on or after the date hereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of Purchaser will, with respect to the Shares for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Purchaser also reserves the absolute right to waive any defect or irregularity in any tender of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, the Parent, Holdings, any of their affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the "backup withholding" provisions of federal income tax law, the Depositary may be required to withhold 31% of the amount of any payments of cash pursuant to the Offer. In order to avoid backup withholding, each stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the payor of such cash with such stockholder's correct taxpayer identification number ("TIN") on a substitute Form W-9 and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the substitute Form W-9 included in the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Depositary). Certain stockholders (including among others all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. Other Requirements. Purchaser's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and Purchaser upon the terms and subject to the conditions of the Offer, including the tendering stockholder's representation and warranty that the stockholder is the holder of the Shares within the meaning of, and that the tender of the Shares complies with, Rule 14e-4(a)(4) under the Exchange Act. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable except that they may be withdrawn after May 29, 1999 unless theretofore accepted for payment as provided in this Offer to Purchase. If Purchaser 41 44 extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except as otherwise described in this Section 4. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at its address set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the class and number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of the certificates, the name of the registered holder (if different from the tendering stockholder) and the serial numbers shown on such certificates must be submitted to the Depositary, together with a signed notice of withdrawal, the signatures on which must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 ("Procedures for Tendering Shares"), any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. Purchaser reserves the absolute right to reject any and all withdrawals determined by it not to be in proper form. Purchaser also reserves the absolute right to waive any defect or irregularity in any withdrawal of Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No withdrawal of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, the Parent, Holdings, any of their affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3 ("Procedures for Tendering Shares"). 5. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's 1998 Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 Annual Report"), the Shares are listed and traded on Nasdaq under the symbol "SHCR". The following table sets forth, for the quarters indicated, the high and low sales prices per Share on Nasdaq with respect to periods occurring in 1997 and 1998 as reported by the Dow Jones News Service. The Company has never paid any dividends on Shares.
HIGH LOW ---- --- YEAR ENDED DECEMBER 31, 1997: First Quarter............................................. $10 1/16 $ 5 5/8 Second Quarter............................................ 11 1/4 7 Third Quarter............................................. 13 5/8 10 1/8 Fourth Quarter............................................ 16 1/2 12 1/4 YEAR ENDED DECEMBER 31, 1998: First Quarter............................................. $17 1/2 $12 3/4 Second Quarter............................................ 17 11 Third Quarter............................................. 12 1/2 8 9/16 Fourth Quarter............................................ 9 1/4 6 1/2
On March 24, 1999, the last full trading day prior to announcement of the execution of the Merger Agreement, the closing sale price per Share reported on Nasdaq was $8.50. On March 30, 1999, the last full 42 45 trading day before commencement of the Offer, the closing sale price per Share reported on Nasdaq was $8.75. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. 6. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including without limitation financial information, information concerning the background of the transactions contemplated by the Merger Agreement, the recommendation of the Company Board, the presentations, analyses and opinions of the Financial Advisors and the interests of certain directors and officers of the Company in the transactions contemplated by the Merger Agreement, has been furnished by the Company or its representatives or taken from or based upon publicly available reports on file with the Commission and other public sources. The summary information set forth below is qualified in its entirety by reference to such publicly available information (which may be obtained and inspected as described below) and should be considered in conjunction with the more comprehensive financial and other information in such reports and other publicly available documents filed by the Company with the Commission and other publicly available information. Although Purchaser, Parent and Holdings do not have any knowledge that would indicate that any statements contained herein based upon such information is untrue, neither Purchaser, Parent nor Holdings assumes any responsibility for the accuracy or completeness of such information, or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but which are unknown to Purchaser, Parent and Holdings. General. The Company was incorporated in Delaware in January 1994. The Company's principal executive offices are located at 4651 Sheridan Street, Suite 400, Hollywood, Florida 33021. The telephone number of the Company at such offices is (954) 987-5822. The Company is a physician practice management company which provides and manages practices which provide specialist physician services at hospitals and ambulatory surgical facilities in the areas of anesthesia, neonatology, pediatrics, obstetrics and emergency services and owns and operates, or manages, office-based obstetrical, general surgical, gynecologic-oncology, pain management, perinatology and primary care practices. The Company derives substantially all of its revenue from the medical services provided by the physicians who are employed by the Company or whose practices are managed by the Company. The Company generates revenue from its specialist physician services by directly billing third-party payors or patients on a fee-for-service or discounted fee-for-service basis. In addition, several hospitals at which the Company provides specialist physician services pay subsidies to the Company to supplement revenue from billings to third-party payors. The Company generates revenue from its office-based physician services pursuant to various payment arrangements, including shared-risk capitation arrangements, fee-for-service or discounted fee-for-service arrangements and other capitation arrangements. The Company's objective is to expand its business by increasing the number of hospitals and other health care facilities at which it provides specialist physician services, providing physician services in additional specialties to existing hospital customers and acquiring additional physician practices. One of the Company's key strategies is to create integrated networks providing women's and children's healthcare services, consisting of both hospital-based and office-based physicians in various complementary specialties that support the Company's hospital customers. As of March 12, 1999, the Company employed, or managed the practices of, approximately 237 full-time equivalent physicians practicing under 55 specialty service contracts with 38 health care facilities and at 28 office locations. Certain information concerning the directors and executive officers of the Company is set forth in Schedule II hereto. Financial Information. Set forth below are certain selected consolidated financial data for the Company which was derived from the 1998 Annual Report. More comprehensive financial information (including management's discussion and analysis of financial condition and results of operations) is included in the reports and other documents filed by the Company with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes contained therein and set forth in Schedule I hereto. Such reports and other documents may 43 46 be examined and copies thereof may be obtained from the offices of the Commission and Nasdaq in the manner set forth below. SHERIDAN HEALTHCARE, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL YEAR ENDED DECEMBER 31, ---------------------------------------- 1998 1997 1996 ----------- ---------- ----------- INCOME STATEMENT DATA Net revenue................................................. $112,990 $98,616 $ 92,767 Operating expenses: Direct facility expenses.................................. 76,350 68,919 66,125 Provision for bad debts................................... 5,592 4,066 3,605 Salaries and benefits..................................... 7,722 7,424 6,967 General and administrative................................ 4,177 4,900 4,561 Write-down of office-based net assets..................... -- -- 17,360 Amortization.............................................. 3,572 2,096 2,491 Depreciation.............................................. 807 689 1,023 -------- ------- -------- Operating income (loss)..................................... 14,770 10,522 (9,365) Interest expense, net....................................... 3,955 2,461 2,572 Other expense............................................... (628) -- -- -------- ------- -------- Income (loss) before income taxes and extraordinary item.... 11,443 8,061 (11,937) Income tax expense (benefit)................................ 5,070 2,894 189 -------- ------- -------- Net income (loss)......................................... $ 6,373 $ 5,167 $(12,126) ======== ======= ======== Net income (loss) per share: Basic..................................................... $ 0.80 $ 0.77 $ (1.84) Diluted................................................... 0.78 0.73 (1.84) BALANCE SHEET DATA (AT PERIOD END) Working capital............................................. $ 21,079 $13,650 $ 8,336 Total assets................................................ 139,810 87,035 73,408 Long-term debt, net of current portion...................... 56,994 29,833 21,367 Stockholders' equity........................................ 67,547 41,350 35,958
- - --------------- According to the Company, the ratios of earnings to fixed charges for the years ended December 31, 1998 and 1997 were 3.44 to 1.00 and 2.39 to 1.00, respectively, and the book value per Share as of December 31, 1998 was $8.22. Certain Projections and Other Information. The Company does not as a matter of course make public forecasts as to future sales or earnings. However, in connection with the proposed sale of the Company, the Financial Advisors distributed in December, 1998 to a select group of potential purchasers (including Vestar) a Confidential Information Memorandum which included projections of the Company's financial performance from 1998 to 2003. A summary of the projections which were included in the Confidential Information Memorandum is set forth below. The projections have not been updated to, among other things, reflect actual 1998 results, and do not give effect to the Offer, the Merger or the Financing. 44 47
1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- (IN MILLIONS) Total Revenue.......................... $113.8 $172.8 $216.4 $264.6 $313.5 $380.0 EBITDA................................. $20.4 $32.1 $40.6 $52.7 $67.0 $82.9 Net Income............................. $6.5 $9.9 $12.4 $17.2 $22.8 $28.8 Earnings Per Share (on a fully diluted basis)............................... $0.78 $0.91 $1.06 $1.43 $1.88 $2.36
The following assumptions, among others, were used by management of the Company and its subsidiaries in developing the foregoing projections: 1. The Company would complete acquisitions between January 1999 and October 2003 with an aggregate purchase price of $250 million. Such acquisitions would increase EBITDA by $50.0 million (at the time of acquisition without giving effect to subsequent internal growth and efficiencies), and would create $226.0 million of goodwill. Such goodwill would be amortized over 25 years. 2. The internal growth rate of the Company's existing business would be 10% per annum excluding the effect of hospital contracts, the termination of which is presently anticipated. 3. Adequate capital would be available from a variety of sources to fund the Company's acquisitions and start-up projects. 4. Salaries and benefits and general and administrative expenses are projected to grow at annual inflation rates of 2.5% in 1999 and 3.0% from 2000 to 2003. BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE ABOVE PROJECTIONS ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES BEYOND THE COMPANY'S CONTROL, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS COULD BE REALIZED, OR THAT ACTUAL RESULTS WOULD NOT BE HIGHER OR LOWER THAN THOSE PROJECTED. MOREOVER, THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. UNDER NO CIRCUMSTANCES SHOULD THE INCLUSION OF THE ABOVE PROJECTIONS BE REGARDED AS A REPRESENTATION, WARRANTY OR PREDICTION THAT ANY PARTICULAR RESULT WILL BE ACHIEVED OR THAT THE COMPANY, PURCHASE, PARENT, HOLDINGS OR VESTAR CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS OR THAT THE PURCHASER, PARENT, HOLDINGS OR VESTAR AGREES WITH THE ASSUMPTIONS UNDERLYING SUCH PROJECTIONS. THE PROJECTIONS ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION WAS CONTAINED IN THE CONFIDENTIAL INFORMATION MEMORANDUM PROVIDED TO VESTAR AND OTHER POTENTIAL PURCHASERS OF THE COMPANY. Available Information. The Common Stock registered under the Exchange Act. Accordingly, the Company is subject to the informational filing requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained at the Web site that the Commission maintains at http://www.sec.gov. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should also be available for inspection at the library of Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006. 7. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND HOLDINGS. Purchaser, a Delaware corporation and a wholly owned subsidiary of Parent, was organized for the sole purposes of entering into the Merger Agreement and consummating the transactions contemplated thereby, including making the Offer, and has 45 48 not carried on any activities to date other than those incident to its formation, entering into the Merger Agreement and certain other agreements contemplated thereby, and the commencement of the Offer. On March 26, 1999 Purchaser changed it name from Vestar/Calvary, Inc. to Vestar/Sheridan, Inc. Parent, a Delaware corporation and a wholly owned subsidiary of Holdings, was organized for the sole purposes of entering into the Merger Agreement and consummating the transactions contemplated thereby, including making the Offer, and has not carried on any activities to date other than those incident to its formation, entering into the Merger Agreement and certain other agreements contemplated thereby, and the commencement of the Offer. On March 26, 1999 Parent changed its name from Vestar/Calvary Holdings, Inc. to Vestar/Sheridan Holdings, Inc. Holdings, a Delaware limited liability company and a wholly owned subsidiary of Vestar, was organized for the sole purpose of effectuating the transactions contemplated by the Merger Agreement, and has not carried on any activities to date other than those incident to its formation, entering into certain agreements contemplated by the Merger Agreement and the commencement of the Offer. On March 26, 1999, Holdings changed its name from Vestar/Calvary Investors, LLC to Vestar/Sheridan Investors, LLC. Vestar is a Delaware limited partnership formed in 1996 principally for the purpose of investing in securities. The sole general partner of Vestar is Vestar Associates III, L.P. ("VA III"), a Delaware limited partnership. VA III is principally engaged in the business of investing in securities. The sole general partner of VA III is Vestar Associates Corporation III ("VAC III"), a Delaware corporation. VAC III is principally engaged in the business of investing in securities. At the Effective Time, it currently is anticipated that Parent Common Stock will be owned approximately 95.2% by Holdings and 4.8% by the Management Investors. Each of VAC III, VA III, Vestar, Holdings, Parent and Purchaser have their principal executive offices at 245 Park Avenue, 41st Floor, New York, New York 10167. The telephone number for each of VAC III, VA III, Vestar, Holdings, Parent and Purchaser is (212) 351-1600. Except as set forth in this Offer to Purchase (i) none of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, nor, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the persons listed in Schedule III or any associate or majority owned subsidiary of any of the foregoing or any pension, profit sharing or similar plan of Purchaser, Parent, Holdings, Vestar, VA III or VAC III, beneficially owns or has a right to acquire any Shares or any other equity securities of the Company, (ii) none of Purchaser, Parent, Holdings, Vestar, VA III and VAC III nor, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the other persons or entities referred to in clause (i) above, has effected any transaction in the Shares or any other equity securities of the Company during the past 60 days, (iii) none of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, nor, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the other persons or entities listed in clause (i) above, has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company, including but not limited to the transfer or voting thereof, joint ventures, loan or option agreements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of properties, consents or authorizations, (iv) there have been no transactions which could require reporting under the rules and regulations of the Commission between Purchaser, Parent, Holdings, Vestar, VA III or VAC III or, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the other persons or entities listed in clause (i) above, on the one hand, and the Company or any of its executive officers, directors or affiliates, on the other hand, and (v) there have been no contracts, negotiations or transactions between Purchaser, Parent, Holdings, Vestar, VA III and VAC III or, to the best knowledge of Purchaser, Parent, Holdings, Vestar, VA III and VAC III, any of the other persons or entities listed in clause (i) above, on the one hand, and the Company or any of its subsidiaries or affiliates, on the other hand, concerning a merger, consolidation, acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets of the Company. 46 49 For certain other information concerning VAC III, Holdings, Purchaser and Parent, see Schedule III. 8. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the date of the Merger Agreement, split, combine or otherwise change the Shares or its capitalization, or disclose that it has taken any such action, then without prejudice to Purchaser's rights under Section 9 ("Certain Conditions of the Offer"), Purchaser may make such adjustments to the purchase price and other terms of the Offer as it deems appropriate to reflect such split, combination or other change. If on or after March 24, 1999, the Company should declare or pay any cash or stock dividend or other distribution on, or issue any rights with respect to, the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of Purchaser or the nominee or transferee of Purchaser on the Company's stock transfer records of such Shares that are purchased pursuant to the Offer, then without prejudice to Purchaser's rights under Section 9 ("Certain Conditions of the Offer"), (i) the purchase price payable per Share by Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution (including additional Shares) or right received and held by a tendering stockholder shall be required to be promptly remitted and transferred by the tendering stockholder to the Depositary for the account of Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance or appropriate assurance thereof, Purchaser will, subject to applicable law, be entitled to all rights and privileges as the owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. 9. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer (whether or not any Shares have theretofore been purchased or paid for) if, prior to the expiration of the Offer, (i) a number of Shares which, together with any Shares owned by Parent or Purchaser, or any controlled affiliate thereof, constitutes at least a majority of the voting power (determined on a fully diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer, (ii) (A) Purchaser shall not have received funding for the Offer (1) sufficient to pay for all Shares tendered pursuant to the Offer and not validly withdrawn and to pay all fees and expenses related to the Offer and (2) otherwise on the terms and subject to the conditions set forth in the NationsBank Commitment Letter and (B)(1) the Permanent Facilities (as defined in the NationsBank Commitment Letter) shall not have been fully executed and delivered or shall not be in full force or effect or (2) all conditions to funding under the Permanent Facilities that are required to be, or are capable of being, satisfied prior to the purchase of the Shares pursuant to the Offer shall not have been satisfied or (3) there is reason to believe that any of the other conditions to funding under the Permanent Facilities will not be satisfied prior to the termination of the Merger Agreement or the Permanent Facilities, or (iii) at any time on or after March 24, 1999 and prior to the acceptance for payment of Shares, any of the following conditions occurs or has occurred or Purchaser makes a good faith determination that any of the following conditions has occurred: (a) there shall be pending or threatened any governmental authority any suit, action or proceeding, or any preliminary or permanent injunction or order, decree, statute, rule or regulation shall have been entered by any federal or state court or other governmental authority, or statute, rule, regulation, legislation, interpretation, judgment or order proposed, sought, enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Parent or the Company or any affiliate of Parent or the Company or the Offer or the Merger, (i) challenging or seeking to restrain or prohibit or make materially more costly the making of the Offer, the acceptance for payment of, payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of any of the other transactions contemplated by the Merger Agreement or seeking to materially delay the Merger or obtain from Parent or any of its affiliates material damages; (ii) seeking to prohibit or limit the ownership or operation by the 47 50 Company or any of its Controlled Entities or Parent or any of Parent's affiliates of all or any material portion of the business or assets of the Company or any of its Controlled Entities or Parent, or any of its affiliates, or seeking to compel Parent, Purchaser or any of Parent's abilities to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its Controlled Entities or Parent or any of its affiliates; (iii) seeking to impose or confirm limitations on the ability of Parent or any of Parent's affiliates effectively to acquire or hold or to exercise full rights of ownership of Shares, including without limitation the right to vote any Shares on all matters properly presented to the stockholders of the Company, including without limitation the adoption of the Merger Agreement, or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; or (iv) seeking to require divestiture by Parent or any of Parent's affiliates of any Shares; (b) there shall have occurred any event that has had or would be reasonably likely to have a Material Adverse Effect on the Company; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) a decline of at least 25% in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 index from the date of the Merger Agreement, (iii) any material adverse change or any existing or threatened condition, event or development involving a prospective material adverse change in United States or other material international currency exchange rates or a suspension of, or limitation on, the markets therefor, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or any other event that, in the reasonable judgment of Purchaser, could reasonably be expected to materially adversely affect the extension of credit by banks or other lending institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States (except for any such event involving Serbia or Iraq) or materially adversely affecting (or materially delaying) the consummation of the Offer or (vii) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; (d) All material licenses, permits, consents, authorizations, qualifications, orders and approvals of (or filings with) any governmental authority or other third party (including, without limitation, the consents of the Company's creditors and of South Broward Hospital District) required to be obtained, made or received in connection with the execution, delivery and performance of the Merger Agreement by the Company and the consummation by the Company of the transactions contemplated thereby shall not have been obtained, made or received in form and substance reasonably satisfactory to Parent; (e) any of the representations and warranties of the Company contained in the Merger Agreement shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of such determination; (f) the Company shall have failed to perform in any material respect any agreement of the Company contained in the Merger Agreement that is required to be performed by it prior to the time of such determination; (g) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (h) any waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated; or (i) to the Company's knowledge, the Company or a Controlled Entity of the Company is under investigation for any violation of the "Stark" laws, anti-kickback laws or the laws relating to Medicare, Medicaid, Champus or any rules or regulations related thereto: which, in the reasonable judgment of Purchaser with respect to each and every matter referred to above and regardless of the circumstances (including any action or inaction by Purchaser or any of its affiliates other than 48 51 a breach of the Merger Agreement) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 10. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. General. Except as set forth below, based upon its examination of publicly available filings by the Company with the Commission and other publicly available information concerning the Company, none of Purchaser, Parent and Holdings is aware of any licenses or other regulatory permits that appear to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein, or of any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect acquisition of the stock of the Company's subsidiaries) by Purchaser pursuant to the Offer as contemplated herein. Should any such approval or other action be required, it is Purchaser's present intention to seek such approval or action. However, Purchaser does not presently intend to delay the purchase of Shares tendered pursuant to the Offer pending the receipt of any such approval or the taking of any such action (subject to Purchaser's right to delay or decline to purchase Shares if any of the Offer Conditions in Section 9 shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without the imposition of substantial conditions that must be complied with or that adverse consequences might not result to the business of the Company, Holdings, Parent or Purchaser as a result of the imposition of such conditions or in the event that such approval was not obtained or such other action was not taken, any of which could cause Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in Section 9 ("Certain Conditions of the Offer"). State Takeover Laws. Except as described herein with respect to Section 203 of the DGCL, Purchaser has not attempted to comply with any state takeover statutes in connection with the Offer. Purchaser reserves the right to challenge the validity or applicability of any state law allegedly applicable to the Offer and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that any state takeover statute is found applicable to the Offer, Purchaser might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, Purchaser may not be obligated to accept for purchase or pay for, any Shares tendered. See Section 9 ("Certain Conditions of the Offer"). Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the "Antitrust Division") and certain waiting period requirements have been satisfied. The acquisition of Shares pursuant to the Offer is subject to such requirements. Vestar filed on March 26, 1999 with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Offer. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following such filing, unless such waiting period is extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. If either the FTC or the Antitrust Division were to request additional information or documentary material from Vestar, the waiting period would expire at 11:59 p.m., New York 49 52 City time, on the tenth calendar day after the date of substantial compliance by Vestar with such request. Thereafter, the waiting period could be extended only by court order or by an agreement involving the Parent and the Company. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended and in any event the purchase of and payment for Shares will be deferred until ten days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division. See Section 2 ("Acceptance for Payment and Payment for Shares"). Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4 ("Withdrawal Rights"). The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase by Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of the Parent, its subsidiaries or the Company. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Although Purchaser believes that the acquisition of Shares pursuant to the Offer would not violate the antitrust laws, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such challenge is made, what the outcome will be. See Section 9 for the Offer Conditions, including conditions with respect to litigation and certain government actions. Margin Credit Regulations. Federal Reserve Board Regulations G, T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or carrying margin stock, including the Common Stock, if the credit is secured directly or indirectly thereby. Such secured credit may not be extended or maintained in an amount that exceeds the maximum loan value of the margin stock. Under the Margin Credit Regulations, the Common Stock is presently margin stock and the maximum loan value thereof is generally 50% of its current market value. The definition of "indirectly secured" contained in the Margin Credit Regulations provides that the term does not include an arrangement with a customer if the lender in good faith has not relied upon margin stock as collateral in extending or maintaining the particular credit. Pending Litigation. On March 29, 1999 and March 31, 1999, purported class action lawsuits entitled Henner v. Sheridan Healthcare, Inc., et al and Betz v. Sheridan Healthcare, Inc., et al, respectively, were filed in Delaware Chancery Court by holders of Shares. The complaints name as defendants the Company, the directors of the Company and Vestar Capital Partners, Inc. Among other things, the plaintiffs allege that: (1) the purchase price is inadequate relative to the market price of the Shares prior to the announcement of the transactions contemplated by the Merger Agreement; (2) the transactions contemplated by the Merger Agreement are timed to take advantage of the temporarily depressed price of the Shares to the disadvantage of the public stockholders; (3) the terms of the transactions contemplated by the Merger Agreement are the product of a conflict of interest on the part of Dr. Eisenberg and Dr. Gold and are not fair to the public holders of Shares; and (4) the defendants violated their fiduciary duties owed to the public stockholders of the Company by agreeing to the terms of the transactions contemplated by the Merger Agreement and the timing of such transactions. 50 53 The lawsuits seek unspecified damages and costs and to enjoin or rescind the transactions contemplated by the Merger Agreement, among other things. The Company, Purchaser, Parent, Holdings and Vestar Capital Partners, Inc. believe that these lawsuits are wholly without merit. 11. FEES AND EXPENSES. Purchaser has retained Innisfree M&A Incorporated to act as the Information Agent and American Stock Transfer & Trust Company to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners. The Information Agent and the Depositary will receive reasonable and customary compensation for services relating to the Offer and will be reimbursed for certain out-of-pocket expenses. Purchaser also has agreed to indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. Purchaser will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Shares pursuant to the Offer (other than to the Information Agent and the Depositary). Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Purchaser for reasonable and customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. It is estimated that the expenses incurred by the Company, Holdings, Parent and the Purchaser in connection with the Offer, the Merger and the other transactions contemplated by the Merger Agreement and the Stockholder Documents will be approximately as set forth below: Filing Fees................................................. $ 64,750 Financial Advisory Fees and Expenses........................ 3,300,000 Accounting Fees and Expenses................................ 500,000 Financing and Commitment Fees............................... 4,700,000 Legal Fees and Expenses..................................... 2,000,000 Printing and Mailing Costs.................................. 500,000 Miscellaneous............................................... 935,250 ----------- Total:............................................... $12,000,000
The Surviving Corporation will be responsible for all of the foregoing fees and expenses if the Effective Time occurs. Under certain circumstances, the Company is obligated to reimburse the Purchaser for its Expenses and to pay a Termination Fee; and under certain other circumstances, Parent and Vestar are obligated to reimburse the Company for its Expenses. See "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement." 12. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with any such state statute. If after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Purchaser, Parent and Holdings have filed with the Commission the Schedule 14D-1 and Holdings, Parent, Purchaser, the Company and the Executives have jointly filed with the Commission the Schedule 13E-3, each of which furnishes certain additional information with respect to the Offer. Such statements and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the offices of the Commission (except that they will not be available at the regional offices of the Commission) in the manner set forth in Section 6 ("Certain Information Concerning the Company") of this Offer to Purchase. 51 54 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PURCHASER, PARENT OR HOLDINGS NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. VESTAR/SHERIDAN, INC. March 31, 1999 52 55 ANNEX A OPINION OF SALOMON SMITH BARNEY INC. A-1 56 [SALOMON SMITH BARNEY LOGO] March 24, 1999 Board of Directors Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 200 Hollywood, FL 33021 Ladies and Gentlemen: You have requested our opinion as investment bankers as to the fairness, from a financial point of view, to the holders of shares of common stock, $.01 par value per share and Class A common stock, $.01 par value per share (collectively, the "Company Common Stock"), of Sheridan Healthcare, Inc. (the "Company"), other than Vestar/Calvary Holdings, Inc. ("Holdings") and its affiliates and certain members of management of the Company who have agreed to become stockholders of Holdings (the "Management Stockholders"), of the consideration to be received by such stockholders (the "Public Stockholders") in the proposed acquisition of the Company by Holdings, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") to be entered into by and among Holdings, Vestar/Calvary, Inc. ("Acquisition Sub") and the Company. We understand that Holdings and Acquisition Sub are newly formed corporations organized at the direction of an affiliate of Vestar Capital Partners III, L.P. ("Vestar"). As more specifically set forth in the Merger Agreement, Acquisition Sub will commence a tender offer (the "Proposed Tender Offer") to purchase all outstanding shares of Company Common Stock at an offer price of $9.25 per share in cash. Following consummation of the Proposed Tender Offer, Acquisition Sub will be merged into the Company (the "Proposed Merger" and, together with the Proposed Tender Offer, the "Proposed Acquisition") and each then-outstanding share of Company Common Stock (other than shares held by Holdings, Acquisition Sub or any other direct or indirect subsidiary of Holdings or held in the treasury of the Company and shares as to which appraisal rights have been properly exercised under applicable law) will be converted into the right to receive, in cash, the amount paid for a share of Company Common Stock pursuant to the Proposed Tender Offer. We understand that the Management Stockholders have agreed, among other things, to tender their shares of Company Common Stock in the Proposed Tender Offer and to subscribe for and purchase shares of common stock of Holdings. In connection with rendering our opinion, we have reviewed and analyzed, among other things, the following: (i) a draft dated March 23, 1999 of the Merger Agreement; (ii) certain publicly available business and financial information concerning the Company; (iii) certain other information, primarily financial in nature, including financial forecasts, concerning the business and operations of the Company furnished to us by the Company for purposes of our analysis; (iv) certain publicly available information concerning the trading of, and the trading market for, the Company Common Stock; (v) certain publicly available information with respect to certain other companies that we believe to be comparable to the Company and the trading market for certain of such other companies' securities; and (vi) certain publicly available information concerning the nature and terms of certain other transactions that we consider relevant to our inquiry. We have considered and taken into account in our analysis the Company's lack of, and likely difficulty raising, adequate capital to fund its growth and acquisition plans if the Company were not to effect the Proposed Acquisition. We have also considered such other information, financial studies, analyses, investigations and financial, economic and market criteria that we deemed relevant. We have also discussed the foregoing, as well as other matters we believe relevant to our inquiry, with certain officers and employees of the Company and officers of Vestar. [SALOMON SMITH BARNEY LETTERHEAD] A-2 57 The Board of Directors Sheridan Healthcare, Inc. March 24, 1999 Page 2 In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all information provided to us or publicly available and have neither attempted independently to verify nor assumed responsibility for verifying any of such information. We have further relied upon the assurances of management of the Company that they are not aware of any facts that would make any of such information inaccurate or misleading. We have not conducted a physical inspection of any of the properties or facilities of the Company, nor have we made or obtained or assumed any responsibility for making or obtaining any independent evaluations or appraisals of any of such properties or facilities, nor have we been furnished with any such evaluations or appraisals. With respect to financial forecasts, we have been advised by the management of the Company and have assumed that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. We express no view with respect to such financial forecasts or the assumptions on which they were based. We have also assumed that the definitive Merger Agreement will not, when executed, contain any terms or conditions that differ materially from the terms and conditions contained in the draft of such agreement we have reviewed and that the Proposed Acquisition will be consummated in a timely manner and in accordance with the terms of the Merger Agreement. In conducting our analysis and arriving at our opinion as expressed herein, we have considered such financial and other factors as we have deemed appropriate under the circumstances including, among others, the following: (i) the historical and current financial position and results of operations of the Company; (ii) the business prospects of the Company, including the likelihood that, in the absence of additional capital support, the Company would be unable to pursue its growth and acquisition strategy; (iii) the historical and current market for the equity securities of certain other companies that we believe to be comparable to the Company; and (iv) the nature and terms of certain other merger and acquisition transactions that we believe to be relevant. We have also taken into account our assessment of general economic, market and financial conditions as well as our experience in connection with similar transactions and securities valuation generally. We have also considered the process that resulted in the negotiation of the Merger Agreement, including our extensive solicitation of offers to acquire the Company and the responses received to such solicitation and discussions we had with other potential acquirors. We have not been asked to consider, and our opinion does not address, the relative merits of the Proposed Acquisition as compared to any alternative business strategy that might exist for the Company. Our opinion necessarily is based upon conditions as they exist and can be evaluated on the date hereof, and we assume no responsibility to update or revise our opinion based upon circumstances or events occurring after the date hereof. Our opinion is, in any event, limited to the fairness, from a financial point of view, of the consideration to be received by the Public Stockholders in the Proposed Acquisition and does not address the Company's underlying business decision to effect the Proposed Acquisition or constitute a recommendation of the Proposed Acquisition to the Company or a recommendation to any holder of Company Common Stock as to whether such holder should tender such stock in the Proposed Tender Offer or as to how such holder should vote with respect to the Proposed Merger, if such a vote is taken. As you are aware, Salomon Smith Barney Inc. ("Salomon Smith Barney") is acting as financial advisor to the Company in connection with the Proposed Acquisition and will receive a fee for such services, a substantial portion of which is contingent upon consummation of the Proposed Acquisition. Additionally, we or our predecessors or affiliates have previously rendered certain investment banking and financial advisory services to the Company and Vestar for which we or our predecessors or affiliates received customary compensation. In addition, in the ordinary course of business, Salomon Smith Barney may hold or actively trade the securities of the Company for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Salomon Smith Barney and its affiliates (including Citigroup Inc. and its affiliates) may have other business and financial relationships with the A-3 58 The Board of Directors Sheridan Healthcare, Inc. March 24, 1999 Page 3 Company and Vestar. This opinion is intended solely for the benefit and use of the members of Board of Directors of the Company in considering the transaction to which it relates and may not be used for any other purpose or published, reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, without the prior written consent of Salomon Smith Barney, except that this opinion may be reproduced in full in, and references to the opinion and to Salomon Smith Barney (in each case in such form as Salomon Smith Barney shall approve) may be included in, the solicitation/recommendation statement the Company distributes to holders of Company Common Stock in connection with the Proposed Tender Offer and any proxy/information statement and rule 13-3 transaction statement filed with the Securities and Exchange Commission in connection with the Proposed Acquisition. Based upon and subject to the foregoing, we are of the opinion as investment bankers that, as of the date hereof, the consideration to be received by the Public Stockholders in the Proposed Acquisition is fair, from a financial point of view, to such Public Stockholders. Very truly yours, SALOMON SMITH BARNEY INC. A-4 59 ANNEX B OPINION OF BOWLES HOLLOWELL CONNER B-1 60 [Bowles Hollowell Connor Letterhead] CONFIDENTIAL March 24, 1999 Board of Directors Sheridan Healthcare, Inc. 4651 Sheridan Street Suite 400 Hollywood, Florida 33021 Members of the Board: You have asked us to advise you with respect to the fairness, from a financial point of view, to the stockholders of Sheridan Healthcare, Inc. ("Sheridan"), excluding certain management stockholders (the "Participating Management") who have agreed to become stockholders of Vestar/Calvary Holdings, Inc. ("Holdings"), of the consideration to be received by such stockholders pursuant to the terms of the Agreement and Plan of Merger, dated as of March 24, 1999 (the "Merger Agreement"), among Holdings, Vestar/Calvary, Inc. ("Purchaser") (Holdings and Purchaser are entities formed at the direction of an affiliate of Vestar Capital Partners III, L.P. ("Vestar")), and Sheridan. The Merger Agreement provides, among other things, for (A) Purchaser to make a tender offer (the "Offer") to purchase for cash all outstanding shares of Sheridan's common stock, par value $.01 per share, and Class A common stock, par value $.01 per share (collectively, the "Common Stock"), at a price of $9.25 per share and (B) the merger (the "Merger") of Purchaser into Sheridan, as soon as practicable following the expiration or termination of the Offer, with (i) each share of Common Stock being converted in the Merger into the right to receive the amount paid per share in the Offer (the amount to be paid per share in the Offer or the Merger, the "Consideration"), and (ii) each outstanding option to purchase Sheridan Common Stock exercisable at a price less than $9.25 per share being converted in the Merger into the right to receive cash in an amount equal to the Consideration minus such exercise price, and all other options to purchase Sheridan Common Stock being terminated. In arriving at our opinion, we have, among other things: (i) reviewed certain publicly available business and financial information relating to Sheridan; (ii) reviewed certain other information, including financial forecasts, provided to us by Sheridan, and have met with Sheridan's management to discuss the business and prospects of Sheridan; (iii) considered certain financial data of Sheridan and compared that data with similar data for publicly held companies in businesses similar to those of Sheridan; (iv) considered the financial terms of certain other business combinations and other transactions which have recently been effected; (v) reviewed the financial terms and conditions of the Merger Agreement; and (vi) considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant. In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied on its being complete and accurate in all material respects. With respect to the financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting [Riverfront Plaza Letterhead] B-2 61 Board of Directors March 24, 1999 Page 2 the best currently available estimates and judgments of Sheridan's management as to the future financial performance of Sheridan. In addition, we have not made an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Sheridan, nor have we been furnished with any such evaluations or appraisals. Our opinion is necessarily based upon financial, economic, market and other conditions as they exist and can be evaluated on the date hereof. In connection with our engagement, we and the Company's co-financial advisor, Salomon Smith Barney, approached third parties to solicit indications of interest in a possible acquisition of Sheridan. We have acted as financial advisor to Sheridan in connection with the Offer and the Merger and will receive a fee for our services, including for rendering this opinion, a significant portion of which is contingent upon the consummation of the Offer and the Merger. As part of our investment banking business, we are regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In the ordinary course of business, we or our affiliates may actively trade the debt and equity securities of Sheridan for our or any such affiliate's own account or for the account of customers and, accordingly, may hold a long or short position in such securities. In addition, we and our affiliates in the past may have provided investment and commercial banking products and services for Sheridan, Vestar and their respective affiliates and other related persons. It is understood that this letter is for the information of the Board of Directors of Sheridan in connection with its consideration of the Offer and the Merger and does not constitute a recommendation to any stockholder as to how such stockholders should vote on the proposed Merger or act with respect to the Offer. Our opinion does not address the relative merits of the transaction contemplated by the Merger Agreement as compared to any alternative business strategies that might exist for Sheridan, nor does it address the effect of any other business combination in which Sheridan might engage. This letter is not to be quoted or referred to, in whole or in part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be used for any other purposes, without First Union Capital Markets Corp.'s prior written consent. Based upon and subject to the foregoing, our experience as investment bankers, our work as described above and other factors we deem relevant, we are of the opinion that, as of the date hereof, the Consideration is fair from a financial point of view to holders of Common Stock (other than the Participating Management, with respect to whom we express no opinion). Very truly yours, BOWLES HOLLOWELL CONNER - - --------------------------------------------------- BOWLES HOLLOWELL CONNER A division of First Union Capital Markets Corp. B-3 62 SCHEDULE I FINANCIAL INFORMATION FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 I-1 63 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Sheridan Healthcare, Inc.: We have audited the accompanying consolidated balance sheets of Sheridan Healthcare, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sheridan Healthcare, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Miami, Florida, February 18, 1999 (except for the matter discussed in Note 11, as to which the date is March 25, 1999). I-2 64 SHERIDAN HEALTHCARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ------------------- 1998 1997 -------- ------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,102 $ 427 Accounts receivable, less allowances of $2,346 and $1,828................................................. 28,300 21,588 Income tax refunds receivable............................. 1,097 1,280 Deferred income taxes..................................... -- 1,417 Other current assets...................................... 3,316 2,814 -------- ------- Total current assets.............................. 33,815 27,526 Property and equipment, net................................. 4,041 3,538 Intangible assets, net of accumulated amortization of $6,113 and $15,798............................................... 96,802 54,168 Other intangible assets, net of accumulated amortization of $1,958 and $1,712......................................... 1,501 1,803 Other assets................................................ 3,651 -- -------- ------- Total assets...................................... $139,810 $87,035 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 1,440 $ 591 Amounts due for acquisitions.............................. 288 527 Accrued salaries and benefits............................. 1,016 2,686 Self-insurance accruals................................... 4,319 3,973 Refunds payable........................................... 2,555 2,674 Accrued physician incentives.............................. 934 744 Other accrued expenses.................................... 1,735 2,235 Current portion of long-term debt......................... 449 446 -------- ------- Total current liabilities......................... 12,736 13,876 Long-term debt, net of current portion...................... 56,994 29,833 Amounts due for acquisitions................................ 1,364 1,976 Other long-term liabilities................................. 1,169 -- Commitments and contingencies (Note 8) Stockholders' equity: Preferred stock, par value $.01; 5,000 shares authorized; none issued............................................ -- -- Common stock, par value $.01; 21,000 shares authorized Voting; 7,535 and 6,509 shares issued and outstanding........................................... 75 66 Class A non-voting; 297 shares issued and outstanding........................................... 3 3 Additional paid-in capital................................ 73,626 53,811 Accumulated deficit....................................... (6,157) (12,530) -------- ------- Total stockholders' equity........................ 67,547 41,350 -------- ------- Total liabilities and stockholders' equity........ $139,810 $87,035 ======== =======
See accompanying notes. I-3 65 SHERIDAN HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 -------- ------- -------- Revenue: Patient service revenue................................... $109,580 $95,418 $ 89,753 Management fees........................................... 3,410 3,198 3,014 -------- ------- -------- Net revenue............................................ 112,990 98,616 92,767 -------- ------- -------- Operating expenses: Direct facility expenses.................................. 76,350 68,919 66,125 Provision for bad debts................................... 5,592 4,066 3,605 Salaries and benefits..................................... 7,722 7,424 6,967 General and administrative................................ 4,177 4,900 4,561 Write-down of office-based net assets..................... -- -- 17,360 Amortization.............................................. 3,572 2,096 2,491 Depreciation.............................................. 807 689 1,023 -------- ------- -------- Total operating expenses.......................... 98,220 88,094 102,132 -------- ------- -------- Operating income (loss)..................................... 14,770 10,522 (9,365) -------- ------- -------- Other (income) expense: Interest expense, net..................................... 3,955 2,461 2,572 Other income.............................................. (628) -- -- -------- ------- -------- Total other expense............................... 3,327 2,461 2,572 -------- ------- -------- Income (loss) before income taxes................. 11,443 8,061 (11,937) Income tax expense.......................................... 5,070 2,894 189 -------- ------- -------- Net income (loss)................................. $ 6,373 $ 5,167 $(12,126) ======== ======= ======== Net income (loss) per share Basic.................................................. $ 0.80 $ 0.77 $ (1.84) Diluted................................................ 0.78 0.73 (1.84) Weighted average shares of common stock and common stock equivalents outstanding Basic.................................................. 7,947 6,722 6,587 Diluted................................................ 8,219 7,035 6,587
See accompanying notes. I-4 66 SHERIDAN HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CONVERTIBLE PREFERRED STOCK VOTING CLASS A --------------------------------- COMMON STOCK COMMON STOCK CLASS A CLASS B ADDITIONAL --------------- --------------- --------------- --------------- PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- BALANCE, JANUARY 1, 1996..... 5,773 $58 297 $ 3 -- $-- -- $-- $48,179 $ (5,571) Issuance of common stock in acquisition................ 658 6 -- -- -- -- -- -- 5,417 Treasury shares purchased and retired.................... (13) -- -- -- -- -- -- -- (8) -- Net loss..................... -- -- -- -- -- -- -- -- -- (12,126) ----- --- --- --- -- --- -- --- ------- -------- BALANCE, DECEMBER 31, 1996... 6,418 64 297 3 -- -- -- -- 53,588 (17,697) Issuance of common stock upon exercise of employee stock options.................... 77 1 -- -- -- -- -- -- 53 -- Issuance of common stock in acquisition................ 14 1 -- -- -- -- -- -- 170 -- Net income................... -- -- -- -- -- -- -- -- -- 5,167 ----- --- --- --- -- --- -- --- ------- -------- BALANCE, DECEMBER 31, 1997... 6,509 66 297 3 -- -- -- -- 53,811 (12,530) Issuance of common stock upon exercise of employee stock options.................... 23 -- -- -- -- -- -- -- 92 -- Issuance of common stock in acquisitions............... 1,428 14 -- -- -- -- -- -- 23,410 -- Treasury shares purchased and retired.................... (425) (5) -- -- -- -- -- -- (3,687) -- Net Income................... -- -- -- -- -- -- -- -- -- 6,373 ----- --- --- --- -- --- -- --- ------- -------- BALANCE, DECEMBER 31, 1998... 7,535 $75 297 $ 3 -- $-- -- $-- $73,626 $ (6,157) ===== === === === == === == === ======= ======== TOTAL -------- BALANCE, JANUARY 1, 1996..... $ 42,669 Issuance of common stock in acquisition................ 5,423 Treasury shares purchased and retired.................... (8) Net loss..................... (12,126) -------- BALANCE, DECEMBER 31, 1996... 35,958 Issuance of common stock upon exercise of employee stock options.................... 54 Issuance of common stock in acquisition................ 171 Net income................... 5,167 -------- BALANCE, DECEMBER 31, 1997... 41,350 Issuance of common stock upon exercise of employee stock options.................... 92 Issuance of common stock in acquisitions............... 23,424 Treasury shares purchased and retired.................... (3,692) Net Income................... 6,373 -------- BALANCE, DECEMBER 31, 1998... $ 67,547 ========
See accompanying notes. I-5 67 SHERIDAN HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income (loss)........................................ $ 6,373 $ 5,167 $(12,126) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-down of office-based net assets................. -- -- 17,360 Amortization.......................................... 3,572 2,096 2,491 Depreciation.......................................... 807 689 1,023 Provision for bad debts............................... 5,592 4,066 3,605 Deferred income taxes................................. 1,417 (263) (1,154) Changes in operating assets and liabilities: Accounts receivable, net.............................. (11,140) (7,997) (7,076) Income tax refunds receivable......................... (101) (710) 190 Other current assets.................................. (736) (1,125) (486) Other assets.......................................... 238 (655) 207 Accounts payable and accrued expenses................. (1,221) (215) 1,229 -------- -------- -------- Net cash provided by operating activities............. 4,801 1,053 5,263 -------- -------- -------- Cash flows from investing activities: Investments in management agreements and acquisitions of physicians practices.................................. (26,428) (10,929) (13,762) Sale of physician practices.............................. 49 3,388 193 Capital expenditures..................................... (1,192) (934) (1,245) -------- -------- -------- Net cash used by investing activities................. (27,571) (8,475) (14,814) -------- -------- -------- Cash flows from financing activities: Borrowings on long-term debt............................. 27,600 9,005 13,997 Payments on long-term debt............................... (555) (1,210) (4,438) Treasury shares purchased and retired.................... (3,692) -- (8) Exercise of employee stock options....................... 92 54 -- -------- -------- -------- Net cash provided by financing activities............. 23,445 7,849 9,551 -------- -------- -------- Increase in cash and cash equivalents...................... 675 427 -- Cash and cash equivalents, beginning of year............... 427 -- -- -------- -------- -------- Cash and cash equivalents, end of year..................... $ 1,102 $ 427 $ -- ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest..................................... $ 3,898 $ 2,338 $ 2,588 Cash paid for income taxes................................. 2,350 3,867 2,110 Capital leases entered into................................ -- -- --
See accompanying notes. I-6 68 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES (a) Organization Sheridan Healthcare, Inc. (the "Company") was established in November 1994 concurrently with its purchase of the common stock of Sheridan Healthcorp, Inc. (formerly, Southeastern Anesthesia Management Associates, Inc.) (the "Predecessor") (the "1994 Acquisition") for $43.3 million in cash. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair market values at the date of acquisition. The management group of the Predecessor held approximately 20% of its outstanding common stock prior to the acquisition and became the management group of the Company, holding approximately 18% of its outstanding common stock and equivalents after the acquisition. Accordingly, 18% of the purchase price was considered a distribution to management stockholders in excess of their basis in the common stock of the Predecessor, which was approximately $249,000. Such excess was recorded as excess purchase price distributed to management stockholders and included as a reduction to additional paid in capital in the accompanying balance sheets and was not allocated to the net assets acquired. As a result of the allocation, $31.2 million of the purchase price was allocated to goodwill. Purchase price.............................................. $43,275 Excess purchase price distributed to management stockholders.............................................. (7,541) ------- Purchase price to be allocated............................ 35,734 ------- Net assets acquired: Working capital........................................... 4,365 Property and equipment.................................... 1,236 Other intangible assets (see Note (g)).................... 1,880 Unamortized goodwill related to previous acquisition...... 7,316 Other assets.............................................. 609 Long-term debt............................................ (9,580) Deferred income taxes..................................... (1,247) ------- Total net assets acquired......................... 4,579 ------- Goodwill related to the 1994 Acquisition.................... $31,155 =======
(b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries and other entities in which the Company has a controlling financial interest. In November 1997, the Emerging Issues Task Force ("EITF") reached a consensus on when a physician practice management company ("PPM") has established a controlling financial interest in a physician practice through a contractual management service agreement ("MSA"). A controlling financial interest must exist in order for a PPM to consolidate the operations of an affiliated physician practice. The consensus is addressed in EITF Issue 97-2, "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities". A controlling financial interest exists between a PPM and an affiliated physician practice if all of the following six requirements are met; (i) the MSA has a term that is either the entire remaining legal life of the physician practice entity or a period of 10 years or more; (ii) the MSA is not terminable by the physician practice except in the case of gross negligence, fraud or other illegal acts by the PPM or bankruptcy of the PPM; (iii) the PPM has exclusive authority over all decision making relating to ongoing major or central operations of the physician practice, except for the dispensing of medical services; (iv) the PPM has exclusive authority over all decision making related to total practice compensation of the licensed medical professionals I-7 69 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) as well as the ability to establish and implement guidelines for the selection, hiring and firing of them; (v) the PPM must have a significant financial interest that is unilaterally salable or transferable by the PPM; and (vi) the PPM must have a significant financial interest that provides it with the right to receive income, both as on-going fees and as proceeds from the sale of its interest in the physician practice, in an amount that fluctuates based on the performance of the operations (a net profit interest) of the physician practice and the change in the fair value thereof. The Company is following the above controlling financial interest provisions of EITF Issue 97-2 in its determination of whether the operations of an affiliated physician practice qualify for consolidation. The Company's controlling financial interest is demonstrated by means other than direct record ownership of voting stock based on the provisions of its purchase agreements, voting trust agreements or management agreements with these entities. In accordance with EITF Issue 97-2 the Company's consolidated financial statements include four practices that are affiliates of the Company, Sheridan Medical Healthcorp, P.C., Sheridan Healthcare of Texas, P.A., Sheridan Children's Healthcare Services of Pennsylvania, P.C. and Sheridan Healthcare of California Medical Group, Inc. Each of these affiliates is owned by Gilbert Drozdow, as a nominee shareholder, who is an executive officer and stockholder of the Company. These entities have long-term management agreements with the Company whose terms demonstrate a controlling financial interest by the Company. The practices provide hospital-based physician services to four hospitals and have been included in the Company's consolidated financial statements since the date of their inception. In addition, the Company's consolidated financial statements also include eleven office-based practices and one hospital-based practice with which the Company has long-term management services agreements and purchase option agreements whose terms also demonstrate a controlling financial interest, (the "Consolidated Practices"). These agreements entered into during 1997 and 1998, have been accounted for in the Company's consolidated financial statements in accordance with EITF 97-2 and have been included in the Company's financial statements since the date of their inception. The Company provides management services to a neonatology practice and a pain management practice which entered into long-term management services agreements with the Company in December 1997 and February 1998, respectively. The Company also provided management services to a primary care practice whose agreement was terminated in December 1997 and to a primary care practice whose agreement was terminated in April 1998. The Company did not have a controlling financial interest in these practices. These management services agreements are included in the Company's consolidated financial statements only to the extent of management fees earned and expenses incurred by the Company. The Company exercised its purchase option on December 31, 1998 to acquire the pain management practice to which it had been providing management services during 1998. The practice has been included in the Company's consolidated balance sheet as of December 31, 1998 and will be included in the Company's consolidated financial statements beginning January 1, 1999. I-8 70 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The table below sets forth the components of the Company's net revenue:
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 ----------------- ---------------- ---------------- TOTAL % TOTAL % TOTAL % -------- ----- ------- ----- ------- ----- The Company......................... $ 72,070 63.8% $76,850 77.9% $77,833 83.9% Affiliates.......................... 13,309 11.8 12,511 12.7 11,920 12.8 Consolidated Practices.............. 24,201 21.4 6,057 6.2 -- -- -------- ----- ------- ----- ------- ----- Patient service revenue........ 109,580 97.0 95,418 96.8 89,753 96.7 -------- ----- ------- ----- ------- ----- Management fees..................... 3,410 3.0 3,198 3.2 3,014 3.3 -------- ----- ------- ----- ------- ----- Total..................... $112,990 100.0% $98,616 100.0% $92,767 100.0% ======== ===== ======= ===== ======= =====
(c) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Accounts Receivable and Net Revenue The Company generates revenue from the provision of physician and services which is referred to as patient service revenue and the provision of management services which are referred to as management fees. The Company derives substantially all of its patient service revenue from various third-party payors including Medicare and Medicaid programs, health maintenance organizations, commercial insurers and others. The amount of payments received from such third-party payors is dependent upon mandated payment rates in the case of the Medicare and Medicaid programs, and negotiated payment rates in the case of other third-party payors, as well as the specific benefits included in each patient's applicable health care coverage. The Company records its revenues net of an allowance for contractual adjustments which represents the difference between billed charges and expected collections from third-party payors. Accordingly, net revenue and accounts receivable are reflected in the consolidated financial statements net of contractual allowances. The Company received a portion of its patient service revenue pursuant to shared-risk capitation arrangements with certain health maintenance organizations until April 1998, at which time it sold its only remaining primary care practice providing services under such arrangements. Under these arrangements, the Company generally agreed to provide certain health care services to enrollees of the health maintenance organization in exchange for a fixed amount per enrollee per month. The Company directly provided primary care services to the enrollees and subcontracted directly, or through a third-party payor, with specialist physicians, hospitals and other health care providers to provide the remainder of the health care services to the enrollees. The Company's profitability under such arrangements was dependent upon its ability to effectively manage the use of specialist physician, hospital and other health care services by its patients. In each of the fiscal periods presented in the Company's statements of operations, amounts received from managed care organizations under shared-risk capitation arrangements exceeded the cost of services provided to patients under such arrangements. The Company derives its management fees pursuant to long-term management services agreements with physician practices which require the practice to pay the Company a management fee that is based on expenses incurred by the Company plus either a percentage fee based on net revenues or a flat fee. The I-9 71 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's management fee may be increased under a flat fee arrangement if the net revenue of the practice exceeds established thresholds, but may not be reduced. (e) Charity Care The Company has agreed with certain hospitals to provide charity care to patients who are unable to pay or is required by law, in some cases, to provide such care in emergency situations. Such patients are identified based on financial information obtained from the patients and subsequent analysis. Since management does not expect payment for such charity care, the estimated charges related to such patients are included in the provision for bad debts in the accompanying financial statements, the amounts which are immaterial. (f) Intangible Assets The Company acquires or affiliates with physician practices through the acquisition of their net assets, the acquisition of their stock or the acquisition of an option to acquire their stock concurrent with the execution of a long-term management services agreement. In each of these transactions the Company allocates the purchase price to the tangible assets acquired and liabilities assumed. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is allocated to intangible assets as goodwill when the Company acquires the net assets or outstanding stock of a physician practice and to intangible assets as the cost of obtaining the management services agreement when the Company enters into a long-term management services agreement and purchases the option to acquire the outstanding stock of a physician practice. Approximately $27.8 million of the total amount of intangible assets is goodwill, net of accumulated amortization, at December 31, 1998, that is related to the 1994 Acquisition. Such goodwill represents the Company's market position and reputation, its relationships with its hospital customers and affiliated physicians, the relationships between its affiliated physicians and their patients, and other similar intangible assets. Management believes its role as a long-term service provider to its hospital customers and the fact its relationships with hospitals are not tied to a single physician or group of physicians contribute to the indefinite length of this goodwill, and accordingly, such goodwill is being amortized on a straight-line basis over 40 years. Approximately $25.8 million of the total amount of intangible assets is goodwill, net of accumulated amortization, at December 31, 1998, related to several acquisitions of physician practices by the Company and its Predecessor. Such goodwill represents the general reputation of the practices in the communities they serve, the collective experience of the management and other employees of the practices, contracts with health maintenance organizations, relationships between the physicians and their patients, patient lists, and other similar intangible assets. The Company evaluates the underlying facts and circumstances related to each acquisition and establishes an appropriate amortization period for the related goodwill. The goodwill related to these physician practice acquisitions is being amortized on a straight-line basis over periods ranging from 20 to 25 years. Approximately $43.2 million of the total amount of intangible assets represents the cost of obtaining management services agreements, net of accumulated amortization at December 31, 1998. The cost of obtaining management services agreements with practices is related to the general reputation of the practices in the communities they serve, contracts with third-party payors, relationships between the physicians and their patients, patient lists, the Company's ability to integrate the practice into its existing group of hospital- based and office-based specialists and the term and enforceability of the management services agreement. The Company evaluates the underlying facts and circumstances related to each agreement and establishes an appropriate amortization period related to the cost of obtaining the management services agreement. The cost of obtaining these management services agreements is being amortized over the shorter of the term of the agreement or 25 years. I-10 72 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the Company's intangible assets segregated by amortization period are as follows:
ORIGINAL BALANCE AMORTIZATION PERIOD AMOUNT DECEMBER 31, 1998 - - ------------------- -------- ----------------- Physician Practice Acquisitions and Affiliations: 20 years............................................... 3,121 2,185 25 years............................................... 68,834 66,818 -------- ------- Sub-Total.............................................. 71,955 69,003 1994 Acquisition: 40 years............................................... 30,960 27,799 -------- ------- Total.................................................. $102,915 $96,802 ======== =======
The SEC has recently provided guidance in regards to the appropriate amortization periods to be used in connection with the amortization of intangible assets within the physician practice management industry. The guidance provided has caused several companies within the industry that were amortizing intangible assets over periods in excess of 25 years to prospectively change the amortization period of their intangible assets to 25 years. This change in estimate has resulted in an increase in the amortization expense reported by those companies. Effective July 1998, the Company reduced the maximum amortization period of its intangible assets related to physician practice acquisitions and affiliations to 25 years on a prospective basis. This resulted in an increase in amortization expense for the year ended December 31, 1998 of approximately $60,000 compared to the amortization that would have been recorded. A significant change in the estimated useful lives of certain intangible assets of the Company could have an adverse impact on its future net income and reported earnings per share. Such an accounting change, if made, would have no impact on the Company's cash flow or operations nor would it reflect a change in management's estimate of the value and expected duration of such intangible assets. The Company continuously evaluates whether events have occurred or circumstances exist which impact the recoverability of the carrying value of intangible assets, pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, ("SFAS No. 121")." Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeded the fair value of the assets. See Note (j) below for a description of an adjustment to reduce the carrying values of certain components of goodwill to their net realizable values during 1996. Separately identifiable intangible assets related to the 1994 Acquisition and the physician practice acquisitions are included in other intangible assets, separate from intangible assets, and are discussed in Note (g) below. (g) Other Intangible Assets Other intangible assets consist primarily of the physician employee workforce, non-physician employee workforce, management team and computer software acquired in the 1994 Acquisition, deferred acquisition costs, deferred loan costs and non-compete covenants related to certain acquisitions of physician practices. These intangible assets are being amortized over the lives of the underlying assets or agreements, which range from five to seven years. See Note (j) below for a description of an adjustment to reduce the carrying values of certain other intangible assets to their net realizable values during 1996. I-11 73 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (h) Amounts Due for Acquisitions Amounts due for acquisitions includes obligations to the former stockholders of certain physician practices acquired by the Company. The obligations to former stockholders arose at the time of acquisition as a result of negotiation between the Company and the former stockholders of the practices acquired by the Company who desired ongoing compensation in excess of a reasonable market rate for their physician services. These payments are being made to former stockholders who are employed by the Company over the terms of their employment agreements with the Company which range from three to five years. These payments cease upon termination of the physicians' employment with the Company. It also includes termination benefits payable to the former stockholders of an acquired practice, which are payable beginning in 2001 or upon termination of their employment by the Company, whichever is later. These termination benefits were an obligation of the practice prior to acquisition by the Company and were included as part of the purchase price allocation at the time of acquisition. Also included in amounts due for acquisitions is a promissory note payable to the owner of a physician practice with which the Company has a management services agreement. The note bears interest at 7.5%, is payable in monthly installments and matures in December 2000. (i) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. Accounts receivable, other current assets, other assets, accounts payable, accrued expenses and long-term debt are reflected in the accompanying consolidated financial statements at cost which approximates fair value. (j) Write-down of Office-based Net Assets In October 1996, the Company's Board of Directors approved a change in the Company's strategic direction which was to place more emphasis on its hospital-based business and to reduce its emphasis on the primary care business, and its intent to dispose of non-strategic office-based physician practices. Due to this change in strategic direction, the Company wrote down certain assets related to its office-based operations to their estimated realizable values in accordance with SFAS No. 121 and accrued certain liabilities for commitments that no longer have value to the Company's future operations. The impairment of intangible assets was calculated based on a comparison of the carrying amount of those assets compared to the undiscounted cash flows of the operations over the remaining amortization period. The write-down pertained to two rheumatology practices acquired in January and February of 1996, a four-facility primary care practice acquired in September 1994, two primary care practices acquired in February 1995, and a primary care practice acquired in June 1995 which included the assignment of a panel services agreement. These adjustments resulted in a $17.4 million charge to earnings in 1996, which is comprised of adjustments to the following assets and liabilities (in thousands): Goodwill................................................... $13,878 Property and equipment..................................... 1,045 Intangible assets.......................................... 430 Accrued expenses........................................... 2,007 ------- Total write-down................................. $17,360 =======
(k) Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. I-12 74 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (l) Net Income (Loss) Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS No. 128"). SFAS No. 128 simplifies the current standards for computing earnings per share ("EPS") under Accounting Principles Board Opinion No. 15, "Earnings per Share" by replacing the existing calculation of primary EPS with a basic EPS calculation. It requires a dual presentation for complex capital structures of basic and diluted EPS on the face of the income statement and requires a reconciliation of basic EPS factors to diluted EPS factors. The impact of adopting SFAS No. 128 in 1997 was immaterial. Common stock equivalents, which consist of stock options issued to employees and directors, are not included in the determination of the net loss per diluted share in 1996 since they would have the effect of reducing the net loss per share. RECONCILIATION OF BASIC EPS FACTORS TO DILUTED EPS FACTORS:
1998 1997 1996 ----- ----- ----- Weighted average shares of common stock and common stock equivalents for basic earnings per share.... 7,947 6,722 6,587 Impact of dilutive employee stock options........... 272 313 -- ----- ----- ----- Weighted average of shares of common stock equivalents for diluted earnings per share........ 8,219 7,035 6,587 ===== ===== ===== Options outstanding which are not included in the calculation of diluted earnings per share because their impact is anti-dilutive..................... 518 73 223 ===== ===== =====
(n) New Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS No. 130"), which was adopted in the first quarter of fiscal 1998. This statement established standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in financial statements and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of statements of financial position. Comprehensive income is defined as the change in equity during the financial reporting period of a business enterprise resulting from non-owner sources. The Company currently does not have other comprehensive income and therefore the adoption of SFAS No. 130 did not have a significant impact on its financial statement presentation as comprehensive income is equal to net income. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", ("SFAS No. 131"), which is required to be adopted in fiscal 1998. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments including, among other things, a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. SFAS No. 131 requires that a public company report a measure of segment profit or loss, certain specific revenue and expense items and segment assets. The Company adopted SFAS No. 131 effective December 31, 1998. Management does not conduct its business in a manner that indicates the existence of segments or allocate its management services by distinguishable business segments. As a result, no additional disclosure was required. I-13 75 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", ("SFAS No. 132") which is effective for fiscal years ending after December 15, 1997. SFAS No. 132 revises employers' disclosures about pension and other postretirement obligations of those plans. The Company adopted SFAS No. 132 effective December 31, 1998 which did not have a significant impact on its financial statement disclosures. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", ("SOP 98-1"). SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. The Company will adopt SOP 98-1 beginning January 1, 1999. Adoption of this statement will not have a material impact on the Company's consolidated financial position or results of operations. In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", ("SOP 98-5"). SOP 98-5 requires all costs associated with pre-opening, pre-operating and organization activities to be expensed as incurred. The Company's accounting policies conform with the requirements of SOP 98-5, therefore adoption of this statement will not impact the Company's consolidated financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 cannot be applied retroactively. The Company will adopt SFAS No. 133 beginning January 1, 2000. The Company does not believe that the adoption of this statement will have a material impact on the Company's consolidated financial position or results of operations. (2) ACQUISITIONS In September 1994, the Predecessor acquired a four-facility primary care practice for cash and notes and the assumption of certain contingent obligations. The aggregate purchase price was $8.7 million, including the effect of certain adjustments to the purchase price recorded in 1995 based on subsequent information. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair market values. As a result of this allocation, $8.2 million of the purchase price was allocated to goodwill, which was amortized over 20 years until the sale of the practice by the Company and is shown below, (in thousands): Purchase price.............................................. $8,723 ------ Net assets acquired: Working capital (deficit).............................. (355) Property and equipment................................. 868 ------ Net assets acquired............................... 513 ------ Goodwill related to the acquisition......................... $8,210 ======
In connection with the write-down of office-based net assets in 1996, as discussed in Note 1(j), the carrying value of the goodwill associated with this acquisition was reduced by approximately $5.3 million to approximately $2.1 million. I-14 76 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1994, the Company acquired an obstetrical practice for $1.4 million in cash and deferred payments. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair market values. As a result of this allocation, $841,000 of the purchase price was allocated to goodwill which, net of the reduction in carrying value, is being amortized over 20 years and in shown below, (in thousands): Purchase price.............................................. $1,437 ------ Net assets acquired: Working capital........................................ 118 Property and equipment................................. 78 Intangible assets...................................... 400 ------ Net assets acquired............................... 596 ------ Goodwill related to the acquisition....................... $ 841 ======
In connection with the write-down of office-based net assets in 1996, as discussed in Note 1(j), the carrying value of the goodwill associated with this acquisition was reduced by approximately $170,000 to approximately $583,000. During the period from February to June 1995, the Company made five acquisitions of office-based physician practices for an aggregate of $6.1 million in cash and deferred payments. In a transaction related to one of those acquisitions, one of the principal physicians operating the acquired practices assigned a panel services agreement with a health maintenance organization to the Company for $400,000 in cash plus deferred payments of $935,000 and approximately 35,000 shares of common stock of the Company which had a value of approximately $450,000 on the date of acquisition. These acquisitions, including the assignment of the panel services agreement, were accounted for as purchases, and accordingly, the purchase prices were allocated to the net assets acquired based on their fair market values. As a result of these allocations, $7.3 million of the aggregate purchase price was allocated to goodwill which, net of the reduction in carrying value, is being amortized over 20 years on a straight line basis and is shown below, (in thousands): Aggregate purchase price.................................... $7,880 ------ Net assets acquired: Working capital........................................... 144 Property and equipment.................................... 358 Intangible assets......................................... 30 ------ Net assets acquired............................... 532 ------ Goodwill related to the acquisitions...................... $7,348 ======
In connection with the write-down of office-based net assets in 1996, as discussed in Note 1(j), the carrying value of the goodwill associated with these acquisitions was reduced by approximately $5.0 million to approximately $1.0 million. In March 1996, the Company acquired a hospital-based physician practice for $4.2 million in cash and approximately 658,000 shares of the Company's common stock which had a value of approximately $5.4 million on the date of acquisition. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to the net assets acquired based on their fair market values. As a result of this I-15 77 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) allocation, $9.8 million of the purchase price was allocated to goodwill which is being amortized over 25 years on a straight line basis and is shown below (in thousands): Aggregate purchase price................................... $ 9,644 ------- Net assets acquired: Working capital....................................... 1,407 Property and equipment................................ 78 Accrued termination benefits.......................... (1,100) Long-term debt........................................ (500) ------- Net assets acquired.............................. (115) ------- Goodwill related to the acquisition........................ $ 9,759 =======
During the period from January to October 1996, the Company made five acquisitions of office-based physician practices for an aggregate of $8.2 million in cash and deferred payments. These acquisitions were accounted for as purchases, and accordingly, the purchase price of each acquisition was allocated to the net assets acquired based on their estimated fair market values. As a result of these allocations, $6.8 million of the aggregate purchase price was allocated to goodwill which, net of the reduction in carrying value, is being amortized over 20 years on a straight line basis and is shown below (in thousands): Aggregate purchase price................................... $ 8,210 ------- Net assets acquired: Working capital....................................... 830 Property and equipment................................ 670 Intangible assets..................................... 60 Long-term debt........................................ (130) ------- Net assets acquired.............................. 1,430 ------- Goodwill related to the acquisitions....................... $ 6,780 =======
In connection with the write-down of office-based net assets in 1996, as discussed in Note 1(j), the carrying value of the goodwill associated with these acquisitions was reduced by approximately $3.4 million to approximately $1.2 million. During the period from March 1997 to December 1997, the Company purchased options to acquire five office-based physician practices and one hospital-based physician practice for an aggregate of $10.8 million in cash and approximately 14,000 shares of the Company's common stock which had a value of approximately $200,000 on the date of acquisition. Concurrent with each acquisition of an option the Company entered into a long-term management services agreement with each practice. These transactions were accounted for as purchases, and accordingly, the purchase price of each option was allocated to the net assets acquired based on their estimated fair market values. As a result of these allocations, $11.1 million of the aggregate purchase I-16 78 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) price was allocated to the cost of the management services agreements which is being amortized over the shorter of the term of the agreement or 25 years and is shown below (in thousands): Aggregate purchase price................................... $11,012 ------- Net assets acquired: Working capital.......................................... (390) Property and equipment................................... 218 Intangible assets........................................ 111 ------- Net assets acquired.............................. (61) ------- Net cost of management services agreements................. $11,073 =======
During the period from January 1998 to September 1998 the Company completed thirteen transactions with physician practices for aggregate consideration of approximately $49.1 million of which approximately $25.5 million was paid in cash and approximately $23.6 million was paid through the issuance of approximately 1,428,000 shares of the Company's common stock. Approximately $5.2 million was paid for the acquisition of practices' net assets or practices' stock and approximately $43.9 million was paid for the purchase of options to acquire the practices' stock for a nominal amount concurrent with the execution of long-term management services agreements. In each transaction, the consideration was allocated to the net assets acquired based on their estimated fair market values. As a result of these allocations, $43.1 million of the aggregate consideration was allocated to the cost of management services agreements which are being amortized over 25 years and $5.3 million was allocated to goodwill which is also being amortized over 25 years as shown below (in thousands): Aggregate purchase price................................... $49,050 ------- Net assets acquired: Working capital.......................................... 159 Property and equipment................................... 452 Intangible assets........................................ 80 ------- Net assets acquired.............................. 691 ------- Goodwill and net cost of management services agreements.... $48,359 =======
The value of the Company's common stock issued in connection with each transaction is based on the higher of the closing market price for the Company's common stock on the date each transaction is completed or the price guaranteed by the Company on some future date. In connection with the issuance of the Company's common stock as consideration for the acquisition of certain physician practices, the Company is obligated to make additional payments to the sellers of the practices which are contingent on the market price of the Company's common stock upon a specified date following the date of the transaction. In most cases, the Company has the option to satisfy the contingent obligation either by making an additional cash payment or by the issuance of additional shares of the Company's common stock. Such shares have been excluded from the calculation of diluted earnings per share because of management's ability to fund the additional purchase price, if any, through cash payments rather than through the issuance of additional shares. Based on the closing market price of the Company's common stock on December 31, 1998 the total value of the contingencies was approximately $12.0 million. The following table summarizes the pro forma consolidated results of operations of the Company as though the transactions with physician practices discussed above had occurred at the beginning of the period presented. The pro forma consolidated results of operations shown below do not necessarily represent what the consolidated results of operations of the Company would have been if these acquisitions had actually occurred I-17 79 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) at the beginning of the period presented, nor do they represent a forecast of the consolidated results of operations of the Company for any future period.
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Pro Forma Results of Operations: Net revenue.................................... $119,224 $123,924 Income before income taxes..................... 12,163 11,816 Net income..................................... 6,756 7,103 Net income per share -- basic.................. 0.83 0.90 Net income per share -- diluted................ 0.80 0.87
In connection with the change in the Company's strategic direction, as discussed in Note 1(j), the Company sold one primary care office location in December 1996 and one in February 1997, four rheumatology office locations in April 1997 and one primary care location in December 1997. The Company consolidated the remaining practices to be sold from five office locations into three office locations, which employ five primary care physicians. Two of these primary care office locations were sold in April 1998. The office-based practices which have been sold, and which the Company currently intends to sell, include the four-facility practice acquired on September 1, 1994, two primary care practices acquired in February 1995, a three-facility primary care practice acquired in June 1995 and two rheumatology practices acquired in 1996. The sale of the rheumatology offices in 1997 generated a gain of approximately $75,000 based on the adjusted carrying value of the practices' net assets. The sale of the primary care practices in April 1998 generated a gain of approximately $240,000 based on the adjusted carrying value of the practice's net assets, offset by a similar loss on the sale of net assets in connection with the Company's termination of a management services agreement in April 1998. The sale of primary care practices in December 1996, February 1997 and December 1997 did not generate significant gains or losses as these practices were sold for the approximate book value of their net assets. (3) PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation, and is depreciated using straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance and repairs are charged to expense when incurred and improvements are capitalized. Upon the sale or retirement of assets, the cost and accumulated depreciation are removed from the balance sheet and any gain or loss is recognized currently. Property and equipment consists of the following (in thousands):
DECEMBER 31, ------------------ 1998 1997 ------- ------- Equipment, computer hardware and software........ $ 3,704 $ 3,486 Furniture........................................ 2,341 1,919 Building and improvements........................ 1,138 1,083 ------- ------- Total.................................. 7,183 6,488 Accumulated depreciation and amortization........ (3,142) (2,950) ------- ------- Property and equipment, net............ $ 4,041 $ 3,538 ======= =======
At December 31, 1998 the net book value of property and equipment related to capital lease obligations was $867,000. I-18 80 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) Other Assets Other assets consist primarily of notes receivable entered into in connection with the sale of certain physician practices during 1998. The components of other assets are as follows (in thousands):
DECEMBER 31, 1998 ------------ Promissory note including accrued interest of $86, payable in monthly installments of $28 including interest at 7.5% with a final payment due in April 2003.................... $3,555 Promissory note, payable in monthly installments of $3, including interest at 10.73%, maturing in December 2001... 90 Promissory note including accrued interest of $12, payable in monthly installments of $12 including interest at 9.0%, maturing in April 2001.................................... 308 ------ Total notes receivable............................ 3,953 Security deposits........................................... 90 ------ Total other assets................................ 4,043 Less-Current portion........................................ (392) ------ Total non-current other assets.................... $3,651 ======
Annual maturities of notes receivable as of December 31, 1998 are as follows (in thousands): 1999................................................ 392 2000................................................ 244 2001................................................ 138 2002................................................ 103 2003................................................ 3,076 ------ Total..................................... $3,953 ======
The borrower under the promissory note which matures in April 2003, of which approximately $3.6 million is outstanding including accrued interest, is presently in default under the terms of the promissory note and the terms of the asset purchase agreement entered into in April 1998, pursuant to which the note was issued. See Note 8(d) for further disclosure of ongoing litigation regarding the promissory note. (5) LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 31, ------------------ 1998 1997 ------- ------- Revolving credit facility, maturing in April 2001, at Libor plus an applicable margin (6.9% at December 31, 1998), secured by substantially all assets of the Company................................................ $56,600 $29,000 Capital lease obligations, payable in aggregate monthly installments of $45 as of December 31, 1998, including interest ranging from 4% to 10%, maturing at various dates through 2001, secured by property and equipment.............................................. 843 1,279 ------- ------- Total debt..................................... 57,443 30,279 Less -- Current portion.................................. (449) (446) ------- ------- Total long-term debt........................... $56,994 $29,833 ======= =======
I-19 81 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Annual maturities of long-term debt as of December 31, 1998 are as follows (in thousands): 1999............................................... $ 449 2000............................................... 388 2001............................................... 56,606 ------- Total.................................... $57,443 =======
On March 12, 1997, the Company established a new $35 million revolving credit facility, which was used to pay the outstanding balance under the previous credit facility. On December 17, 1997 the Company amended its existing revolving credit facility which increased the amount available from $35 million to $50 million. On April 30, 1998 the Company further amended its revolving credit facility which increased the amount available from $50 million to $75 million. This amendment included the syndication of the credit facility with a group of banks led by NationsBank, N.A. There are no principal payments due under the new credit facility until the maturity date of April 30, 2001. The new revolving credit facility contains various restrictive covenants that include, among other requirements, the maintenance of certain financial ratios, various restrictions regarding acquisitions, sales of assets, liens and dividends, and limitations regarding investments, additional indebtedness and guarantees. The Company was in compliance with the loan covenants in the new credit facility as of December 31, 1998. The additional amount that could be borrowed under the credit facility is potentially restricted by a leverage ratio defined in the credit agreement. Based on the value of this leverage ratio at December 31, 1998, the Company had the ability to borrow an additional amount of approximately $8.0 million as of December 31, 1998. The Company entered into an interest rate swap agreement in August 1998 with NationsBank N.A., the notional amount of which is $40 million at December 31, 1998. The Company entered into the agreement to fix the interest expense paid on a portion of the amount outstanding under its credit facility with NationsBank N.A. Under the terms of the agreement, which matures in August 2001, the Company's borrowing rate is fixed at 5.54% plus the applicable margin due under the terms of the revolving credit facility. Hedge accounting treatment is applied to the interest rate swap agreement with interest differentials currently payable or receivable under the agreement recognized each period as an adjustment to interest expense. The net effect of this agreement on the Company's interest expense in 1998 was nominal. (6) 401(K) PROFIT SHARING PLANS The Company maintains 401(k) Profit Sharing Plans (the "Plans"), which are defined contribution plans covering substantially all employees who meet certain age and service requirements. For the three years ended December 31, 1998, the Company made discretionary profit sharing contributions to the Plans equal to a percentage of the eligible employees' salaries, and made other employer contributions to the Plans. There was no expense related to the Plans for the years ended December 31, 1998, 1997 and 1996 as contributions were covered in each year by the Plans' forfeitures. (7) INCOME TAXES Current income tax expense represents the income tax payable for the period. Deferred income tax expense (benefit) represents the change in the balance of deferred income taxes during the period. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes for the tax consequences in future years of differences between the tax basis and the financial reporting basis of assets and liabilities based on the enacted tax rates expected to be applicable to the future periods in which such tax consequences will occur. I-20 82 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 ------ ------ ------- Current................................. $3,653 $3,157 $ 1,343 Deferred................................ 1,417 (263) (1,154) ------ ------ ------- Total......................... $5,070 $2,894 $ 189 ====== ====== ======= Federal................................. $4,245 $2,454 $ (27) State................................... 825 440 216 ------ ------ ------- Total......................... $5,070 $2,894 $ 189 ====== ====== =======
A reconciliation of the tax provision at the statutory federal rate of 34% to the actual income tax expense (benefit) is as follows (in thousands):
YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 ------ ------ ------- Tax provision (benefit) at the federal statutory rate.......................................... $3,891 $2,741 $(3,721) State income taxes.............................. 453 319 (433) Increase (decrease) in valuation allowance for deferred tax assets........................... -- (828) 2,122 Non-deductible portion of write-down of office-based net assets....................... -- -- 1,279 Non-deductible goodwill amortization............ 830 621 516 Capital gain to be offset against unrecognized capital loss carryover........................ (190) -- -- Income of affiliates that cannot be offset against net operating losses of the Company... -- -- 296 Other, net...................................... 86 41 130 ------ ------ ------- Total................................. $5,070 $2,894 $ 189 ====== ====== =======
Deferred income taxes were related to the following timing differences at December 31, 1998 and 1997 (in thousands):
DECEMBER 31, ----------------- 1998 1997 ------- ------ Goodwill and other intangible assets...................... $ 924 $2,378 Accrual basis income of cash basis affiliates............. (487) (327) Self-insurance accruals................................... 1,290 1,420 Conversion to accrual basis by cash basis taxpayers....... (374) (388) Bad debt reserve.......................................... -- (300) Property and equipment.................................... (378) -- Original issue discount interest.......................... 321 -- Other, net................................................ (2) (72) ------- ------ Total........................................... 1,294 2,711 Valuation allowance....................................... (1,294) (1,294) ------- ------ Net deferred income taxes....................... $ 0 $1,417 ======= ======
I-21 83 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company records a valuation allowance to reflect net deferred income taxes at their estimated realizable value. (8) COMMITMENTS AND CONTINGENCIES (a) Major Customers A significant portion of the Company's revenue is derived from delivering or managing hospital-based physician services at multiple hospitals which are under common ownership. Of the Company's total net revenue in 1998, approximately $22.9 million, or 20.3%, was derived from anesthesia, obstetrics and neonatology services delivered at three hospitals owned and operated by the South Broward Hospital District. In addition, approximately $28.9 million, or 25.6% of the Company's total net revenue in 1998, was derived from anesthesia, neonatology, pediatric and emergency services delivered at 13 hospitals and two ambulatory surgical facilities owned and operated by Columbia/HCA Healthcare Corp. In addition, approximately $9.3 million, or 8.3% of the Company's total net revenue in 1998, was derived from anesthesia, neonatology, pediatric, emergency and management services delivered at three hospitals owned and operated by Tenet Healthcare Corporation. A significant portion of the Company's revenue is derived from delivering medical services to patients who are covered under various Medicare and Medicaid health care programs. Approximately 10.4% of the Company's total net revenue in 1998 was derived from the assignment of Medicare and Medicaid benefits to the Company by patients of the Company's affiliated physicians. In addition, approximately 4.4% of the Company's total net revenue in 1998 was derived from capitation payments from health maintenance organizations for patients who had assigned their Medicare or Medicaid benefits to the health maintenance organizations. In each year the amounts received from managed care organization under the Company's capitation arrangements exceeded the cost of services provided to patients under those arrangements. In addition, the Company derived 8.2%, 14.3% and 20.8% of its total net revenue in 1998, 1997 and 1996, respectively, from a single third-party payor. No other third-party payor or other customer accounted for 10% or more of the Company's net revenue in 1998. (b) Employment Agreements The Company and its affiliates have employment contracts with certain executives, physicians and other clinical and administrative employees. Future annual minimum payments under such employment agreements as of December 31, 1998 are as follows (in thousands): 1999............................................... $16,117 2000............................................... 13,722 2001............................................... 11,283 2002............................................... 9,898 2003............................................... 7,533 Thereafter......................................... 4,324 ------- Total.................................... $62,877 =======
(c) Self-insurance Due to the nature of its business, the Company becomes involved as a defendant in medical malpractice lawsuits, some of which are currently ongoing, and is subject to the attendant risk of substantial damage awards. The Company maintains professional and general liability insurance on a claims-made basis. The Company has a primary malpractice insurance policy which covers losses incurred by the Company up to a limit of $1.0 million per individual claim. In addition, the Company has a secondary malpractice insurance I-22 84 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) policy which covers losses in excess of the primary policy limits, up to a limit of $5.0 million per individual claim and a limit of $5.0 million per calendar year for all claims combined. Under the primary policy, the Company is required to pay a self-insured retention amount equal to the first $250,000 and $150,000 in 1998 and 1997, respectively, of losses for each individual claim up to a maximum aggregate self-insured retention amount of $1,000,000 and $900,000 for all claims in 1998 and 1997, respectively. Defense costs in excess of these self-insured retention amounts are paid by the Company's insurer. There can be no assurance, that an existing or future claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent and able to meet its obligations to provide coverage for any such claim or claims or that such coverage will continue to be available with sufficient limits and at a reasonable cost to adequately and economically insure the Company's operations in the future. A judgment against the Company in excess of such coverage could have a material adverse effect on the Company. The liability for self-insurance accruals in the accompanying balance sheets includes estimates of the ultimate costs related to both reported claims and claims incurred but not reported. The estimate of claims incurred but not reported was $3,165,000, $2,522,000 and $2,095,000 at December 31, 1998, 1997 and 1996, respectively, which represents an estimate of the aggregate cost to be incurred by the Company on unreported claims. An analysis of the self-insurance accrual is as follows (in thousands):
YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 ------- ------ ------ Balance, beginning of year.............. $ 3,973 $3,170 $1,615 Provision for self-insurance............ 1,159 378 1,252 Self-insurance accruals related to acquired physician practices.......... 892 626 439 Payments made for claims................ (1,705) (201) (136) ------- ------ ------ Balance, end of year.................... $ 4,319 $3,973 $3,170 ======= ====== ======
Payments made for claims increased in 1998 as a result of an increase in reported claims during 1997, many of which are incurring ongoing legal defense costs or were settled during 1998. The increase in reported claims was anticipated due to the growth in the Company's overall business and addition of medical specialties that historically have demonstrated a higher frequency of malpractice claims. Historically, the malpractice claims asserted against the Company have not exceeded the limits of its professional liability insurance and the Company's cost of self-insurance has been limited to the maximum annual aggregate retention amount. (d) Litigation In October 1996, the Company and certain of its directors, officers and legal advisors were named as defendants in a lawsuit filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by certain former physician stockholders of the Company's Predecessor. The claim alleges that the defendants engaged in a conspiracy of fraud and deception for personal gain in connection with inducing the plaintiffs to sell their stock in the Predecessor to the Company, as well as legal malpractice and violations of Florida securities laws. The claim seeks damages of at least $10 million and the imposition of a constructive trust and disgorgement of stock and options held by certain members of the Company's management. The Company believes the lawsuit is without merit and continues to vigorously defend against it and also believes the lawsuit's ultimate resolution and ongoing professional fees incurred as defense costs will not have a material adverse impact on the financial position, operations and cash flows of the Company. In December 1998, the buyer of two medical practices previously owned by the Company, filed suit against the Company in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The complaint seeks to recover money damages and rescind the sale of the medical practices, based I-23 85 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) upon alleged misrepresentations and concealment by the Company with respect to its relationship with a third party payor in regards to these practices. The practices were sold by the Company to the buyer in April 1998 in exchange for the execution of a promissory note in the amount of $3,550,000 which is presently in default. The Company believes the lawsuit is without merit and intends to vigorously defend against it while vigorously pursuing a counter claim for recovery on its unsecured purchase money note. The Company also believes the lawsuit's ultimate resolution and ongoing professional fees incurred as defense costs will not have a material adverse impact on the financial position, operations and cash flows of the Company. See Note (2) for further disclosure regarding the sale of the primary care practices referred to in this paragraph. (e) Lease Commitments The Company leases office space and furniture and equipment for its physician practice locations and administrative office under various non-cancellable operating leases. Rent expense under operating leases was $2,230,733, $2,475,000 and $2,399,000 in 1998, 1997 and 1996, respectively. Future annual minimum payments under non-cancellable operating leases as of December 31, 1998 are as follows (in thousands): 1999............................................... $ 2,231 2000............................................... 2,044 2001............................................... 1,857 2002............................................... 1,593 2003............................................... 1,264 Thereafter......................................... 2,282 ------- Total.................................... $11,271 =======
(f) Government Regulation The healthcare industry in general, and the services that the Company provides are subject to extensive federal and state laws and regulations. Additionally, a significant portion of the Company's net revenue is from payment by government-sponsored health care programs, principally Medicare and Medicaid, and is subject to audit and adjustments by applicable regulatory agencies. Failure to comply with any of these laws or regulations, the results of regulatory audits and adjustments, or changes in the amounts payable for the Company's services under these programs could have a material adverse effect on the Company's financial position and results of operations. Federal and state laws regulate the healthcare industry, the relationship between practice management companies such as the Company and physicians, and the relationship among physicians and other providers of healthcare services. Several laws, including fee-splitting, anti-kickback laws and prohibition of the corporate practice of medicine, have civil and criminal penalties and have been subject to limited judicial and regulatory interpretation. They are enforced by regulatory agencies vested with broad discretion in interpreting them. The Company's agreements and proposed activities have not been examined by federal or state authorities under these laws and regulations. Although the Company believes that its operations are conducted so as to comply with all of the applicable laws, there can be no assurance such operations will not be challenged as in violation of one or more of such laws. In addition, these laws and their interpretation vary from state to state. The regulatory framework at certain jurisdictions may limit the Company's expansion into or ability to continue operations within such jurisdictions, if the Company is unable to modify its operational structure to conform to such regulatory framework. Any limitation on the Company's ability to expand could have an adverse effect on the Company. There have been numerous initiatives at the federal and state levels for comprehensive reforms affecting the availability of, and payment for, healthcare. The Company believes that such initiatives will continue I-24 86 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) during the foreseeable future. Certain reforms previously proposed could, if adopted, have a material effect on the Company. (9) STOCKHOLDERS' EQUITY At January 1, 1995, the issued and outstanding stock of the Company consisted of 409,900 shares of the Company's Class A voting common stock held by management of the Company and 350,000 and 78,572 shares of Class A and Class B Convertible Preferred Stock, respectively. Each share of Class A and Class B Convertible Preferred Stock was convertible, at the option of the holder, into one-fourth of a share of Class A voting and Class B non-voting common stock, respectively, and three-fourths of a share of Redeemable Preferred Stock. The Class A and Class B Convertible Preferred Stock accrued dividends on a cumulative basis at 7.5% per annum, and had a liquidation value of $50 per share. In June 1995, the Company issued a convertible promissory note for $5.0 million, which was convertible into 181,671 shares of common stock. The noteholder also received a warrant to purchase up to an additional 45,410 shares of the Company's common stock at an exercise price of $0.58 per share which becomes exercisable in three installments if, through the substantial efforts of the noteholder, the Company consummates transactions with physician practices (generally either by acquiring such practices or entering into agreements to manage such practices) which collectively result in certain increases in the Company's earnings during certain measurement periods. The first and second installments, which consisted of 15,146 shares each, expired unexercised in December 1996 and 1997, respectively. The remaining installment of 15,132 shares expired unexercised in June 1998. The Company completed an initial public offering of its common stock on November 3, 1995, in which it issued 3,825,000 shares of common stock at a price of $13.00 per share. In connection with the public offering (i) the Company increased the amount of authorized preferred stock to 5,000,000 shares and increased the amount of authorized common stock to 31,000,000 shares, (ii) all of the outstanding Class A and Class B Convertible Preferred Stock was converted into 1,321,377 shares of Class A common stock, 296,638 shares of Class B common stock, and 321,429 shares of Redeemable Preferred Stock, (iii) all of the Redeemable Preferred Stock was redeemed by the Company for an aggregate amount of $16.1 million, (iv) the Class A voting common stock was redesignated as "common stock" and the Class B non-voting common stock was redesignated as "Class A common stock," and (v) a 15.10-to-one stock split was effected as a stock dividend. The 15.10-to-one stock split has been retroactively reflected in the accompanying consolidated financial statements. The initial public offering generated net proceeds to the Company of $44.8 million. Of the total proceeds, $16.1 million was used to redeem the Company's redeemable preferred stock, $26.1 million was used to repay long-term debt, $1.5 million was used to pay accrued dividends on convertible preferred stock, and $1.1 million was used to pay certain deferred payments in connection with the acquisition of a physician practice in June 1995. In March 1996, the Company issued approximately 658,000 shares of its common stock as partial consideration for an acquisition of a hospital-based physician practice, as discussed in Note 2. In May 1997, the Company reduced the amount of authorized common stock from 31,000,000 shares to 21,000,000 shares. In November 1997, the Company issued approximately 14,000 shares of its common stock as partial consideration for an acquisition of an office-based physician practice. During the period from January 1998 through June 1998 the Company issued approximately 1,428,000 shares of its common stock as partial consideration in the acquisition of seven physician practices. Pursuant to a stock repurchase program approved by the Company's Board of Directors, the Company repurchased approximately 425,000 shares of its common stock from July 1998 through December 1998 for approximately $3.7 million. The shares repurchased have been retired and cancelled. Employees of the Company exercised I-25 87 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options to acquire approximately 23,000 and 77,000 shares of the Company's common stock during 1998 and 1997, respectively. (10) STOCK OPTIONS The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") in 1996. As permitted under SFAS No. 123 the Company has elected to continue using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. Each employee stock option has an exercise price equal to the market price on the date of grant and, accordingly, no compensation expense has been recorded for any stock option grants to employees. In 1995 the Company adopted the 1995 Stock Option Plan, under which 750,000 shares of common stock were reserved for issuance. An amendment to the plan in 1997 and second amendment in 1998 increased the shares of common stock reserved for issuance to 1,350,000 which was subsequently amended in 1998 to increase the shares of common stock reserved for issuance to 1,750,000. Options granted under the 1995 Stock Option Plan become exercisable either over time, or upon the attainment of defined operating goals. All stock options granted expire ten years after the date of grant. Stock option activity has been as follows:
1998 1997 1996 -------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- -------- --------- -------- --------- -------- Balance, beginning of year.... 937,084 $7.91 553,911 $5.73 321,461 $8.82 Granted during year........... 522,675 13.18 471,500 9.27 608,071 7.17 Terminated during year........ -- -- -- -- (335,071) 10.51 Exercised..................... (23,475) 3.92 (77,190) 0.58 -- -- Forfeited during year......... (34,105) 8.97 (11,137) 6.65 (40,550) 12.32 --------- ------- -------- Balance, end of year........ 1,402,179 $9.92 937,084 $7.91 553,911 $5.73 ========= ======= ======== Exercisable at end of year.... 397,223 $8.13 151,716 $6.25 131,283 $3.38
The weighted average fair value per share as of the grant date was $6.78 for stock options granted in 1998, $6.11 for stock options granted in 1997, $4.15 for stock options granted in 1996 and $6.82 for stock options granted in 1995. The determination of the fair value of all stock options granted in 1998, 1997, 1996 and 1995 was based on (i) risk-free interest rates of 6.2% to 6.5%, depending on the expected life of each option, (ii) expected option lives of 3 to 6 years, depending on the vesting provisions of each option, (iii) expected volatility in the market price of the Company's common stock from 50% to 78%, and (iv) no expected dividends on the underlying common stock. Stock options outstanding at December 31, 1998 consisted of the following:
TOTAL OUTSTANDING EXERCISABLE -------------------------------- ------------------ WEIGHTED AVERAGE WEIGHTED RANGE OF NUMBER -------------------- NUMBER AVERAGE EXERCISE OF EXERCISE REMAINING OF EXERCISE PRICES SHARES PRICE LIFE SHARES PRICE - - ---------------- --------- -------- --------- ------- -------- $.58 22,508 $ .58 6.2 years 22,508 $ .58 $5.75 to $8.13.. 326,746 6.48 7.1 years 245,382 6.64 $8.75 to $9.50.. 520,250 9.22 8.3 years 39,334 8.70 $10.00 to $14.25........ 532,675 13.12 9.3 years 89,999 13.85 --------- ------- Total 1,402,179 $ 9.92 8.3 years 397,223 $ 8.13 ========= =======
I-26 88 SHERIDAN HEALTHCARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the pro forma consolidated results of operations of the Company as though the fair value based accounting method in SFAS No. 123 had been used in accounting for stock options.
YEAR ENDED DECEMBER 31, ---------------------- 1998 1997 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) AS REPORTED RESULTS OF OPERATIONS: Net income................................................. $6,373 $5,167 Net income per share -- basic.............................. $ 0.80 $ 0.77 Net income per share -- diluted............................ $ 0.78 $ 0.73 PRO FORMA RESULTS OF OPERATIONS: Net income................................................. $4,113 $3,495 Net income per share -- basic.............................. $ 0.52 $ 0.52 Net income per share -- diluted............................ $ 0.50 $ 0.50
(11) SUBSEQUENT EVENT In January 1999 the Company completed the acquisition of a physician practice for approximately $1.9 million which was paid in cash. From January 1999 through March 16, 1999 the Company repurchased approximately 1,275,000 shares of its common stock for approximately $10.6 million from certain physicians who received the Company's common stock as partial consideration for the acquisition of their practices by the Company from January 1998 through March 1998, see Note (2). Concurrent with such repurchases, the Company made payments of approximately $5.6 million in connection with the stock price guarantees associated with the stock issued and repurchased in those acquisitions. On March 25, 1999 the Company announced the signing of a definitive merger agreement between the Company and an investor group led by Vestar Capital Partners and Sheridan Healthcare, Inc. senior management. Under the terms of the agreement, the investor group will offer Sheridan Healthcare, Inc. shareholders $9.25 per share in cash for all outstanding common shares in a tender offer. Including debt and other obligations of the Company, and costs expected to be incurred in connection with the acquisition, the total value of the transaction is approximately $155 million. The transaction was unanimously recommended by the Company's Board of Directors and is subject to a variety of conditions, including receipt of at least a majority of the voting stock in the tender offer, shareholder approval, financing and regulatory approvals. I-27 89 SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 1. Directors and Executive Officers of the Company. The following table sets forth the name, the business address, position with the Company, present principal occupation or employment and five-year employment history of the directors and executive officers of the Company. Each individual listed below is a citizen of the United States. DIRECTORS
PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- ---------------------------------------------------------- Mitchell Eisenberg, M.D................ Dr. Eisenberg joined the Company in 1982, has been a c/o Sheridan Healthcare, Inc. director of the Company since 1985, has been President 4651 Sheridan Street, since 1989, and has been Chairman of the Board and Chief Suite 200 Executive Officer since 1994. Prior to joining the Hollywood, FL 33021 Company, Dr. Eisenberg was in private practice. Lewis D. Gold, M.D..................... Dr. Gold joined the Company in 1985 as an anesthesiologist c/o Sheridan Healthcare, Inc. and has been a director of the Company since 1988. He has 4651 Sheridan Street, served as Executive Vice President Business Development Suite 200 since 1994. Dr. Gold was also Chief of the Department of Hollywood, FL 33021 Anesthesia of Parkway Regional Medical Center from 1990 to 1994. Neil A. Natkow, D.O.................... Dr. Natkow was appointed to the Company's Board of c/o Sheridan Healthcare, Inc. Directors in July 1996. Dr. Natkow served as Senior Vice 4651 Sheridan Street, President -- Health Care for Precision Response Suite 200 Corporation, a publicly traded company, from February 1997 Hollywood, FL 33021 until October 1997, and is currently a member of Precision Response Corporation's Board of Directors. Upon leaving Precision Response Corporation, Dr. Natkow became President of NAN II, Inc., a Florida Corporation which is the general partner of PhyTrust, Ltd., a Florida management services organization. From December 1993 until October 1995, Dr. Natkow served as an executive officer of PCA Health Plans of Florida, a health maintenance organization, most recently as its Chief Executive Officer. From July 1992 to December 1993, Dr. Natkow was the President and Chief Executive Officer of Family Health Plan, a health maintenance organization, and from June 1987 to July 1992, Dr. Natkow was the Vice President for Professional Affairs at Southeastern University for Health Sciences. Jamie E. Hopping....................... Mrs. Hopping has been a director of the Company since c/o Sheridan Healthcare, Inc. February 1998. Mrs. Hopping is currently President and 4651 Sheridan Street, Chief Executive Officer of Benchark Oncology, Inc. Prior Suite 200 to that she served as an independent health care Hollywood, FL 33021 consultant from September 1997 to December 1998. From January 1996 to August 1997, Mrs. Hopping served as a Group President of Columbia/HCA Healthcare Corporation and from February 1994 to January 1996 served as its Division President. Prior to that, Mrs. Hopping served as the Chief Executive Officer of Deering Hospital and Grant Center, an acute care hospital and psychiatric facility, from September 1990 to January 1993.
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PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- ---------------------------------------------------------- Henry E. Golembesky, M.D............... Dr. Golembesky has been a director of the Company since c/o Sheridan Healthcare, Inc. November 1995. Dr. Golembesky is currently a health care 4651 Sheridan Street, consultant to Cejka & Company. Prior to that, Dr. Suite 200 Golembesky served as a health care consultant to APM, Inc. Hollywood, FL 33021 from January 1993 to October 1998. From 1990 to 1992, Dr. Golembesky served as President and Chief Executive Officer of UniMed America, a physician services division of Unihealth. EXECUTIVE OFFICERS AND ROBERT J. COWARD Mitchell Eisenberg, M.D................ Chairman of the Board and Chief Executive Officer Lewis D. Gold.......................... Executive Vice President Business Development Michael F. Schundler................... Mr. Schundler joined the Company in July 1996 as Chief c/o Sheridan Healthcare, Inc. Operating Officer and currently serves as both Chief 4651 Sheridan Street, Operating Officer and Chief Financial Officer. Previously, Suite 200 Mr. Schundler served as Vice President -- Operations at Hollywood, FL 33021 American Health Network from 1994 to 1996 and as Chief Financial Officer of AdminiStar, Inc. from 1991 to 1994. Prior to that, Mr. Schundler was Senior Vice President -- Finance of Merrill Lynch Life Insurance Co. and Family Life Insurance Co. Gilbert L. Drozdow, M.D., M.B.A........ Dr. Drozdow joined the Company in 1987 as an c/o Sheridan Healthcare, Inc. anesthesiologist and was a director of the Company from 4651 Sheridan Street, 1990 to 1994. He served the Company as Vice President Suite 200 Medical Affairs from 1994 to February 1996 and has served Hollywood, FL 33021 as Vice President Hospital-Based Services since February 1996. He was also Chairman of the Department of Anesthesia at Westside Regional Medical Center in 1994. Jay A. Martus, Esq..................... Mr. Martus joined the Company in 1994 as Vice President, c/o Sheridan Healthcare, Inc. Secretary and General Counsel. Prior to joining the 4651 Sheridan Street, Company, he was a partner with the law firm of Levey & Suite 200 Martus, P.A. Mr. Martus represented the Company as outside Hollywood, FL 33021 general counsel from 1989 to 1994. Barry D. Chandler, M.D................. Dr. Chandler joined the Company in 1996 as a Vice c/o Sheridan Healthcare, Inc. President of Neonatology Operations, when the Company 4651 Sheridan Street, acquired a neonatology and pediatric practice of which he Suite 200 was a shareholder. Dr. Chandler has been Director of Hollywood, FL 33021 Neonatology at Plantation General Hospital from 1983 to the present. Richard Auerbach, M.D.................. Dr. Auerbach joined the Company in 1996 as a Vice c/o Sheridan Healthcare, Inc. President of Neonatology Operations, when the Company 4651 Sheridan Street, acquired a neonatology and pediatric practice of which he Suite 200 was a shareholder. Dr. Auerbach has been Director of Hollywood, FL 33021 Neonatology at Joe DiMaggio Children's Hospital since 1986.
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PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- ---------------------------------------------------------- Robert J. Coward....................... Mr. Coward joined the Company in March of 1994 as c/o Sheridan Healthcare, Inc. Controller and served in such capacity through June of 4651 Sheridan Street, 1997. From July 1997 to the present, he serves the Company Suite 200 as Vice President of Finance. Hollywood, FL 33021
II-3 92 SCHEDULE III DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS 1. Directors and Executive Officers of Holdings. The following table sets forth the name, the business address, position with Holdings, present principal occupation or employment and five-year employment history of the directors and executive officers of Holdings. Each individual listed below is a citizen of the United States, except David M. Hooper, who is a citizen of the Republic of Ireland. DIRECTORS Not Applicable EXECUTIVE OFFICERS
PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- -------------------------------------------------------- James L. Elrod, Jr. ...................... President of Holdings. Vice President of Vestar c/o Vestar Associates Corporation III Associates Corporation III ("VAC III"). Mr. Elrod joined 245 Park Avenue an affiliate of VAC III in 1998. From 1994 through 1997, 41st Floor he served as the Chief Financial Officer and Chief New York, New York 10167 Operating Officer of Physicians Health Services. From 1980 to 1994, he served as Managing Director of Dillon, Read & Co. Mr. Elrod is a director of Pinnacle Automation, Inc. and Alvey Systems, Inc., both companies in which an affiliate of VAC III has a significant equity interest, and D.D.S. Partners, a dental practice management company. Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary of c/o Vestar Associates Corporation III Holdings. Vice President of VAC III and was a founding 245 Park Avenue partner of an affiliate of VAC III at its inception in 41st Floor 1988. Mr. Rosner is Chairman of Russell-Stanley New York, New York 10167 Holdings, Inc. and a director of Remington Products Company, L.L.C., both companies in which an affiliate of VAC III has a significant equity interest. David M. Hooper........................... Vice President, Secretary and Assistant Treasurer of c/o Vestar Associates Corporation III Holdings. Vice President of Vestar Capital, which he 245 Park Avenue joined in 1994. Mr. Hooper is a director of Advanced 41st Floor Organics Holdings, Inc., a company in which an affiliate New York, New York 10167 of VAC III has a significant equity interest.
III-1 93 SCHEDULE III DIRECTORS AND EXECUTIVE OFFICERS OF PARENT 1. Directors and Executive Officers of Parent. The following table sets forth the name, the business address, position with Parent, present principal occupation or employment and five-year employment history of the directors and executive officers of Parent. Each individual listed below is a citizen of the United States, except David M. Hooper, who is a citizen of the Republic of Ireland. DIRECTORS
PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- -------------------------------------------------------- James L. Elrod, Jr. ...................... Vice President of VAC III. Mr. Elrod joined an affiliate c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as 245 Park Avenue the Chief Financial Officer and Chief Operating Officer 41st Floor of Physicians Health Services. From 1980 to 1994, he New York, New York 10167 served as Managing Director of Dillon, Read & Co. Mr. Elrod is a director of Pinnacle Automation, Inc. and Alvey Systems, Inc., both companies in which an affiliate of VAC III has a significant equity interest, and D.D.S. Partners, a dental practice management company. Robert L. Rosner.......................... Vice President of VAC III and was a founding partner of c/o Vestar Associates Corporation III an affiliate of VAC III at its inception in 1988. Mr. 245 Park Avenue Rosner is Chairman of Russell-Stanley Holdings, Inc. and 41st Floor a director of Remington Products Company, L.L.C., both New York, New York 10167 companies in which an affiliate of VAC III has a significant equity interest. David M. Hooper........................... Vice President of Vestar Capital, which he joined in c/o Vestar Associates Corporation III 1994. Mr. Hooper is a director of Advanced Organics 245 Park Avenue Holdings, Inc., a company in which an affiliate of VAC 41st Floor III has a significant equity interest. New York, New York 10167 EXECUTIVE OFFICERS James L. Elrod, Jr. ...................... President Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary David M. Hooper........................... Vice President, Secretary and Assistant Treasurer
III-2 94 SCHEDULE III DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER 1. Directors and Executive Officers of the Purchaser. The following table sets forth the name, the business address, position with the Purchaser, present principal occupation or employment and five-year employment history of the directors and executive officers of the Purchaser. Each individual listed below is a citizen of the United States, except David M. Hooper, who is a citizen of the Republic of Ireland. DIRECTORS
PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY ---- -------------------------------------------------------- James L. Elrod, Jr. ...................... Vice President of VAC III. Mr. Elrod joined an affiliate c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as 245 Park Avenue the Chief Financial Officer and Chief Operating Officer 41st Floor of Physicians Health Services. From 1980 to 1994, he New York, New York 10167 served as Managing Director of Dillon, Read & Co. Mr. Elrod is a director of Pinnacle Automation, Inc. and Alvey Systems, Inc., both companies in which an affiliate of VAC III has a significant equity interest, and D.D.S. Partners, a dental practice management company. Robert L. Rosner.......................... Vice President of VAC III and was a founding partner of c/o Vestar Associates Corporation III an affiliate of VAC III at its inception in 1988. Mr. 245 Park Avenue Rosner is Chairman of Russell-Stanley Holdings, Inc. and 41st Floor a director of Remington Products Company, L.L.C., both New York, New York 10167 companies in which an affiliate of VAC III has a significant equity interest. David M. Hooper........................... Vice President of Vestar Capital, which he joined in c/o Vestar Associates Corporation III 1994. Mr. Hooper is a director of Advanced Organics 245 Park Avenue Holdings, Inc., a company in which an affiliate of VAC 41st Floor III has a significant equity interest. New York, New York 10167 EXECUTIVE OFFICERS James L. Elrod, Jr. ...................... President Robert L. Rosner.......................... Vice President, Treasurer and Assistant Secretary David M. Hooper........................... Vice President, Secretary and Assistant Treasurer
III-3 95 DIRECTORS AND EXECUTIVE OFFICERS OF VAC III 1. Directors and Executive Officers of VAC III. The following table sets forth the name, the business address, position with VAC III, present principal occupation or employment and five-year employment history of the directors and executive officers of VAC III. Each individual listed below is a citizen of the United States, except Prakash A. Melwani, who is a British National Overseas Citizen. DIRECTORS
PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY - - ------------------------------------------ -------------------------------------------------------- Daniel S. O'Connell....................... President and Chief Executive officer of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 EXECUTIVE OFFICERS Daniel S. O'Connell....................... President and Chief Executive Officer of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 Prakash A. Melwani........................ Vice President and Secretary of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 James P. Kelley........................... Vice President of VAC III. c/o Vestar Associates Corporation III 1225 17th Street Suite 1660 Denver, Colorado 80202 Norman W. Alpert.......................... Vice President of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 Arthur J. Nagle........................... Vice President of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 John R. Woodard........................... Vice President of VAC III. Mr. Woodard joined an c/o Vestar Associates Corporation III affiliate of VAC III in February 1998. From March 1996 1225 17th Street to February 1998, he served as a Managing Director of Suite 1660 The Blackstone Group. From 1990 to March 1996, Mr. Denver, Colorado 80202 Woodard was a Vice President of Vestar Capital.
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PRINCIPAL OCCUPATION OR EMPLOYMENT AND NAME FIVE-YEAR EMPLOYMENT HISTORY - - ------------------------------------------ -------------------------------------------------------- Robert L. Rosner.......................... Vice President of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 Sander M. Levy............................ Vice President of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 Nicholas A. Dovidio....................... Vice President of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 Brian P. Schwarz.......................... Chief Financial Officer of VAC III. c/o Vestar Associates Corporation III 245 Park Avenue 41st Floor New York, New York 10167 James L. Elrod, Jr........................ Vice President of VAC III. Mr. Elrod joined an affiliate c/o Vestar Associates Corporation III of VAC III in 1998. From 1994 through 1997, he served as 245 Park Avenue the Chief Financial Officer and Chief Operating Officer 41st Floor of Physicians Health Services. New York, New York 10167
III-5 97 SCHEDULE IV SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW IV-1 98 SCHEDULE IV The following is the text of Section 262 of the Delaware General Corporation Law. 262 APPRAISAL RIGHTS -- (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger of consolidation nor consented thereto in writing pursuant to sec.228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec.251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec.253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate IV-2 99 of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of (1)such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of (1)such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subscription and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec.228 or sec.253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall not be more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a IV-3 100 determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw (1)such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement will be mailed to the stockholder within 10 days after (1) such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted (1) such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that (2) such stockholder is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. IV-4 101 (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded(1) appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of (1)such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 339, L. '98, eff. 7-1-98.) - - --------------- Ch. 339, L. '98, eff. 7-1-98, added matter in italic and deleted (1)"his" and (2)"he". IV-5 102 SCHEDULE V AGREEMENT AND PLAN OF MERGER, DATED AS OF MARCH 24, 1999, AMONG PARENT, THE PURCHASER AND THE COMPANY V-1 103 EXECUTION COPY AGREEMENT AND PLAN OF MERGER AMONG VESTAR/CALVARY HOLDINGS, INC., VESTAR/CALVARY, INC. AND SHERIDAN HEALTHCARE, INC. DATED AS OF MARCH 24, 1999 104 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE OFFER 1.1 The Offer................................................... 2 1.2 Company Action.............................................. 2 ARTICLE II THE MERGER 2.1 The Merger; Filing and Effective Time....................... 3 2.2 Closing..................................................... 4 2.3 Effects of the Merger....................................... 4 2.4 Certificate of Incorporation; By Laws....................... 4 2.5 Directors and Officers...................................... 4 ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF COMPANY AND THE MERGER SUB 3.1 Effect on Capital Stock..................................... 4 3.2 Company Options............................................. 5 3.3 Dissenters' Rights.......................................... 5 3.4 Paying Agent................................................ 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER 4.1 Existence, Good Standing, Corporate Authority............... 6 4.2 Authorization of Agreement and Other Documents.............. 7 4.3 Non-Contravention........................................... 7 4.4 Disclosure Documents........................................ 7 4.5 Brokers..................................................... 8 4.6 Commitment Letters.......................................... 8 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5.1 Organization, Standing and Qualification.................... 8 5.2 Capitalization.............................................. 8 5.3 Subsidiaries................................................ 9 5.4 Constituent Documents....................................... 9 5.5 Authorization of Agreement.................................. 9 5.6 Non-Contravention........................................... 9 5.7 Compliance with Laws........................................ 10 5.8 Commission Documents........................................ 10 5.9 Insurance................................................... 10 5.10 Litigation.................................................. 11 5.11 Taxes....................................................... 11 5.12 ERISA....................................................... 12
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PAGE ---- 5.13 Environmental Matters; OSHA................................. 13 5.14 Interim Conduct of Business................................. 13 5.15 No Brokers.................................................. 14 5.16 Disclosure Documents........................................ 14 5.17 Billing and Coding.......................................... 14 5.18 Properties.................................................. 15 5.19 Material Contract Defaults; Non-Compete..................... 15 5.20 Transactions with Affiliates................................ 16 5.21 Vote Required; State Takeover Statutes...................... 16 5.22 1998 Financial Statements................................... 16 5.23 Year 2000 Compliance........................................ 16 ARTICLE VI COVENANTS 6.1 Interim Operations.......................................... 17 6.2 Stockholders Meeting........................................ 19 6.3 Proxy Statement, Etc. ...................................... 20 6.4 Company Board Representation; Section 14(f)................. 20 6.5 Inspection of Records....................................... 21 6.6 Publicity................................................... 21 6.7 Further Action; Reasonable Best Efforts..................... 21 6.8 Employee Benefit Plans...................................... 22 6.9 Indemnification of Directors and Officers of the Company.... 22 6.10 No Solicitations............................................ 23 6.11 Disposition of Litigation................................... 24 6.12 Financing-Related Cooperation............................... 24 6.13 Stop Transfer Order......................................... 24 ARTICLE VII CONDITIONS 7.1 Conditions to Each Party's Obligation to Effect the 24 Merger...................................................... 7.2 Additional Condition to the Obligations of Holdings and the 25 Purchaser to Effect the Merger.............................. ARTICLE VIII TERMINATION AND WAIVER 8.1 Termination................................................. 25 8.2 Termination Fees and Expenses............................... 26 8.3 Effect of Termination and Abandonment....................... 27 8.4 Extension; Waiver........................................... 28 ARTICLE IX GENERAL PROVISIONS 9.1 Nonsurvival of Representations, Warranties and Agreements... 28 9.2 Notices..................................................... 28 9.3 Assignment, Binding Effect.................................. 29 9.4 Entire Agreement............................................ 29
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PAGE ---- 9.5 Amendment................................................... 29 9.6 Governing Law............................................... 29 9.7 Counterparts................................................ 29 9.8 Headings.................................................... 29 9.9 Interpretation.............................................. 29 9.10 Waivers..................................................... 29 9.11 Incorporation of Exhibits................................... 30 9.12 Severability................................................ 30 9.13 Enforcement of Agreement.................................... 30
Annex A Offer Conditions Exhibit A Amended and Restated Certificate of Incorporation of the Company Exhibit B Merger Sub By-laws
iii 107 AGREEMENT AND PLAN OF MERGER PLAN AND AGREEMENT OF MERGER (the "Agreement") dated as of March 24, 1999, among VESTAR/CALVARY HOLDINGS, INC., a Delaware corporation ("Holdings"), VESTAR/CALVARY, INC., a Delaware corporation and a wholly owned subsidiary of Holdings (the "Purchaser"), and SHERIDAN HEALTHCARE, INC., a Delaware corporation (the "Company") (the Purchaser and Company being sometimes collectively referred to herein as the "Constituent Corporations"). WITNESSETH: WHEREAS, the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company and the stockholders of the Company to enter into this Agreement providing for the merger (the "Merger") of Purchaser into the Company in accordance with the General Corporation Law of the State of Delaware ("DGCL"), upon the terms and subject to the conditions set forth herein; WHEREAS, the Boards of Directors of Holdings and Purchaser have each approved the Merger in accordance with the DGCL upon the terms and subject to the conditions set forth herein; WHEREAS, as promptly as practicable (but in no event later than five business days after the public announcement of the execution hereof), the Purchaser shall commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) an offer (the "Offer") to purchase for cash all of the outstanding shares of common stock, par value $0.01 per share ("Voting Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock"), of the Company (collectively, the shares of Voting Common Stock and Class A Common Stock being referred to herein as the "Shares" or the "Company Common Stock"), of the Company at a price of $9.25 per Share, net to the seller in cash, subject to the conditions set forth in Annex A hereto; WHEREAS, the Board of Directors of the Company has (i) determined that the consideration to be paid for each Share in the Offer and in the Merger is fair to and in the best interests of the stockholders of the Company and (ii) resolved to recommend acceptance of the Offer and the Merger and adoption of this Agreement by such stockholders; WHEREAS, as a condition to their willingness to enter into this Agreement and consummate the transactions contemplated hereby, Holdings and the Purchaser have required each of Mitchell Eisenberg, Lewis Gold, Michael Schundler and Jay Martus (the "Senior Stockholders") and Gilbert Drozdow and Robert Coward (collectively with the Senior Stockholders, the "Stockholders"), contemporaneously with the execution and delivery of this Agreement, to enter into (i) in the case of the Senior Stockholders, an employment agreement with the Company to be effective upon the purchase of Shares pursuant to the Offer, (ii) in the case of the Senior Stockholders and Gilbert Drozdow, a Stockholders Agreement with each other and Holdings and the other parties thereto (the "Stockholders Agreement") and (iii) in the case of the Senior Stockholders and Gilbert Drozdow, a Subscription and Tender Agreement with Holdings and, in the case of Robert J. Coward, a Tender Agreement (the "Subscription and Tender Agreements") to be effective upon the purchase of Shares pursuant to the Offer pursuant to which, among other things, each of them (x) other than Robert Coward, shall purchase shares of common stock of Holdings following the purchase of Shares pursuant to the Offer, (y) shall be granted following the consummation of the Merger options to purchase common stock of Holdings and (z) has agreed to tender all of his Shares pursuant to the Offer (such employment agreements, Stockholders Agreement, Subscription and Tender Agreements and related documents collectively referred to herein as the "Stockholder Documents"); and WHEREAS, the Board of Directors of the Company has approved the merger (the "Merger") of Purchaser into the Company in accordance with the DGCL upon the terms and subject to the conditions set forth herein. 108 NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE I THE OFFER 1.1 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Article VIII and no event shall have occurred and no circumstance shall exist which would result in a failure to satisfy any of the conditions or events set forth in Annex A hereto (the "Offer Conditions"), Purchaser shall commence the Offer as soon as practicable after the date hereof, and in any event within five business days from the date hereof. The obligation of Purchaser to accept for payment Shares tendered shall be subject to the satisfaction of the Offer Conditions. Purchaser expressly reserves the right, in its sole discretion, to waive any such condition and make any other changes in the terms and conditions of the Offer, provided that, unless previously approved by the Company in writing, (i) Purchaser may not amend or waive the Minimum Condition (as defined in Annex A), (ii) no change may be made which decreases the price per Share payable in the Offer, (iii) there shall be no change to the form of consideration payable in the Offer (other than by adding consideration), (iv) there shall be no reduction in the maximum number of Shares to be purchased in the Offer, or (v) there shall be no imposition of any condition to the Offer in addition to those set forth herein which is materially adverse to holders of the Shares. Purchaser covenants and agrees that, subject to the terms and conditions of this Agreement, including the Offer Conditions, it will accept for payment and pay for Shares validly tendered and not withdrawn pursuant to the Offer as promptly as reasonably practicable; provided, that Purchaser shall extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer; and provided that Purchaser shall have the right, in its sole discretion, to extend the Offer for up to five business days, notwithstanding the prior satisfaction of the Offer Conditions, in order to attempt to satisfy the requirements of Section 253 of the DGCL. The initial expiration date of the Offer shall be 20 business days from the commencement of the Offer in accordance with applicable law. Subject to the foregoing, it is agreed that the Offer Conditions are for the benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition (including any action or inaction by Purchaser or Holdings not inconsistent with the terms hereof) or may be waived by Purchaser, in whole or in part at any time and from time to time, in its sole discretion. (b) As soon as reasonably practicable after the date hereof, and in any event within five business days from the date hereof, Purchaser and Holdings shall file their Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") and Schedules 13D and 13E-3 with respect to the Offer with the Securities and Exchange Commission (the "Commission"). The Schedule 14D-1 will contain an Offer to Purchase and forms of the related letter of transmittal (which Schedule 14D-1, Offer to Purchase and other documents, together with any further supplements or amendments thereto, are referred to herein collectively as the "Offer Documents"). Holdings, Purchaser and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and Holdings and Purchaser further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the Commission and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to their filing with the Commission. Holdings and Purchaser agree to provide the Company with any comments that may be received from the Commission or its staff with respect to the Offer Documents promptly after receipt thereof. (c) Notwithstanding any other provision contained herein, the Offer shall terminate upon termination of this Agreement pursuant to Article VIII. 1.2 Company Action. (a) The Company hereby approves of and consents to the Offer and represents and warrants that: (i) its Board of Directors, at a meeting duly called and held on March 24, 1999, has unanimously (excluding directors who would be considered "interested directors" under Section 144 of the DGCL and who abstained) (A) determined that this Agreement and the transactions contemplated hereby, 2 109 including each of the Offer and the Merger, are fair to and in the best interests of the holders of Shares, (B) approved this Agreement and the Offer and the Merger and the other transactions contemplated hereby, (C) declared the Merger to be advisable and directed that the Merger be submitted for consideration at a special meeting of the stockholders of the Company, (D) resolved to recommend that the stockholders of the Company accept the Offer, tender their Shares to Purchaser thereunder and adopt this Agreement and (E) approved this Agreement and the Stockholder Documents and the transactions contemplated hereby and thereby for purposes of Section 203 of the DGCL; and (ii) Salomon Smith Barney Inc. and Bowles, Hollowell Conner & Co. (the "Financial Advisors") each has delivered to the Board of Directors of the Company its written opinion that the consideration to be received by holders of Shares (other than Holdings and its affiliates) pursuant to each of the Offer and the Merger is fair to such holders from a financial point of view. The Company has been authorized by the Financial Advisors to permit, subject to prior review and consent by such Financial Advisors (such consent not to be unreasonably withheld), the inclusion of such fairness opinions (or a references thereto) in the Offer Documents and in the Schedule 14D-9 referred to below and the Proxy Statement (as defined in Section 5.16). The Company hereby consents to the inclusion in the Offer Documents of the recommendations of the Company's Board of Directors described in this Section 1.2(a). (b) The Company shall file with the Commission, contemporaneously with the filing of the Schedule 14D-1 pursuant to Section 1.1, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the "Schedule 14D-9") containing the recommendations of the Company's Board of Directors described in Section 1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders of the Company, and the Board of Directors of the Company shall not withdraw, amend or modify in a manner adverse to Holdings or the Purchaser such recommendations (or announce publicly its intention to do so); provided that prior to the purchase of Shares pursuant to the Offer, the Company shall not be required to make such filing with such recommendations or make such mailing and the Board of Directors shall be permitted to withdraw, amend or modify its recommendations (or publicly announce its intention to do so) in a manner adverse to Holdings or the Purchaser if: (1) the Company has complied with Section 6.10, (2) a Superior Proposal (as defined in Section 6.10) shall have been proposed by any person other than Holdings or the Purchaser and such proposal is pending at the time of such action; (3) the Board of Directors shall have concluded in good faith, after consultation with its outside legal counsel, that the Board of Directors is required to withdraw, amend or modify such recommendations in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; and (4) the Company shall have notified Holdings of such Superior Proposal at least two business days in advance of such action. The Schedule 14D-9 and all amendments thereto will comply in all material respects with the Exchange Act and the rules and regulations promulgated thereunder. The Company, Holdings and Purchaser each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 that shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the Commission and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. (c) In connection with the Offer, if requested by Purchaser, the Company shall promptly furnish Purchaser with mailing labels, security position listings, any non-objecting beneficial owner lists and any available listings or computer files containing the names and addresses of the record holders of Shares, each as of a recent date, and shall promptly furnish Purchaser with such additional information (including but not limited to updated lists of stockholders, mailing labels, security position listings and non-objecting beneficial owner lists) and such other assistance as Parent, Purchaser, Holdings or their agents may reasonably require in communicating the Offer to the record and beneficial holders of Shares. ARTICLE II THE MERGER 2.1 The Merger; Filing and Effective Time. (a) Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time, the Purchaser shall be merged into the Company. As a result of the Merger, the 3 110 separate corporate existence of the Purchaser shall cease and the Company shall be the surviving corporation (the "Surviving Corporation") following the effectiveness of the Merger. (b) The parties hereto shall cause the Merger to be consummated by filing a certificate of merger or, if applicable, a certificate of ownership and merger with the Secretary of State of the State of Delaware, in such form as required by and executed in accordance with the relevant provisions of the DGCL (the date and time of the filing of such certificate with the Secretary of State of the State of Delaware (or such later time as is agreed to by the parties hereto and set forth therein) being the "Effective Time"). 2.2 Closing. The closing of the Merger (the "Closing") will take place as soon as practicable after satisfaction or waiver of the conditions set forth in Article VII (the "Closing Date"), at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, unless another date or place is agreed to in writing by the parties hereto. 2.3 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. 2.4 Certificate of Incorporation; By Laws. (a) At the Effective Time, the certificate of incorporation of the Company as in effect immediately prior to the Effective Time shall be amended so as to read in its entirety in the form set forth as Exhibit A hereto and, as so amended, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter further amended as provided therein and under the DGCL. (b) At the Effective Time, the By-laws of the Purchaser as in effect immediately prior to the Effective Time in the form set forth as Exhibit B hereto shall be the By-laws of the Surviving Corporation following the Merger and thereafter may be amended or repealed in accordance with their terms or the certificate of incorporation of the Surviving Corporation following the Merger and as provided under the DGCL. 2.5 Directors and Officers. The directors of the Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation following the Merger, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation following the Merger, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation following the Merger, in each case until their respective successors are duly elected or appointed (as the case may be) and qualified. ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF COMPANY AND THE MERGER SUB 3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, the Purchaser or any holder of any shares of Company Common Stock or any holder of capital stock of the Purchaser, the outstanding capital stock of the Purchaser and the Company shall be converted or cancelled as follows: (a) Conversion of Common Stock of the Purchaser. Each share of common stock of the Purchaser outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation. (b) Cancellation of Certain Company Common Stock. Each share of Company Common Stock outstanding immediately prior to the Effective Time that is owned by Holdings, the Purchaser or any other direct or indirect subsidiary of Holdings or held in the treasury of the Company shall automatically be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor. (c) Conversion of Company Common Stock. Each outstanding share of Company Common Stock (other than any such shares of Company Common Stock to be cancelled pursuant to Sec- 4 111 tion 3.1(b)) and any Dissenting Shares (as defined in Section 3.3) shall be converted into the right to receive an amount in cash equal to the greater of $9.25 or any higher price paid pursuant to the Offer (the "Merger Consideration"). (d) Cancellation and Retirement of Company Common Stock. All shares of Company Common Stock issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall, to the extent such certificate represents such shares of Company Common Stock, cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate in accordance with Section 3.4. 3.2 Company Options. At the Effective Time, each option (a "Company Option") to purchase shares of Company Common Stock outstanding immediately prior to the Effective Time shall become immediately vested. Each Company Option with an exercise price per share of Company Common Stock less than the Merger Consideration shall automatically be converted into the right to receive cash in the amount of the product of (a) the Merger Consideration minus such exercise price, multiplied by (b) the number of shares of Company Common Stock for which such Company Option is exercisable. All other Company Options outstanding as of the Effective Time shall automatically be terminated effective as of the Effective Time. The holders of all Company Options subject to automatic conversion pursuant to this Section 3.2 are herein referred to as the "Eligible Option Holders." Prior to the purchase of Shares pursuant to the Offer, the Board of Directors of the Company (or, if appropriate, any committee administering the plan(s) pursuant to which the Company Options have been granted) shall adopt such resolutions, obtain such consents, or take such other actions as are required to effect the transactions contemplated by this Section 3.2. 3.3 Dissenters' Rights. Notwithstanding any provision of this Agreement to the contrary, any shares of Company Common Stock outstanding immediately prior to the Effective Time held by a holder who has demanded and perfected the right, if any, for appraisal of those shares of Company Common Stock in accordance with the provisions of Section 262 of the DGCL and as of the Effective Time has not withdrawn or lost such right to such appraisal ("Dissenting Shares") shall not be converted into or represent a right to receive Merger Consideration, but the holder shall only be entitled to such rights as are granted by the DGCL. If a holder of shares of Company Common Stock who demands appraisal of those shares of Company Common Stock under the DGCL shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the Effective Time or the occurrence of such event, whichever last occurs, those shares of Company Common Stock shall be converted into and represent only the right to receive the Merger Consideration as provided in Section 3.1(c), without interest, upon the surrender of the certificate or certificates representing those shares of Company Common Stock. The Company shall give the Purchaser (i) prompt notice of any written demands for appraisal of any shares of Company Common Stock, attempted withdrawals of such demands, and any other instruments served pursuant to the DGCL received by the Company relating to stockholders' rights of appraisal and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of the Purchaser, voluntarily make any payment with respect to any such demands for appraisals of capital stock of the Company, offer to settle or settle any such demands or approve any withdrawal of any such demands. 3.4 Paying Agent. (a) Prior to the Effective Time, Purchaser shall designate a bank or trust company to act as agent for the holders of Shares in connection with the Merger (the "Paying Agent") to receive the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 3.1(c). When and as needed, Holdings or Purchaser will make available to the Paying Agent sufficient funds to make all payments pursuant to Section 3.4(b). Such funds shall be invested by the Paying Agent as directed by Purchaser or, after the Effective Time, the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $500 million. Any net profit resulting from, or interest or income produced by, such investments will be payable to the Surviving Corporation or Holdings, as Holdings directs. 5 112 (b) Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and such Certificate shall then be cancelled. No interest shall be paid or accrued for the benefit of holders of the Certificates on the Merger Consideration payable upon the surrender of the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. (c) At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (d) At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable law. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE PURCHASER Holdings and the Purchaser, jointly and severally, represent and warrant to the Company that the statements contained in this Article IV are true and correct, except as set forth in the disclosure statement delivered by the Purchaser to the Company concurrently herewith and identified as the "Purchaser Disclosure Statement." All exceptions noted in the Purchaser Disclosure Statement shall be numbered to correspond to the applicable Sections to which such exception refers; provided, however, that any disclosure set forth on any particular schedule shall be deemed disclosed in reference to all applicable schedules if the disclosure in respect of the particular schedule is sufficient on its face without further inquiry reasonably to inform the Company of the information required to be disclosed in respect of the other schedules to avoid a breach under the provisions hereof corresponding to such other schedules. 4.1 Existence, Good Standing, Corporate Authority. Each of Holdings and the Purchaser (i) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation; (ii) has all requisite power and authority to own or lease and operate its properties and assets, and to carry on its business as now conducted and as currently proposed to be conducted prior to the Effective Time, except where the failure to have such power and authority would not have a Material Adverse Effect (as hereinafter defined) on Holdings, and to consummate the transactions contemplated hereby; (iii) is duly 6 113 qualified or licensed to do business and is in good standing in all jurisdictions in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed, except where the failure to so qualify, individually or in the aggregate, would not have a Material Adverse Effect on Holdings; and (iv) has obtained all licenses, permits, franchises and other governmental authorizations necessary to the ownership or operation of its properties or the conduct of its business, except where the failure to have obtained such licenses, permits, franchises or authorizations would not have a Material Adverse Effect on Holdings. The copies of the Certificate of Incorporation and By-laws of each of Holdings and Purchaser as in effect on the date hereof have been previously delivered to the Company and are true and correct. For purposes of this Agreement, a "Material Adverse Effect" when used with respect to any entity means (a) any change or effect that is, individually or in the aggregate, materially adverse to the business, operations, assets, liabilities, financial condition or results of operations of such entity and its subsidiaries and controlled entities taken as a whole, or (b) a material impairment on the ability of such entity or its subsidiaries and controlled entities taken as a whole to perform any of their material obligations under this Agreement or to consummate the Merger. 4.2 Authorization of Agreement and Other Documents. The execution and delivery of this Agreement has been duly authorized by the Board of Directors of each of Holdings and the Purchaser and no other proceedings on the part of Holdings, the Purchaser or their respective stockholders are necessary to authorize the execution, delivery or performance of this Agreement. This Agreement is a valid and binding obligation of each of Holdings and the Purchaser, enforceable against each of Holdings and the Purchaser in accordance with its terms. 4.3 Non-Contravention. The execution, delivery and performance of this Agreement by each of Holdings and the Purchaser and the consummation by each of Holdings and the Purchaser of the transactions contemplated hereby to be consummated by it, will not (i) violate or conflict with any provision of any law applicable to Holdings or the Purchaser or by which any property or asset of Holdings or the Purchaser is bound, (ii) require the consent, waiver, approval, license or authorization of or any filing by Holdings or the Purchaser with any public authority (other than (a) the filing of a pre-merger notification report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b) in connection with or in compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and the DGCL, and (c) applicable state statutes and regulations regulating the conduct of the Surviving Corporation's business as identified in the Purchaser Disclosure Statement), (iii) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Holdings or the Purchaser in any respect or (iv) violate, conflict with, result in a breach of or the acceleration of any obligation under, or constitute a default (or an event which with notice or the lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Holdings or the Purchaser pursuant to any provision of any indenture, mortgage, lien, lease, agreement, contract, instrument, order, judgment, ordinance, regulation or decree to which Holdings or the Purchaser is subject or by which Holdings or the Purchaser or any of their property or assets is bound; except in the case of clauses (i), (ii) and (iv) above where such violations, conflicts, breaches, defaults or the failure to give such notice, make such filings, or obtain such authorizations, consents or approvals, would not, individually or in the aggregate, have a Material Adverse Effect on Holdings. 4.4 Disclosure Documents. The Offer Documents, as filed pursuant to Section 1.1, will not, at the time such Offer Documents are filed with the Commission or are first published, sent or given to stockholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information supplied by Holdings for inclusion in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to stockholders, at the time of the Stockholders Meeting (as defined in Section 6.2) or at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state a material fact required to be stated therein or necessary in order to make the statements therein not false or misleading or necessary to correct any 7 114 statement in any earlier communication with respect to the solicitation of proxies for the Stockholders Meeting which has become false or misleading. Notwithstanding the foregoing, Holdings and Purchaser make no representation or warranty with respect to any information supplied by the Company or any of its representatives which is contained in or incorporated by reference in any of the foregoing documents or the Offer Documents. The Offer Documents, as amended and supplemented, will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. 4.5 Brokers. No person is entitled to any brokerage or finder's fee or commission in connection with the transactions contemplated by this Agreement as a result of any action taken by or on behalf of Holdings or the Purchaser other than Vestar Capital Partners. 4.6 Commitment Letters. Executed commitment letters from Vestar (the "Vestar Commitment Letter") and NationsBank, N.A. (the "NationsBank Commitment Letter") and an executed letter from NationsBanc Montgomery Securities LLC stating that it is highly confident that it can provide subordinated debt financing in connection with the transaction contemplated by this Agreement (the "Highly Confident Letter") (the Highly Confident Letter, the Vestar Commitment Letter and the NationsBank Commitment Letter, collectively, the "Commitment Letters") are included in Section 4.6 of the Purchaser Disclosure Statement. As of the date of this Agreement, the Commitment Letters provided to the Company are in full force and effect and have not been amended in any material respect. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Holdings and the Purchaser that the statements contained in this Article V are true and correct, except as set forth in the disclosure statement delivered by the Company to Holdings concurrently herewith and identified as the "Company Disclosure Statement." All exceptions noted in the Company Disclosure Statement shall be numbered to correspond to the applicable Sections to which such exception refers; provided, however that any disclosure set forth in any particular schedule shall be deemed disclosed in reference to all applicable schedules if the disclosure in respect of the particular schedule is sufficient on its face without further inquiry reasonably to inform Holdings of the information required to be disclosed in respect of the other schedules to avoid a breach under the provisions hereof corresponding to such other schedules. 5.1 Organization, Standing and Qualification. Each of the Company and the Controlled Entities (as defined in Section 5.3) (i) is a corporation duly organized, validly existing and in good standing under the laws in the jurisdiction of its incorporation; (ii) has all requisite power and authority to own or lease and operate its properties and assets, and to carry on its business as now conducted and as currently proposed to be conducted, except where the failure to have such power and authority would not have a Material Adverse Effect on the Company, and to consummate the transactions contemplated hereby; (iii) is duly qualified or licensed to do business and is in good standing in all jurisdictions in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify, individually or in the aggregate, would not have a Material Adverse Effect on the Company; and (iv) has obtained all licenses, permits, franchises and other governmental authorizations necessary for the ownership or operation of its properties or the conduct of its businesses except where the failure to have obtained such licenses, permits, franchises or authorizations would not have a Material Adverse Effect on the Company. 5.2 Capitalization. (a) The total authorized capital stock of the Company consists of (i) 5,000,000 shares of Convertible Preferred Stock, par value $.01 per share, no shares of which are issued and outstanding as of the date of this Agreement; and (ii) 21,000,000 shares of Company Common Stock, of which 296,638 shares of Class A Common Stock and 6,290,178 shares of Voting Common Stock are issued and outstanding on the date of this Agreement. There are no shares of capital stock of the Company of any other class authorized, issued or outstanding. 8 115 (b) Each outstanding share of Company Common Stock is (i) duly authorized and validly issued and (ii) fully paid and nonassessable and free of any preemptive and similar rights. (c) Other than Company Options that will become vested (and converted into the right to receive cash) or canceled at the Effective Time pursuant to Article III hereof, as of the Effective Time, there will be no outstanding (i) securities convertible into or exchangeable for any capital stock of the Company, (ii) options, warrants or other rights to purchase or subscribe to capital stock of the Company or securities convertible into or exchangeable for capital stock of the Company, or (iii) contracts, commitments, agreements, understandings, rights (including registration rights), arrangements, calls or claims of any kind to which the Company is a party or is bound relating to the issuance of any capital stock of the Company, including the commitments referred to in Section 5.2(c)(iii) of the Company Disclosure Statement. Section 5.2(c) of the Company Disclosure Statement identifies, as of the date hereof, the option holder, the number of shares of Company Common Stock subject to each Company Option, the exercise price and the expiration date of each outstanding Company Option. 5.3 Subsidiaries. The Company owns directly or indirectly each of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect directors or others performing similar functions with respect to such subsidiary) of each of the Company's subsidiaries indicated in Part I of Section 5.3 of the Company Disclosure Statement as being owned by the Company (the "Subsidiaries") and has an ownership interest or the right to purchase those entities listed on Parts II and III of Section 5.3 of the Company Disclosure Statement (together with the Subsidiaries, the "Controlled Entities"), and the Controlled Entities are the only entities in which the Company directly or indirectly beneficially owns an equity interest. Each of the outstanding shares of capital stock beneficially owned by the Company of each of the Company's Controlled Entities is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by the Company or a wholly owned Subsidiary free and clear of all liens, pledges, security interests, claims or other encumbrances. 5.4 Constituent Documents. True and complete copies of the Certificate of Incorporation and all amendments thereto, the By-laws, as amended and currently in force, and all corporate minute books and records of the Company and each of its Controlled Entities have been furnished by the Company to the Purchaser for inspection to the extent requested by the Purchaser. 5.5 Authorization of Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company and no other proceedings on the part of the Company are necessary to authorize the execution, delivery or performance of this Agreement, except for the Requisite Stockholder Approval. This Agreement is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 5.6 Non-Contravention. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) violate or conflict with any provision of any law applicable to the Company or any of its Controlled Entities or by which any property or asset of the Company or any of its Controlled Entities is bound, (ii) require any material consent, waiver, approval, license, qualification, order or authorization of or any filing by the Company or any of its Controlled Entities with any public authority (other than (a) the filing of a pre-merger notification report under the HSR Act, (b) in connection with or in compliance with the provisions of the Securities Act, the Exchange Act and the DGCL and (c) applicable state statutes and regulations regulating the conduct of the Surviving Corporation's business as identified in the Company Disclosure Statement), (iii) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of the Company or any of its Controlled Entities in any respect or (iv) except as set forth in Section 5.6 of the Company Disclosure Statement, violate, conflict with, result in a breach of or the acceleration of any obligation under, or constitute a default (or an event which with notice or the lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or any of its Controlled Entities pursuant to, any provision of any material indenture, mortgage, lien, lease, agreement, contract, instrument, order, judgment, license, ordinance, permit, franchise, joint venture agreement, limited liability company agreement, 9 116 partnership agreement, regulation or decree to which the Company or any of its Controlled Entities is subject or by which the Company or any of its Controlled Entities or any of their property or assets is bound (including without limitation Material Contracts in existence on the date hereof between any entity affiliated with Columbia/HCA Healthcare Corporation or Tenet Healthcare Corporation or any of the Company's managed care providers, on the one hand, and any of the Company and its Controlled Entities, on the other hand); except in the case of clause (i) where such violation or conflict would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 5.7 Compliance with Laws. (a) The Company and the Controlled Entities hold all permits, licenses, variances, exemptions, orders and approvals of any governmental entities necessary for the lawful conduct of their business (the "Permits"), except where the failure to hold such Permits would not have a Material Adverse Effect on the Company. (b) Since the later of the date on which the particular Controlled Entity was acquired (the "Controlled Entity Acquisition Date") and January 1, 1996, the Company and the Controlled Entities have been in substantial compliance with the terms of the Permits. (c) As of the date of this Agreement, no investigation, review, inquiry or proceeding by any governmental entity with respect to any of the Company and the Controlled Entities is, to the knowledge of the Company, pending or threatened which, if adversely decided, would be reasonably likely to have a Material Adverse Effect on the Company. 5.8 Commission Documents. The Company has delivered or made available to Holdings each registration statement, report, proxy statement or information statement (as defined in Regulation 14C under the Exchange Act) prepared by it since January 1, 1996, which reports constitute all of the documents required to be filed by the Company with the Commission since such date, each in the form (excluding exhibits and any amendments thereto) filed with the Commission (collectively, the "Company Reports"). As of their respective dates, the Company Reports and any Company Reports filed after the date hereof and prior to the Effective Time (a) complied as to form in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations thereunder; and (b) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Company has timely filed with the Commission all reports required to be filed under Section 13, 14 and 15(d) of the Exchange Act since January 1, 1996. Each of the consolidated balance sheets of the Company included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of its date (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect, and each of the consolidated statements of income, retained earnings and cash flows of the Company included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly present in all material respects the results of operations, stockholders equity or cash flows, as the case may be, of the Company and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect). The financial statements of the Company, including the notes thereto, included in or incorporated by reference into the Company Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, and have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated in the notes thereto). Since January 1, 1996, there has been no material change in the Company's accounting methods or principles except as described in the notes to such Company financial statements. 5.9 Insurance. Section 5.9 of the Company Disclosure Statement contains a list of all insurance policies which are owned by any of the Company and the Controlled Entities or which name the Company or any Controlled Entity as an insured (or loss payee), including without limitation those which pertain to the assets, employees or operations of the Company and the Controlled Entities. All such insurance policies are in full force and effect and the Company has not received notice of cancellation of any such insurance policies. 10 117 5.10 Litigation. Except as set forth in Section 5.10 of the Company Disclosure Statement, there is no suit, claim, action, litigation or proceeding, in law or in equity, and there are no proceedings or governmental investigations before any commission or other administrative authority, pending or, to the Company's knowledge, threatened against the Company, or any of the Company's officers, directors or affiliates, with respect to or affecting the Company's operations, businesses, or financial condition, or related to the consummation of the transactions contemplated hereby which, is reasonably likely to have a Material Adverse Effect on the Company. 5.11 Taxes. (a) As used in this Agreement, (i) the term "Taxes" means all federal, state, local, foreign and other income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever of a nature similar to taxes, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and the term "Tax" means any one of the foregoing Taxes; and (ii) the term "Returns" means all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes, including any schedule or attachment thereto, and including any amendment thereto, and the term "Return" means any one of the foregoing Returns. The representations contained in this Section 5.11 with respect to a Controlled Entity are made with respect to such Controlled Entity from the date of the Controlled Entity Acquisition Date. (b) There have been properly completed and filed on a timely basis and in correct form all material Returns required to be filed by the Company or its Controlled Entities or requests for extensions to file such Tax Returns have been timely filed and the Company and its Controlled Entities are within such period for extension. As of the time of filing, the foregoing Returns were correct and complete in all material respects. (c) With respect to all amounts in respect of Taxes imposed upon the Company or its Controlled Entities, or for which the Company or its Controlled Entities is or could be liable, whether to taxing authorities (as, for example, under law) or to other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before December 31, 1998, (i) all applicable tax laws and agreements have been complied with in all material respects, and (ii) all amounts required to be paid by the Company or its Controlled Entities to taxing authorities on or before the date hereof have been paid and with respect to Taxes not yet due and owing to a taxing authority, such Taxes have been paid or adequately reserved for on the Company's financial statements in accordance with generally accepted accounting principles. (d) There are no audits or similar proceedings by any taxing authority pending or threatened with respect to Taxes, except as disclosed in Section 5.11(d) of the Company Disclosure Statement. No assessment of Tax has been proposed against the Company or its Controlled Entities or any of their respective assets or properties. No closing agreement pursuant to Section 7121 or any similar provision of any state, local or foreign law has been entered into by or with respect to the Company or its Controlled Entities, except as disclosed in Section 5.11(d) of the Company Disclosure Statement. There are no outstanding agreements, waivers or arrangements extending the statutory period of limitation applicable to any claim for, or the period of collection or assessment of, Taxes due from or with respect to the Company or its Controlled Entities for any taxable period, and no power of attorney granted by or with respect to the Company or its Controlled Entities relating to Taxes is currently in force. (e) Neither the Company nor any of its Controlled Entities is a party to or bound by any Tax allocation, Tax indemnity, Tax sharing or similar contract or arrangement or any agreement that obligates it to make payment computed by reference to the Taxes, taxable income or taxable losses of any other person. (f) The Company and its Controlled Entities (i) are not, and have not been, a member of an affiliated group filing a consolidated federal income Tax return (other than a group the common parent of which is the Company), and (ii) has no liability for the Taxes of any person under Treasury Regulation section 1502 (or any similar provision of state, local or foreign law), or as a transferee or successor, by contract or otherwise. 11 118 (g) There are no liens with respect to Taxes upon any of the assets or properties of the Company or its Controlled Entities, other than with respect to Taxes not yet due. (h) The Company and its Controlled Entities have collected all sales and use Taxes required to be collected and has remitted, or will remit on a timely basis, such amount to the appropriate governmental entities, or have been furnished properly completed exemption certificates. The Company and its Controlled Entities have duly and timely withheld from employee salaries, wages and other compensation and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods for which the statute of limitation has not expired. 5.12 ERISA. (a) Section 5.12(a) of the Company Disclosure Statement contains a list and brief description of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA and referred to herein as a "Welfare Plan") and all other Benefit Plans (defined herein as any Pension Plan, Welfare Plan and any other plan, fund, program, arrangement or agreement to provide employees, directors, independent contractors, officers or agents of any Commonly Controlled Entity (as hereinafter defined) with medical, health, life, bonus, incentive, change in control, employment, stock (option, ownership or purchase), deferred compensation, severance, salary continuation, vacation, sick leave, fringe, incentive insurance or other benefits), whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise), whether oral or written that is currently maintained, or contributed to, or required to be contributed to, by the Company or any other person that, together with the Company at any time during the last six years, is or was treated as a single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") (the Company and each such other person, a "Commonly Controlled Entity"), for the benefit of any current or former employees, officers or directors of any Commonly Controlled Entity. The Company has delivered or made available to Holdings true, complete and correct copies of (i) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual report on Forms 5500 and 990, if any, filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (iii) the most recent summary plan description for each Benefit Plan for which such summary plan description is required, (iv) each trust agreement and group annuity contract relating to any Benefit Plan; and (v) a list of all assets and liabilities of, allocated to or accounted for separately with respect to every Benefit Plan (including insurance contracts associated with every Benefit Plan regardless of whether any current cash value exists). Each Benefit Plan has been established, funded, maintained and administered in accordance with its terms and is in compliance with the applicable provisions of ERISA, the Code and all other applicable laws, except where the failure to comply would not be reasonably expected to result in a Material Adverse Effect on the Company. (b) All Pension Plans have been the subject of favorable and up-to-date (through any applicable remedial amendment period) determination letters from the Internal Revenue Service, or have filed a timely application therefor, to the effect that such Pension Plans are qualified and exempt from federal income taxes under Section 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked nor has any such Pension Plan been amended since the date of its most recent determination letter or application therefor in any respect that would adversely affect its qualification or materially increase its costs. (c) No Commonly Controlled Entity has adopted or been obligated to contribute to any "defined benefit pension plan" as defined in Section 3(35) of ERISA subject to Title IV of ERISA in the six (6) years preceding the date hereof and no Commonly Controlled Entity has incurred any liability under Title IV of ERISA. (d) No Benefit Plan is a "multiemployer plan" and neither the Company nor any Commonly Controlled Entity at any time has been required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA ) or has withdrawn from any multiemployer plan where such withdrawal has either: (i) resulted or would result in any "withdrawal liability" (within the meaning of Section 4201 of 12 119 ERISA) that has not been fully paid; or (ii) engaged in a transaction that might have resulted in withdrawal liability but for the application of Section 4204 of ERISA. (e) With respect to any Welfare Plan, (i) no such Welfare Plan is funded through a "welfare benefits fund", as such term is defined in Section 419(e) of the Code, (ii) no such Welfare Plan is self-insured, and (iii) each such Welfare Plan that is a "group health plan", as such term is defined in Section 5000(b)(1) of the Code, complies with the applicable requirements of Section 4980B(f) of the Code. (f) All contributions or premiums owed by Commonly Controlled Entities with respect to Benefit Plans under law, contract or otherwise have been made in full and on a timely basis and the Commonly Controlled Entities are not obligated to contribute with respect to any Benefit Plan that involves a retroactive contribution, assessment or funding waiver arrangement. All administrative costs attributable to Benefit Plans have been paid when due. (g) To the Company's knowledge, no Pension Plan or Welfare Plan or any "fiduciary" or "party-in-interest" (as such terms are respectively defined by Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction prohibited by Section 406 of ERISA or 4975 of the Code for which a valid exception is not available. (h) No Benefit Plan exists that could result in the payment to any present or former employee of a Commonly Controlled Entity of any money or other property or accelerate or provide any other rights or benefits to any present or former employee of a Commonly Controlled Entity as a result of the transactions contemplated by this Agreement, whether or not such payment would constitute a parachute payment within the meaning of Section 280G of the Code. 5.13 Environmental Matters; OSHA. The Company and its Controlled Entities are in substantial compliance with all Environmental Laws. For the purposes of this Agreement, "Environmental Laws" means all federal, state and local statutes, regulations, ordinances, rules, regulations and policies, all court orders and decrees and arbitration awards, and the common law, which pertain to environmental matters or contamination of any type whatsoever. The Company and its Controlled Entities are in substantial compliance with the Occupational Health and Safety Act and the rules and regulations thereunder. 5.14 Interim Conduct of Business. Except as otherwise contemplated by this Agreement or as provided in the Company Disclosure Statement, since December 31, 1998, the Company and the Controlled Entities have not: (a) sold, assigned, leased, exchanged, transferred or otherwise disposed of any portion of its assets or property that is material to the Company and its Controlled Entities taken as a whole, except for cash applied in the payment of the Company's liabilities in the usual and ordinary course of business in accordance with the Company's or its Controlled Entities' past practices; (b) written off any asset which has a net book value which exceeds $25,000 individually or $125,000 in the aggregate, or suffered any casualty, damage, destruction or loss, or interruption in use, of any material asset, property (whether or not covered by insurance), on account of fire, flood, riot, strike or other hazard or Act of God; (c) waived any material right arising out of the conduct of, or with respect to, its business; (d) made (or committed to make) capital expenditures in an amount which exceeds $250,000 for any item or $2,500,000 in the aggregate; (e) made any change in accounting methods or principles; (f) borrowed any money other than in the ordinary course of business pursuant to its existing credit facilities or issued any bonds, debentures, notes or other corporate securities (other than equity securities), including without limitation, those evidencing borrowed money or to make acquisitions referred to in the Company Disclosure Statement or to satisfy commitments to purchase entities referred to in the Company Disclosure Statement; 13 120 (g) increased the compensation payable to any employee, except for normal pay increases in the ordinary course of business consistent with past practices; (h) made any payments or distributions to its employees, officers or directors, except such amounts as constitute currently effective compensation for services rendered, or reimbursement for reasonable ordinary and necessary out-of-pocket business expenses; (i) adopted any new Pension Plan, Welfare Plan or other Benefit Plan; (j) issued or sold any of its securities of any class; (k) paid, declared or set aside any dividend or other distribution on its securities of any class, or purchased, exchanged or redeemed any of its securities of any class; (l) suffered or been affected by any condition, event or occurrence which would be reasonably likely to have a Material Adverse Effect on the Company; or (m) made or changed any Tax election or method of accounting with respect to Taxes, or filed any amended Tax return, or settled or compromised any examination or proceeding with respect to any material Tax liability. Notwithstanding the foregoing, the Company shall not be deemed to have breached the terms of this Section 5.14 by entering into this Agreement or by consummating the transactions contemplated hereby. 5.15 No Brokers. The Company has not entered into any contract, arrangement or understanding with any person or firm which may result in an obligation of the Company, Holdings or the Purchaser to pay any finder's fee, brokerage or agent's commissions or other like payments in connection with negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that the Company has retained the Financial Advisors, the arrangements with both of which have been disclosed in writing to Holdings prior to the date hereof. 5.16 Disclosure Documents. Neither the Schedule 14D-9, nor any of the information supplied by the Company for inclusion in the Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer Documents or any amendments or supplements thereto are filed with the Commission or are first published, sent or given to stockholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the proxy statement to be sent to the stockholders of the Company in connection with the Stockholders Meeting nor the information statement to be sent to such stockholders, in each case if required and as appropriate (such proxy statement or information statement, as amended or supplemented, is herein referred to as the "Proxy Statement"), shall, at the date the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders and at the time of the Stockholders Meeting and at the Effective Time, be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders Meeting which has become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Holdings or Purchaser or any of their respective representatives which is contained in the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9 and the Proxy Statement will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. 5.17 Billing and Coding. Except in the situations that would not have a Material Adverse Effect on the Company, the Company and, since the applicable Controlled Entity Acquisition Dates, the Controlled Entities have, whether directly or indirectly through contractual arrangements with others, billed third party payers (including, but not limited to, Medicare, Medicaid, CHAMPUS and private payers) for health care services rendered by the Company, its Controlled Entities, or any of its or their employees, professional staff, or other persons or entities on behalf of whom or for which the Company or any of its Controlled Entities is authorized to bill for health care services, in accordance in all material respects with all federal, state and local 14 121 laws, rules and regulations, and all agreements, applicable with respect thereto. Without limiting the generality of the foregoing, for said purposes all such services have been properly documented and coded, except to the extent the failure to so comply or to do so would not have a Material Adverse Effect on the Company. 5.18 Properties. (a) The Company and its Controlled Entities have good, valid and, in the case of its Owned Property (as defined below), marketable fee title to its real property and interests in real property indicated as being owned by the Company and its Controlled Entities in the financial statements included in the Company Reports, except for properties sold or otherwise disposed of in the ordinary course of business (the "Owned Properties", free and clear of all mortgages, liens, security interests, easements, covenants, rights-of-way and other similar restrictions and encumbrances ("Encumbrances"), except where the failure to have such marketable fee title would not interfere in any material respect with the conduct of the business of the Company and the Controlled Entities as currently conducted. The leases relating to the Company's leased real property ("Company Leases") are in full force and effect, free and clear of all Encumbrances except where the failure to have such marketable fee title would not interfere with the conduct of business of the Company as currently conducted, and, to the best knowledge of the Company, are not in default. (b) No consent or approval is required to be obtained under any agreement by which the Company or any of its Subsidiaries has obtained a leasehold interest in any leased property by or with respect to the Company or any Subsidiary of the Company, and no right of termination shall arise under any Company Lease nor does any landlord have the right to increase the rent payable under any Company Lease, in each case in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except to the extent that the foregoing individually or in the aggregate would not have a Material Adverse Effect on the Company. (c) Neither the Company nor any of its Controlled Entities is obligated under or bound by any option, right of first refusal, purchase contract, or other contractual right to sell or dispose of any Owned Property or any portions thereof or interests therein which property, portions and interests, individually or in the aggregate, are material to the Company. (d) Neither the Company nor any of its Controlled Entities or any affiliates of any of the foregoing has an ownership, financial or other interest in the landlord under any of the Company Leases which exceeds a 50% ownership, financial or other interest in such landlord. 5.19 Material Contract Defaults; Non-Compete. (a) To the actual knowledge of any of the Company's senior officers, neither the Company nor any of its Controlled Entities is, or has received any notice or has any knowledge that any other party is, in default or unable to perform in any respect under any material contracts, agreements, commitments, arrangements, leases, licenses, policies or other instruments to which it or any of the Controlled Entities is a party or by which it or any such Controlled Entity is bound ("Material Contracts"), except for those defaults which would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on the Company, and, there has not occurred any event that with the lapse of time or the giving of notice or both would constitute such a default, except for those defaults which would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on the Company. Neither the Company nor any of the Controlled Entities is a party to any Material Contract that is required to be disclosed as an exhibit to the Company Reports in accordance with the rules and regulations of the Commission that has not been so disclosed. (b) Neither the Company nor any of its Controlled Entities is a party to any agreement that expressly limits the ability of the Company or any of its Controlled Entities to compete in or conduct any line of business or compete with any person in any geographic area or during any period of time. (c) There has not occurred any event that with the lapse of time or the giving of notice or both would reasonably be likely to result in the, and neither the Company nor any of its Controlled Entities has received any notice or has any knowledge of any reasonably likely, cancellation or modification adverse to the Company 15 122 or any of its Controlled Entities of any material contract or arrangement with any of South Broward Hospital District (d/b/a Memorial Healthcare System,) any entity affiliated with Columbia/HCA Healthcare Corporation and any entity affiliated with Tenet Healthcare Corporation. For purposes of this Section 5.19(c), "material" shall mean a contract or arrangement which generated in excess of $200,000 of gross profit during the fiscal year ended December 31, 1998. 5.20 Transactions with Affiliates. Except as set forth in the Company Reports and except with respect to physician practices within the Controlled Entities, there has been no transaction, agreement, arrangement or understanding, or any related series thereof, between the Company or its Controlled Entities or contractors, on the one hand, and the Company's affiliates (other than wholly-owned (excluding directors' and nominee shares) Subsidiaries), on the other hand, in which the amount or value involved exceeded $20,000. As used in the definition of "affiliate", the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise. 5.21 Vote Required; State Takeover Statutes. (a) The affirmative vote of the holders of a majority of the outstanding shares of Voting Common Stock entitled to vote thereon (the "Requisite Stockholder Approval") are the only votes of holders of the Company's capital stock necessary to adopt this Agreement. (b) No state takeover statute or similar statute or regulation of the State of Delaware (and, to the knowledge of the Company after due inquiry, of any other jurisdiction) applies or purports to apply to this Agreement, the Merger, the Offer or any of the other transactions contemplated hereby. No provision of the certificate of incorporation, by-laws or other governing instruments of the Company or any of its Controlled Entities or any applicable law would, directly or indirectly, restrict or impair the ability of Holdings or the Purchaser to vote, or otherwise to exercise the rights of a stockholder with respect to, shares of the Company and its Controlled Entities that may be beneficially owned by Holdings or the Purchaser. 5.22 1998 Financial Statements. The audited consolidated balance sheet of the Company and its consolidated Controlled Entities as at December 31, 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal year then ended, including the notes thereto, copies of which are included in Section 5.22 of the Company Disclosure Statement, present fairly in all material respects the consolidated financial condition of the Company and its Controlled Entities as at such date and the consolidated results of their operations for the fiscal year then ended, have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied consistently throughout the periods involved, and have been audited by Arthur Andersen LLP (whose report thereon is attached thereto). None of the Company and the Controlled Entities has any direct or indirect indebtedness, liability, claim or obligation, accrued, absolute, contingent or otherwise ("Liabilities"), other than (i) Liabilities fully reflected on the aforementioned audited financial statements, (ii) Liabilities incurred since December 31, 1998 in the ordinary course of business consistent with past practice and with the provisions hereof and (iii) Liabilities specifically disclosed in the Company Disclosure Statement. 5.23 Year 2000 Compliance. With respect to the Company's and each of its Controlled Entities' hospital-based systems, all computer hardware, software, databases, systems and other computer equipment (collectively, "Software") used by the Company or its Controlled Entities can be used prior to, during and after the calendar year 2000 A.D., and will operate during each such time period, either on a stand-alone basis or by interacting or interoperating with third-party Software, without error relating to the processing, calculating, comparing, sequencing or other use of date data. 16 123 ARTICLE VI COVENANTS 6.1 Interim Operations. (a) During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the time when persons nominated by Holdings or Purchaser constitute a majority of the Board of Directors of the Company, except as set forth in the Company Disclosure Statement, unless Holdings has consented in writing thereto (which consent shall not be unreasonably withheld), each of the Company and its Controlled Entities shall: (i) conduct its business and operations according to their usual, regular and ordinary course consistent with past practice; (ii) to the extent consistent with its business, use commercially reasonable efforts to preserve intact its business organization and goodwill, keep available the services of its officers and employees and maintain satisfactory relationships with those persons having business relationships with it; (iii) not amend its certificate of incorporation or by-laws or comparable governing instruments; (iv) promptly notify Holdings of any Material Adverse Effect on the Company, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), the material breach by the Company of any representation or warranty contained herein or the occurrence or non-occurrence of any material event the occurrence or non-occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect, any failure of the Company to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder or any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement where the failure to obtain such third party's consent would have a Material Adverse Effect on the Company; (v) promptly deliver to Holdings true and complete copies of any report, statement or schedule filed with the Commission subsequent to the date of this Agreement; (vi) not (A) except pursuant to the exercise of options, warrants, conversion rights existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any stock split, or reclassify, combine, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, its capital stock or otherwise change its capitalization as it existed on the date hereof; (B) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock; (C) increase any compensation or fringe benefits or enter into or amend any employment agreement with any of its present or future officers, directors or employees, except for normal increases of salaries or wages of employees of the Company or its Controlled Entities who are not directors or officers of the Company in the ordinary course of business and consistent with past practice; (D) grant any severance or termination package to any employee or consultant not currently required to be paid under existing severance plans to, or enter into any employment, consulting or severance agreement or arrangement with, any present or former director, officer or other employee of the Company or any of its Controlled Entities; (E) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; or (F) establish, adopt, enter into or amend or terminate any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any present or former directors, officers or employees or the Company or any of its Controlled Entities. 17 124 (vii) not (A) declare, set aside, make or pay any dividend or make any other distribution or payment payable in cash, stock, property or otherwise with respect to any shares of its capital stock or other ownership interests; or (B) directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock, or make any commitment for any such action; other than the purchase prior to the Closing Date for cash of shares of Company Common Stock subject to stock price guarantees disclosed in Section 5.2(c)(iii) of the Company Disclosure Statement at prices per share not in excess of the applicable guarantee price disclosed in said Section 5.2(c)(iii); (viii) not enter into any material agreement or transaction, or agree to enter into any material agreement or transaction, outside the ordinary course of business, including, without limitation, any transaction involving any merger, consolidation, joint venture, license agreement, partial or complete liquidation or dissolution, reorganization, recapitalization, restructuring, or a purchase, sale, lease or other acquisition or disposition of any assets or capital stock; other than the purchase prior to the Closing Date for cash of shares of Company Common Stock subject to stock price guarantees disclosed in Section 5.2(c)(iii) of the Company Disclosure Statement at prices per share not in excess of the applicable guarantee price disclosed in said Section 5.2(c)(iii); (ix) not incur any indebtedness for borrowed money or assume, endorse, guarantee or otherwise become responsible for any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of others, in any such case other than in the ordinary course of its business; provided that the Company may incur indebtedness pursuant to its current debt facilities with NationsBank, N.A. that is prepayable without penalty at or prior to the Effective Time in order to finance the purchase of shares of Company Common Stock subject to stock price guarantees disclosed in Section 4.2(c)(iii) of the Company Disclosure Statement; (x) not make any loans, advances or capital contributions to, or investments in, any other person other than in the ordinary course of business; (xi) not make or commit to make any capital expenditures in excess of $250,000 individually or $2,500,000 in the aggregate; (xii) not voluntarily elect to alter the manner of keeping its books, accounts or records, or change in any manner the accounting practices or principles therein reflected; (xiii) not to issue, deliver, sell, lease, sell and leaseback, pledge, dispose of or encumber, or authorize or commit to the issuance, delivery, sale, lease, sale/leaseback, pledge, disposition or encumbrance of material properties or assets of the Company or any of its Controlled Entities, except liens for taxes not currently due and liens granted to incur the indebtedness contemplated by Section 6.1(a)(ix) hereof; (xiv) use its commercially reasonable efforts to maintain insurance on its tangible assets and its businesses in such amounts and against such risks and losses as are currently in effect; (xv) not to (A) make or change any Tax election or method of accounting with respect to Taxes, (B) file any amended Tax Return or (C) settle or compromise any examination or proceeding with respect to any material Tax liability; (xvi) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), except for the payment, discharge or satisfaction of liabilities or obligations in the ordinary course of business consistent with past practice, or waive, release, grant, or transfer any rights of value; other than the purchase prior to the Closing Date for cash of shares of Company Common Stock subject to stock price guarantees disclosed in Section 5.2(c)(iii) of the Company Disclosure Statement at prices per share not in excess of the applicable guarantee price disclosed in said Section 5.2(c)(iii); (xvii) settle or compromise any litigation (whether or not commenced prior to the date of this Agreement), other than settlements involving amounts payable by the Company and the Controlled Entities that are not in excess of (x) amounts reserved for in respect of litigation in the most recent 18 125 consolidated financial statements of the Company included in the Company Reports or (y) amounts fully recoverable from insurers of the Company and the Controlled Entities or (z) amounts applied against self-insured retention amounts or deductibles (provided such settlements do not involve any material non-monetary obligations on the part of the Company); (xviii) change the composition, fill any vacancies or increase the size of the Company's Board of Directors; or (xix) amend or modify in any material respect or terminate any existing intellectual property license, execute any new intellectual property license, sell, license or otherwise dispose of, in whole or in part, any Company intellectual property, and/or subject any Company intellectual property to any lien or other encumbrance; or (xx) not agree, or commit to agree, to take or fail to take any action not permitted to be taken or not taken pursuant to this Section 6.1(a). (b) During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the time when persons nominated by Holdings or Purchaser constitute a majority of the Board of Directors of the Company, except as set forth in the Purchaser Disclosure Statement, unless the Company has consented in writing thereto, each of Holdings and the Purchaser shall: (i) promptly deliver to the Company true and correct copies of any report, statement or schedule filed by Holdings or the Purchaser with the Commission subsequent to the date of this Agreement; (ii) promptly notify the Company of any Material Adverse Effect on Holdings, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the material breach by Holdings or the Purchaser of any representation or warranty contained herein. 6.2 Stockholders Meeting. (a) The Company, acting through its Board of Directors, shall, if required in accordance with applicable law and the Company's Certificate of Incorporation and By-Laws and in consultation with Holdings, (i) duly call, give notice of, convene and hold a meeting of its stockholders as soon as practicable following the purchase of Shares pursuant to the Offer for the purpose of adopting this Agreement (the "Stockholders Meeting") and (ii) (A) except to the extent modified in accordance with this Section 6.2, include in the Proxy Statement the unanimous recommendation of the Board of Directors that the stockholders of the Company vote in favor of the adoption of this Agreement and include the written opinions of the Financial Advisors that the consideration to be received by the stockholders of the Company (other than Holdings and its affiliates) pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view and (B) use its reasonable best efforts to obtain the Requisite Stockholder Approval. The Board of Directors of the Company shall not withdraw, amend or modify in a manner adverse to Holdings or the Purchaser such recommendation (or announce publicly its intention to do so) provided that the Board of Directors shall be permitted to withdraw, amend or modify its recommendation (or publicly announce its intention to do so) in a manner adverse to Holdings or the Purchaser if: (1) the Company has complied with Section 6.10, (2) a Superior Proposal (as defined in Section 6.10) shall have been proposed by any person other than Holdings or the Purchaser and such proposal is pending at the time of such action; (3) the Board of Directors shall have concluded in good faith, after consultation with its outside legal counsel, that the Board of Directors is required to withdraw, amend or modify such recommendation in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; and (4) the Company shall have notified Holdings of such Superior Proposal at least two business days in advance of such action. At the Stockholders Meeting, Parent and Purchaser shall cause all Shares then beneficially owned by them and their subsidiaries to be voted in favor of the adoption of this Agreement. (b) Notwithstanding the foregoing, in the event that Purchaser shall acquire at least 90% of the outstanding Shares, the Company and Holdings agree, subject to Article VII, to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition, without a meeting of the Company's stockholders, in accordance with Section 253 of the DGCL. 19 126 6.3 Proxy Statement, Etc. If required by applicable law, as soon as practicable following Holding's request, the Company shall file with the Commission under the Exchange Act and the rules and regulations promulgated thereunder, and use its reasonable good faith efforts to have cleared by the Commission and mailed to the Company's stockholders, the Proxy Statement with respect to the Stockholders Meeting. Holdings, Purchaser and the Company will cooperate with each other in the preparation of the Proxy Statement. Without limiting the generality of the foregoing, each of Holdings and Purchaser will furnish to the Company the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Proxy Statement and the Company will promptly notify the Purchaser of the receipt of any comments from the Commission or of any request by the Commission for any amendment to the Proxy Statement or for additional information, and the Company will permit Holdings to review and comment upon all filings by the Company with the Commission, including the Proxy Statement and the Schedule 14D-9, and any amendments thereto, and all mailings to the Company's stockholders in connection with the Offer and the Merger, including the Proxy Statement and the Schedule 14D-9, shall be subject to the prior review and comment of Holdings. The Company agrees to use its best efforts, after consultation with the other parties hereto, to respond promptly to any comments made by the Commission with respect to the Proxy Statement or the Schedule 14D-9, and any preliminary version thereto or amendment thereof, filed by it, and to cause the Proxy Statement to be mailed to the Company's stockholders at the earliest practicable time. 6.4 Company Board Representation; Section 14(f). (a) Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to time thereafter, Purchaser shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as shall give Purchaser representation on the Board of Directors equal to the product of the total number of directors on such Board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that the aggregate number of Shares beneficially owned by Purchaser or any affiliate of Purchaser bears to the total number of Shares then outstanding, and the Company shall, at such time, promptly take all action necessary to cause Purchaser's designees to be so elected, including either increasing the size of the Board of Directors or securing the resignations of incumbent directors or both. The Company will use its reasonable best efforts to cause persons designated by Purchaser to constitute the same percentage as is on the Board of (i) each committee of the Board, (ii) each board of directors of each Controlled Entity of the Company and (iii) each committee of each such board, in each case only to the extent permitted by law. Until Purchaser acquires a majority of the outstanding Shares on a fully diluted basis, the Company shall use its reasonable best efforts to ensure that all the members of the Board and such boards and committees as of the date hereof who are not employees of the Company shall remain members of the Board and such boards and committees. (b) The Company's obligations to appoint designees to its Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.4 and shall include in the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to stockholders such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.4. Holdings or Purchaser will promptly supply to the Company and be solely responsible for any information with respect to either of them and their nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (c) Following the election or appointment of Purchaser's designees pursuant to this Section 6.4 and prior to the Effective Time, in addition to any vote of the Board of Directors required by law or the Company's Certificate of Incorporation or By-laws, any amendment of this Agreement or the Certificate of Incorporation or By-Laws of the Company, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Holdings or Purchaser or waiver of any of the Company's rights hereunder, will require the concurrence of a majority of the directors of the Company then in office who are neither designated by Holdings or Purchaser nor are employees of the Company or any of its Controlled Entities (the "Disinterested Directors"). Notwithstanding Section 6.4(a) hereof, the number of Disinterested Directors shall be not less than two; provided, however, that, in such 20 127 event, if the number of Disinterested Directors shall be reduced below two for any reason, the remaining Disinterested Director shall be entitled to designate a person to fill the vacancy, and such person shall be deemed to be a Disinterested Director hereunder. If no Disinterested Director remains, the other directors who were directors prior to the date hereof shall designate two persons to fill such vacancies who shall not be employees of any of the Company and its Controlled Entities or employees, stockholders or affiliates of Holdings or Purchaser, and such persons shall be deemed to be Disinterested Directors hereunder. 6.5 Inspection of Records. From the date hereof to the Effective Time, the Company shall and shall cause its Controlled Entities, and their respective directors, employees, auditors, counsel, financial advisors and other agents, to (a) allow all designated officers, attorneys, accountants and other representatives of Holdings and the Purchaser, including potential financial sources, reasonable access at all reasonable times to its and its Controlled Entities' officers, agents, employees, offices, records, files, correspondence, audits and properties, as well as to all information relating to its and its Controlled Entities' commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs of the Company and its Controlled Entities; (b) furnish to Holdings and the Purchaser and its aforementioned representatives such financial, operating and other data and other information as such persons may reasonably request; and (c) instruct the employees, counsel, auditors and financial advisors and other agents of the Company and its Controlled Entities to cooperate reasonably with Holdings and the Purchaser and their investigation of the business of the Company and its Controlled Entities. From the date hereof to the time when the Purchaser purchases Shares pursuant to the Offer, Holdings and the Purchaser shall (a) furnish to the Company, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such persons may reasonably request, and (b) instruct the officers, counsel and financial advisors of Holdings and the Purchaser to cooperate reasonably with the Company in its investigation of the business of Holdings and the Purchaser or its subsidiaries. All information disclosed by the Company to Holdings and the Purchaser and their representatives or by Holdings or the Purchaser to the Company and its representatives shall be subject to the terms of that certain Confidentiality Agreement (the "Confidentiality Agreement") dated as of December 1, 1998 between Vestar Capital Partners III, L.P. and the Company. 6.6 Publicity. Neither party hereto shall make any press release or public announcement with respect to this Agreement, the Merger, the Offer or the transactions contemplated hereby without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld); provided, however, that each party hereto may make any disclosure or announcement which such party, in the opinion of its outside legal counsel, is obligated to make pursuant to applicable law or regulation of any national securities exchange, in which case, the party desiring to make the disclosure shall consult with the other party hereto prior to making such disclosure or announcement. 6.7 Further Action; Reasonable Best Efforts. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all action, and to do or cause to be done, and to assist and cooperate with the parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Stockholder Documents, including but not limited to (i) cooperation in the preparation and filing of the Proxy Statement, the Schedule 14D-9 the Schedule 13E-3, the Schedule 13D and the Offer Documents, any required filings under the HSR Act and any amendments to any thereof, (ii) determining whether any filings are required to be made or consents, approvals, waivers, licenses, permits or authorizations are required to be obtained (or, which if not obtained, would result in an event of default, termination or acceleration of any agreement or any put right under any agreement) under any applicable law or regulation or from any governmental entities or third parties, including parties to leases, loan agreements or other debt instruments, in connection with the transactions contemplated by this Agreement, including the Offer and the Merger, and (iii) promptly making any such filings, furnishing information required in connection therewith and timely seeking to obtain any such consents, approvals, permits or authorizations. (b) The Company shall make, subject to the condition that the transactions contemplated herein actually occur, any undertakings required in order to comply with the antitrust requirements or laws of any 21 128 governmental entity, including the HSR Act, in connection with the transactions contemplated by this Agreement; provided that no such undertaking shall be agreed to or made unless reasonably acceptable to Holdings. (c) The Company shall use its commercially reasonable best efforts to obtain all consents, approvals, agreements, extensions or other waivers of rights necessary to ensure that all Leases and other Material Contracts remain in full force and effect for the benefit of the Company after the Effective Time on substantially the same terms and conditions as in effect on the date hereof (without any material increase in amounts payable by the Company thereunder). (d) As soon as practicable after the date hereof and, in any event, prior to the purchase of Shares pursuant to the Offer, the Company shall file with the Internal Revenue Service, prior to the receipt by any of the Company and its Controlled Entities of any notice of examination by the Internal Revenue Service, a duly executed and acknowledged Form 3115 in form and substance satisfactory to Holdings requesting permission for the Company and each of the entities with which the Company files a consolidated Federal income tax return to change the method of accounting for taxable gross revenues to the non-accrual experience method as defined in Internal Revenue Code Section 448(d)(5). Any additional or subsequent Internal Revenue Code Section 481 adjustments that may result from a change in the method of accounting for the Company or any of its Controlled Entities which relate to a change in the accounting of taxable gross revenues to the non-accrual experience method, as defined in Internal Revenue Code Section 448(d)(5), when combined with the Internal Revenue Code Section 481 adjustment reflected on the Form 3115, shall not exceed $4 million. 6.8 Employee Benefit Plans. The Purchaser covenants and agrees that it will maintain benefit plans substantially comparable in the aggregate to the benefit plans in place on the date hereof and disclosed in Section 5.12 of the Company Disclosure Statement for a period of at least 1 year following the Effective Time. For purposes of satisfying the terms and conditions of such plans, the Purchaser shall give full credit for eligibility and vesting (but not benefit accrual) for each participant's period of service with the Company prior to the Effective Time. To the extent the Purchaser's benefit plans provide medical or dental welfare benefits after the Effective Time, the Purchaser shall cause all pre-existing condition exclusions and actively at work requirements to be waived to the extent such exclusions and work requirements have been satisfied under medical and dental plans in place on the date hereof and the Purchaser shall provide that any expenses incurred on or before the Effective Time shall be taken into account under the Purchaser's benefit plans for purposes of satisfying the applicable deductible, coinsurance and maximum out-of-pocket provisions for such employees and their covered dependents. 6.9 Indemnification of Directors and Officers of the Company. (a) For a period of six (6) years after the Effective Time, the Purchaser agrees to indemnify and hold harmless, and to cause the Surviving Corporation to honor its separate indemnification to, each person who is an officer or director of the Company or its Controlled Entities on the date of this Agreement (an "Indemnified Person") from and against all damages, liabilities, judgments and claims (and related expenses including, but not limited to, attorney's fees and amounts paid in settlement) based upon or arising from his or her capacity as an officer or director of the Company or its Controlled Entities prior to the Effective Time, to the same extent he or she would have been indemnified under the Certificate of Incorporation or By-laws of the Company or the applicable Controlled Entity as such documents were in effect on the date of this Agreement and to the extent permitted under applicable law. (b) For a period of six (6) years after the Effective Time, the Surviving Corporation shall maintain in full force and effect (i) the Company's directors' and officers' liability insurance policy in existence on February 19, 1999 or (ii) a substantially similar policy maintained by the Surviving Corporation providing for coverages of not less than $5,000,000 for acts and/or omissions alleged to have occurred prior to the Effective Time; provided that (x) the Surviving Corporation shall not be required to spend an aggregate amount for such coverage in excess of $380,000; and provided, further, that if the aggregate premiums of such insurance coverage exceed such amount, the Surviving Corporation shall be obligated to obtain a policy with the best coverage available, in the reasonable judgement of the Board of Directors of the Surviving Corporation, for an 22 129 aggregate cost not exceeding such amount, and (y) such policies may in the sole discretion of the Surviving Corporation be one or more "tail" policies for all or any portion of the full six (6) year period. (c) The Purchaser acknowledges that the Surviving Corporation will assume the Company's obligations under the indemnification agreements listed on Section 5.7(c) of the Company Disclosure Statement. (d) The rights granted to the Indemnified Persons hereby shall be contractual rights inuring to the benefit of all Indemnified Persons and shall survive this Agreement and any merger, consolidation or reorganization of the Purchaser. 6.10 No Solicitations. Neither the Company nor any of its Controlled Entities shall (whether directly or indirectly through advisors, agents or other intermediaries), nor shall the Company or any of its Controlled Entities authorize or permit any of its or their officers, directors, agents, representatives, advisors or subsidiaries to, (a) solicit, initiate, encourage (including by way of furnishing information) or take any action knowingly to facilitate the submission of any inquiries, proposals or offers (whether or not in writing) from any person (other than Holdings and its affiliates) relating to, other than the transactions contemplated by this Agreement, (i) any acquisition or purchase of 5% or more of the consolidated assets of the Company and its Controlled Entities or of any class of equity securities of the Company or any of its Controlled Entities, (ii) any tender offer (including a self tender offer) or exchange offer that if consummated would result in any person beneficially owning any class of equity securities of the Company or any of its Controlled Entities, (iii) any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its Controlled Entities whose assets, individually or in the aggregate, constitute 5% or more of the consolidated assets of the Company, or (iv) any other transaction the consummation of which would or would reasonably be expected to impede, interfere with, prevent or materially delay the Merger or which would or would reasonably be expected to materially dilute the benefits to Holdings or the Purchaser of the transactions contemplated by this Agreement (collectively, "Transaction Proposals"), or agree to or endorse any Transaction Proposal, or (b) enter into or participate in any discussions or negotiations regarding any of the foregoing, or furnish to any other person any information with respect to its business, properties or assets in connection with the foregoing, or otherwise cooperate in any way with, or knowingly assist or participate in, facilitate or encourage, any effort or attempt by any other person (other than any of Holdings and its affiliates) to do or seek any of the foregoing; provided, however, that the foregoing shall not prohibit the Company, prior to the receipt of the Requisite Stockholder Approval of the transactions contemplated hereby, (A) from complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a bona fide tender offer or exchange offer or (B) from participating in negotiations or discussions with or furnishing information to any person in connection with a Transaction Proposal not solicited after the date hereof which is submitted in writing by such person to the Board of Directors of the Company after the date of this Agreement; provided, however, that prior to participating in any such discussions or negotiations or furnishing any information, the Company receives from such person an executed confidentiality agreement on terms not less favorable to the Company than the Confidentiality Agreement; and provided, further, that the Board of Directors of the Company shall have concluded in good faith, after consultation with its outside financial advisors, that such Transaction Proposal is reasonably likely to constitute a Superior Proposal (as defined below) and, after consultation with its outside legal counsel, that participating in such negotiations or discussions or furnishing such information is required in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; and provided, further, that the Board of Directors of the Company shall not (unless it is prohibited from doing so by the terms of the Transaction Proposal), take any of the foregoing actions prior to two business days after it provides Holdings with prompt (but in no event later than 24 hours after the occurrence or commencement of such action) written notice thereof. If the Board of Directors of the Company receives a Transaction Proposal, then the Company shall, to the extent not prohibited in good faith by the terms of such Transaction Proposal, promptly inform Holdings of the terms and conditions of such proposal and the identity of the person making it. The Company will immediately cease and cause its advisors, agents and other intermediaries to cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and shall use its reasonable best efforts to cause any such parties in possession of confidential information about the Company that was furnished by or on behalf of the Company to return or destroy all 23 130 such information in the possession of any such party or in the possession of any agent or advisor of any such party. The Company agrees not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party. "Superior Proposal" means any of the transactions described in clause (i), (ii) or (iii) of the definition of Transaction Proposal (with all of the percentages included in the definition of such term raised to 51% for purposes of this definition) with respect to which the Board of Directors of the Company shall have concluded in good faith, after consultation with its outside legal counsel and financial advisors, is reasonably likely to be completed, taking into account all legal, financial, regulatory and other aspects of the Transaction Proposal, including the status of the financing therefor, and the person making the proposal, and would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by this Agreement, including the Merger. 6.11 Disposition of Litigation. The Company, Holdings and the Purchaser shall participate jointly in the defense of any stockholder litigation against the Company, Holdings or the Purchaser, as applicable, and their respective affiliates, and the directors, officers, employees, representatives and agents of the foregoing, relating to the transactions contemplated by this Agreement. 6.12 Financing-Related Cooperation. The Company agrees to provide, and will cause the Controlled Entities and its and their respective officers, employees and advisors to provide, all cooperation reasonably necessary in connection with the arrangement of any financing to be consummated contemporaneously with or at or after the Closing in respect of the transactions contemplated by this Agreement, including participation in meetings, due diligence sessions, road shows, the preparation of offering memoranda, private placement memoranda, prospectuses and similar documents, the execution and delivery of any commitment letters, underwriting or placement agreements, pledge and security documents, other definitive financing documents, or other requested certificates or documents, including a certificate of the chief financial officer of the Company with respect to solvency matters, comfort letters of accountants and legal opinions as may be reasonably requested by Holdings and taking such other actions as are reasonably required to be taken by the Company in the Commitment Letters. In addition, in conjunction with the obtaining of any such financing, the Company agrees, at the reasonable request of Holdings, to call for prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case may be, any then existing indebtedness of the Company and the Controlled Entities; provided that no such prepayment or redemption shall themselves actually be made until contemporaneously with or after the Effective Time. 6.13 Stop Transfer Order. The Company will instruct the Company's transfer agent that, except as provided in Section 4.4 of each of the Subscription and Tender Agreements, there is a stop transfer order with respect to all of the Shares and that the Subscription and Tender Agreements place limits on the transfer of such Shares. ARTICLE VII CONDITIONS 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of each of the following conditions (unless waived by each of the parties hereto in accordance with the provisions of Section 8.8 hereof): (a) If required by the DGCL, this Agreement shall have been adopted by the requisite vote of the Company's stockholders. (b) The Purchaser shall have purchased Shares pursuant to the Offer. (c) Any waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. 24 131 (d) No preliminary or permanent injunction or other order, decree, statute, rule or regulation shall have been entered by any federal or state court or federal, state, local or other governmental authority which prevents the consummation of the Merger shall have been issued and remain in effect. 7.2 Additional Condition to the Obligations of Holdings and the Purchaser to Effect the Merger. The obligations of Holdings and the Purchaser to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following condition (unless waived by Holdings and the Purchaser in accordance with the provisions of Section 8.8 hereof): (a) Funding under the Permanent Facilities (as defined in the NationsBank Commitment Letter), in the amounts and on the other terms and conditions (including unused availability under the revolving credit facility) set forth in the NationsBank Commitment Letter, shall have been received. ARTICLE VIII TERMINATION AND WAIVER 8.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption of this Agreement by the Company's stockholders: (a) By mutual written consent of Holdings, Purchaser and the Company; (b) By Holdings or the Company, if any court of competent jurisdiction or other governmental authority located or having jurisdiction within the United States shall have issued an order, injunction, decree, judgment or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Offer or the Merger and such order, injunction, decree, judgment, ruling or other action is or shall have become final and nonappealable; (c) By Holdings, if due to an occurrence or circumstance which resulted in a failure to satisfy any of the Offer Conditions (other than as a result of a material breach by Holdings or Purchaser of any of its obligations hereunder), Purchaser shall have (i) terminated the Offer or (ii) failed to pay for Shares pursuant to the Offer on or prior to May 31, 1999 (the "Outside Date"); (d) By the Company, prior to the purchase of Shares pursuant to the Offer, if (i) pursuant to and in compliance with Sections 1.2(b) and 6.2 hereof, the Board of Directors of the Company withdraws, modifies or amends in a manner adverse to Holdings or the Purchaser any of its recommendations described in Section 1.2(a)(i) hereof (or publicly announces its intention to do so), or (ii) the Company or its Board of Directors approves a Superior Proposal; provided, however, that (A) the Company shall have complied with Section 6.10, (B) the Board of Directors of the Company shall have concluded in good faith, after consultation with its outside legal counsel and financial advisors, that such proposal is a Superior Proposal and (C) the Board of Directors of the Company shall have concluded in good faith, after consultation with its outside legal counsel, that approving and entering into an agreement in connection with, and consummating, such Superior Proposal is required in order to comply with its fiduciary duties to the stockholders of the Company under applicable law; provided, that this Agreement may not be terminated pursuant to this Section 8.1(d) unless (x) concurrently with such termination, the Company pays to Holdings the Termination Fee (as hereinafter defined) and (y) the Company shall have provided Holdings with at least two business days advance notice of such termination. (e) By the Purchaser, prior to the purchase of Shares pursuant to the Offer, if the Company or its Board of Directors shall have (i) withdrawn, modified or amended in any respect adverse to Holdings or the Purchaser any of its recommendations described in Section 1.2(a)(i) hereof (or publicly announced its intention to do so), (ii) failed as promptly as reasonably practicable to mail the Schedule 14D-9 to its stockholders or failed to include in such Schedule 14D-9 such recommendations, (iii) approved, recommended or entered into an agreement with respect to, or consummated, any Transaction Proposal from a person other than Holdings or any of its affiliates, (iv) resolved to do any of the foregoing, or (v) in response to the commencement of any tender offer or exchange offer (other than the Offer) for 25 132 outstanding shares of Company Common Stock, not recommended rejection of such tender offer or exchange offer. (f) By the Company, prior to the purchase of Shares pursuant to the Offer, if (i) Holdings or the Purchaser breaches any of its representations, warranties, covenants or agreements contained in this Agreement and such breach is reasonably likely to have a Material Adverse Effect on Holdings and, with respect to any such breach that is reasonably capable of being remedied, the breach is not remedied prior to the earlier of (x) 20 days after the Company has furnished Holdings with written notice of such breach or (y) two business days prior to the date on which the Offer expires, or (ii) Purchaser shall have (A) terminated the Offer or (B) failed to pay for Shares pursuant to the Offer on or prior to the Outside Date (unless such failure is caused by or results from the breach by the Company of any of its representations, warranties, covenants or agreements contained in this Agreement). (g) By Holdings, if (i) the Company breaches any of its representations, warranties, covenants or agreements contained in this Agreement and such breach is reasonably likely to have a Material Adverse Effect on the Company and, with respect to any such breach that is reasonably capable of being remedied, the breach is not remedied prior to the earlier of (x) 20 days after Holdings has furnished the Company with written notice of such breach or (y) two business days prior to the date on which the Offer expires, or (ii) the Minimum Condition shall not have been satisfied by the expiration date of the Offer as it may have been extended pursuant hereto and on or prior to such date (A) any person (including the Company but not including any of Holdings and its other affiliates) shall have made a public announcement, public disclosure or other formal communication to the Company or its stockholders with respect to a Transaction Proposal or (B) any person (including the Company or any of its Controlled Entities), other than Holdings or any of its affiliates, shall have become (and remain at the time of termination) the beneficial owner of 19.9% (provided that any person who on the date hereof beneficially owns 19.9% or more of the Shares shall not have become the beneficial owner of an additional 3% of the Shares) or more of the Shares (unless such person shall have tendered and not withdrawn such person's Shares pursuant to the Offer). 8.2 Termination Fees and Expenses. (a) The Company shall (provided that neither Holdings nor the Purchaser is then in material breach of its obligations under this Agreement) upon the termination of this Agreement in accordance with Section 8.1(c) (if such termination shall have occurred, in whole or in part, by reason of the failure of any of the Offer Conditions set forth in paragraphs (a), (b), (d), (e), (f) and (i) or the Financing Condition (unless such financing is not received due to (i) the occurrence of a material disruption of or material adverse change in financial, banking or capital market conditions, (ii) a competing offering, placement or arrangement of debt securities or bank financing by or on behalf of the Company or any Controlled Entity thereof that was undertaken by, on behalf of (with Holdings' or Purchaser's consent), or at the direction of Holdings or its affiliates, or (iii) a material disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general)), Section 8.1(d), Section 8.1(e), Section 8.1(f) (ii) (if Holdings could have terminated this Agreement pursuant to Section 8.1(c) and such termination would have occurred, in whole or in part, for any of the reasons set forth earlier in this sentence with respect to a termination pursuant to Section 8.1(c)) or Section 8.1(g), promptly, but in no event later than two business days following written notice thereof, together with reasonable supporting documentation, reimburse Holdings and the Purchaser, in an aggregate amount of up to $3,000,000, for all reasonable out-of-pocket expenses and fees (including fees payable to all banks, investment banking firms and other financial institutions, and their respective agents and counsel, and all fees of counsel, accountants, financial printers, advisors, experts and consultants to Holdings and its affiliates), whether incurred prior to, concurrently with or after the execution of this Agreement, in connection with the Offer or the Merger or the consummation of any other transaction contemplated by this Agreement or the Stockholder Documents, the financing thereof or consents related hereto (collectively, the "Expenses"). Such payment, together with any Termination Fee which may be paid, shall serve as full liquidated damages in respect of such breach, and Holdings and the Purchaser hereby waive all claims against the Company and its Controlled Entities in respect of the breach or breaches occasioning the payment pursuant to this Section 8.2(a). It is understood that in the event that the Purchaser is paid a 26 133 Termination Fee (as defined in Section 8.2(b) below), to the extent not previously paid, no amounts shall be payable as Expenses. (b) In the event that this Agreement is terminated by the Company pursuant to Section 8.1(d) or by the Purchaser pursuant to Section 8.1(e), the Company shall pay to Holdings by wire transfer of immediately available funds to an account designated by Holdings on the next business day following such termination (or, in the case of a termination pursuant to Section 8.1(d), prior to the effectiveness of such termination) an amount equal to $6,400,000 (the "Termination Fee") less any amount previously paid to Holdings in respect of Expenses. (c) If all of the following events have occurred: (i) a Transaction Proposal is commenced, publicly disclosed, publicly proposed or otherwise formally communicated to the Company or its stockholders at any time on or after the date of this Agreement but prior to any termination of this Agreement and either (A) Holdings terminates this Agreement pursuant to Section 8.1(c) (unless such termination shall have occurred, in whole or in part, due to the failure of the condition set forth in paragraph (c) of Annex A or the Financing Condition due to, in the case of the failure of the Financing Condition, (i) the occurrence of a material disruption of or material adverse change in financial, banking or capital market conditions, (ii) a competing offering, placement or arrangement of debt securities or bank financing by or on behalf of the Company or any Controlled Entity thereof that was undertaken by or on behalf of (with Holdings' or Purchaser's consent), or at the direction of Holdings or any of its affiliates, or (iii) a material disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general) or (B) the Company terminates this Agreement pursuant to Section 8.1(f)(ii) or (C) Holdings terminates this Agreement pursuant to Section 8.1(g); and (ii) thereafter, within 12 months of the date of such termination, the Company enters into a definitive agreement with respect to, or consummates, the Transaction Proposal referred to in clause (i) above or a Superior Proposal (whether or not such Superior Proposal was commenced, publicly disclosed, publicly proposed or otherwise communicated to the Company or its stockholders prior to such termination); then, the Company shall pay to Holdings, concurrently with the earlier of the execution of such definitive agreement or the consummation of such Transaction Proposal, an amount equal to the Termination Fee (less any amount previously paid to Holdings in respect of Expenses). (d) Purchaser shall (provided that the Company is not then in material breach of any of its representations, warranties or obligations hereunder), following the termination of this Agreement in accordance with Section 8.1(f) (if such termination shall have occurred by reason of a material breach by Holdings or Purchaser of any of its material obligations hereunder), promptly, but in no event later than two business days following written notice thereof, together with reasonable supporting documentation, reimburse the Company, in an aggregate amount of up to $1,000,000, for all reasonable out-of-pocket expenses and fees (including those payable to investment banking firms and other financial institutions, and their respective agents and counsel, and all fees of counsel, accountants, financial printers, advisors, experts and consultants to the Company and its affiliates), whether incurred prior to, concurrently with or after the execution of this Agreement, in connection with the Offer or the Merger or the consummation of any other transaction contemplated hereby or by the Stockholder Documents, the financing hereof or consents related hereto. Such payment shall serve as full liquidated damages in respect of such breach and the Company hereby waives, on behalf of itself and its Controlled Entities, all claims against Holdings and its affiliates in respect of the breach or breaches occasioning the payment pursuant to this Section 8.2(d). (e) Except as otherwise specifically provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby; provided that all expenses of Holdings and the Purchaser shall be paid by the Surviving Corporation at or following the Effective Time. 8.3 Effect of Termination and Abandonment. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VIII, all obligations of the parties hereto shall terminate, 27 134 except the obligations of the parties pursuant to the provisions of Sections 6.6, 8.2, 8.3 and 9.6, which obligations shall survive the termination of this Agreement. 8.4 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto; (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto; and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Nonsurvival of Representations, Warranties and Agreements. The representations and warranties in this Agreement and in any instrument delivered pursuant hereto shall expire at the Effective Time or upon the termination of this Agreement pursuant to Article VIII, as the case may be. All agreements in this Agreement to be fully performed prior to the Effective Time shall terminate at the Effective Time and all other agreements shall survive the Effective Time. Except as expressly provided otherwise in Section 8.3, all agreements in this Agreement shall terminate upon the termination of this Agreement pursuant to Article VIII. 9.2 Notices. All notices required or permitted to be given hereunder shall be in writing and may be delivered by hand, by facsimile, by nationally recognized private courier, or by United States mail. Notices delivered by mail shall be deemed given five (5) business days after being deposited in the United States mail, postage prepaid, registered or certified mail. Notices delivered by hand by facsimile, or by nationally recognized private carrier shall be deemed given on the day following receipt; provided, however, that a notice delivered by facsimile shall only be effective if such notice is also delivered by hand, or deposited in the United States mail, postage prepaid, registered or certified mail, on or before two (2) business days after its delivery by facsimile. All notices shall be addressed as follows: If to Holdings or the Purchaser: c/o Vestar Capital Partners III, L.P. 245 Park Avenue 41st Floor New York, NY 10167 Attn: James L. Elrod, Jr. Facsimile: (212) 808-4922 With copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attn: Peter J. Gordon, Esq Facsimile: (212) 455-2502 28 135 If to the Company: Sheridan Healthcare, Inc. 4651 Sheridan Street, Suite 400 Hollywood, FL 33021 Attn: Mitchell Eisenberg, M.D. Chairman, President and Chief Executive Officer and Jay A. Martus, Esq. Vice President and General Counsel Facsimile: (954) 987-8359 With copies to: Akerman, Senterfitt & Eidson P.A. One S.E. 3rd Avenue, 28th Floor Miami, Florida 33131 Attn: Stephen K. Roddenberry, Esq. Facsimile: (305) 374-5095 or to such other address as any party shall specify by written notice so given. 9.3 Assignment, Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that the Purchaser may assign all or any of its rights and obligations hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of Holdings, provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns. 9.4 Entire Agreement. This Agreement, the Stockholder Documents, the Disclosure Statements of the Company and the Purchaser, the Exhibits and Annex hereto and the Confidentiality Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 9.5 Amendment. This Agreement may be amended by the parties hereto at any time prior to the Effective Time, before or after the adoption of this Agreement by the stockholders of the Company, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 9.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 9.7 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 9.8 Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretive effect whatsoever. 9.9 Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 9.10 Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a 29 136 waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 9.11 Incorporation of Exhibits. The Disclosure Statements of the Company and the Purchaser attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 9.12 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 9.13 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 30 137 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. VESTAR/CALVARY HOLDINGS, INC. By: /s/ JAMES L. ELROD ------------------------------------ Title: President VESTAR/CALVARY, INC. By: /s/ JAMES L. ELROD ------------------------------------ Title: President SHERIDAN HEALTHCARE, INC. By: /s/ MITCHEL EISENBERG ------------------------------------ Title: President 31 138 ANNEX A OFFER CONDITIONS The capitalized terms used in this Annex A have the meanings set forth in the attached Agreement, except that the term "Merger Agreement" shall be deemed to refer to the attached Agreement. Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and may postpone the acceptance for payment or, subject to the restriction referred to above, payment for any Shares tendered pursuant to the Offer, and may amend or terminate the Offer (whether or not any Shares have theretofore been purchased or paid for) if, prior to the expiration of the Offer, (i) a number of shares of Company Common Stock which, together with any Shares owned by Holdings or Purchaser, or any controlled affiliate thereof, constitutes at least a majority of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger shall not have been validly tendered and not properly withdrawn prior to the expiration of the Offer (the "Minimum Condition"), (ii)(A) Purchaser shall not have received funding for the Offer (1) sufficient to pay for all Shares tendered pursuant to the Offer and not validly withdrawn and to pay all fees and expenses related to the Offer and (2) otherwise on the terms and subject to the conditions set forth in the NationsBank Commitment Letter and (B)(1) the Permanent Facilities (as defined in the NationsBank Commitment Letter) shall not have been fully executed and delivered or shall not be in full force or effect or (2) all conditions to funding under the Permanent Facilities that are required to be, or are capable of being, satisfied prior to the purchase of the Shares pursuant to the Offer shall not have been satisfied or (3) there is reason to believe that any of the other conditions to funding under the Permanent Facilities will not be satisfied prior to the termination of the Merger Agreement or the Permanent Facilities, or (iii) at any time on or after the date of the Merger Agreement and prior to the acceptance for payment of Shares, any of the following conditions occurs or has occurred or Purchaser makes a good faith determination that any of the following conditions has occurred: (a) there shall be pending or threatened by any governmental authority any suit, action or proceeding, or any preliminary or permanent injunction or order, decree, statute, rule or regulation shall have been entered by any federal or state court or other governmental authority, or statute, rule, regulation, legislation, interpretation, judgment or order proposed, sought, enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Holdings or the Company or any affiliate of Holdings or the Company or the Offer or the Merger, (i) challenging or seeking to restrain or prohibit or make materially more costly the making of the Offer, the acceptance for payment of, or payment for, some of or all the Shares by Purchaser or any of its affiliates or the consummation of any of the other transactions contemplated by the Merger Agreement or seeking to materially delay the Merger or obtain from Holdings or any of its affiliates material damages; (ii) seeking to prohibit or limit the ownership or operation by the Company or any of its Controlled Entities or Holdings or any of Holdings' affiliates of all or any material portion of the business or assets of the Company or any of its Controlled Entities or Holdings, or any of its affiliates, or seeking to compel Holdings, Purchaser or any of Holdings' affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its Controlled Entities or Holdings or any of its affiliates; (iii) seeking to impose or confirm limitations on the ability of Holdings or any of Holdings' affiliates effectively to acquire or hold or to exercise full rights of ownership of Shares, including without limitation the right to vote any Shares on all matters properly presented to the stockholders of the Company, including without limitation the adoption of the Merger Agreement, or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; or (iv) seeking to require divestiture by Holdings or any of Holdings' affiliates of any Shares; (b) there shall have occurred any event that has had or would be reasonably likely to have a Material Adverse Effect on the Company; A-1 139 (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) a decline of at least 25% in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 index from the date hereof, (iii) any material adverse change or any existing or threatened condition, event or development involving a prospective material adverse change in United States or other material international currency exchange rates or a suspension of, or limitation on, the markets therefor, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or any other event that, in the reasonable judgment of Purchaser, could reasonably be expected to materially adversely affect the extension of credit by banks or other lending institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States (except for any such event involving Serbia or Iraq) or materially adversely affecting (or materially delaying) the consummation of the Offer or (vii) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; (d) All material licenses, permits, consents, authorizations, qualifications, orders and approvals of (or filings with) any governmental authority or other third party (including, without limitation, the consents of the Company's creditors and of South Broward Hospital District) required to be obtained, made or received in connection with the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby shall not have been obtained, made or received in form and substance reasonably satisfactory to Holdings. (e) any of the representations and warranties of the Company contained in the Merger Agreement shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of such determination; (f) the Company shall have failed to perform in any material respect any agreement of the Company contained in the Merger Agreement that is required to be performed by it prior to the time of such determination; (g) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; (h) any waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated; or (i) to the Company's knowledge, the Company or a Controlled Entity of the Company is under investigation for any violation of the "Stark" laws, anti-kickback laws or the laws relating to Medicare, Medicaid, Champus or any rules or regulations related thereto: which, in the reasonable judgment of Purchaser with respect to each and every matter referred to above and regardless of the circumstances (including any action or inaction by Purchaser or any of its affiliates other than a breach of the Merger Agreement) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-2 140 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his, her or its broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand or Overnight Delivery: 40 Wall Street (for Eligible Institutions 40 Wall Street New York, New York 10005 only) New York, New York 10005 (718) 236-4588 For Information Telephone: (212) 936-5100
Any questions and requests for assistance may be directed to the Information Agent at its telephone number and address listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent for the Offer is: Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor New York, New York 10022 Bankers and Brokers Call Collect: (212) 750-5833 All Others Call Toll Free: (888) 750-5834 EX-99.D.2 17 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. PURSUANT TO THE OFFER TO PURCHASE DATED MARCH 31, 1999 BY VESTAR/SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN HOLDINGS, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN INVESTORS, LLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand or Overnight Delivery: (for Eligible Institutions only) 40 Wall Street 40 Wall Street New York, New York 10005 (718) 236-4588 New York, New York 10005
For Information Telephone: (212) 936-5100 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders, either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders of Shares are to be made by book-entry transfer into the account of American Stock Transfer & Trust Company, as Depositary (the "Depositary"), at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders." Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in "The Tender Offer -- Section 1" of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. 2 - - --------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - - --------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND SHARES (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) TENDERED (ATTACH ADDITIONAL SIGNED LIST APPEAR(S) ON CERTIFICATE(S)) IF NECESSARY) - - --------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER SHARES OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S) TENDERED** -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- TOTAL SHARES: - - --------------------------------------------------------------------------------------------------------------------------- * NEED NOT BE COMPLETED BY BOOK-ENTRY STOCKHOLDERS. ** UNLESS OTHERWISE INDICATED, ALL SHARES REPRESENTED BY CERTIFICATES DELIVERED TO THE DEPOSITARY WILL BE DEEMED TO HAVE BEEN TENDERED. SEE INSTRUCTION 4. - - ---------------------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY [ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution ---------------------------------------- Check box of Book-Entry Transfer Facility: [ ] The Depository Trust Company Account Number -------------------- Transaction Code Number ------------------- [ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): -------------------------------------------- Window Ticket Number (if any): --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ---------------- Name of Institution that Guaranteed Delivery: ----------------------------- If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility: [ ] The Depository Trust Company Account Number ------------------ Transaction Code Number -------------------- 3 Ladies and Gentlemen: The undersigned hereby tenders to Vestar/Sheridan, Inc., a Delaware corporation formerly known as Vestar/Calvary, Inc. ("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation formerly known as Vestar/Calvary Holdings, Inc. ("Parent") and a wholly owned subsidiary of Vestar/ Sheridan Investors, LLC, a Delaware limited liability company formerly known as Vestar/Calvary Investors, LLC, the above-described shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer to Purchase") and in this Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, receipt of which is hereby acknowledged. Subject to, and effective upon, acceptance for payment for the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions (including additional Shares) or rights declared, paid or issued with respect to the tendered Shares on or after the date hereof and payable or distributable to the undersigned on a date prior to the transfer to the name of Purchaser or nominee or transferee of Purchaser on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distribution) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (and any Distribution) or transfer ownership of such Shares (and any Distribution) on the account books maintained by the Book-Entry Transfer Facility, together in either case with appropriate evidences of transfer, to the Depositary for the account of Purchaser, (b) present such Shares (and any Distribution) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distribution), all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints designees of Purchaser as such stockholder's attorneys-in-fact and proxies, with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date hereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of Purchaser will, with respect to the Shares for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distribution) tendered hereby and (b) when the Shares are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distribution), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any Distribution). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer; and pending such remittance or appropriate assurance thereof, Purchaser will be, subject to applicable law, entitled to all rights and privileges as owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. 4 Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable except that they may be withdrawn after May 29, 1999, unless theretofore accepted for payment as provided in the Offer to Purchase. See "The Tender Offer -- Section 4" of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in "The Tender Offer -- Section 3" of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated herein under "Special Delivery Instructions," please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered. 5 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue [ ] Check [ ] Certificate to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX ID. OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail [ ] Check [ ] Certificate to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX ID. OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) 6 SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE X - - -------------------------------------------------------------------------------- X - - -------------------------------------------------------------------------------- (SIGNATURE(S) OF HOLDER(S)) Dated: - - -------------------------------------------------------------------------------- (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ------------------------------------------------------------------------ Name of Firm --------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title) ----------------------------------------------------------------- Address------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- Tax Identification or Social Security No. ----------------------------------------------------------------- COMPLETE SUBSTITUTE FORM W-9 ON REVERSE GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature ---------------------------------------------------------------- Name -------------------------------------------------------------------------- Name of Firm --------------------------------------------------------------------- (PLEASE PRINT) Address------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- Dated:-------------------------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if Share Certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. Share Certificates evidencing tendered Shares, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market ("Nasdaq") trading days after the date of execution of such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Share Certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not Applicable to Book-Entry Stockholders) If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares represented by such Share Certificate which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 8 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several Share Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Share Certificates. If this Letter of Transmittal or any Share Certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of Share Certificates or separate stock powers are required unless payment is to be made to or Share Certificates for Shares not tendered or not purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such Share Certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Share Certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the Share Certificate(s). Signatures on such Share Certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered Share Certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or an exemption therefrom, is submitted. EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such Share Certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. 8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the Merger Agreement, the conditions of the Offer (other than the Minimum Condition) may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on the Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. 9 Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to the Information Agent at its address and telephone number set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary at (212) 936-5100. The stockholder will then be instructed as to the steps that must be taken in order to replace the Share Certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 10 TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 9) - - ------------------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY - - ------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT THE Social Security Number FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. or Employer DEPARTMENT OF THE Identification Number TREASURY INTERNAL REVENUE ---------------------------- SERVICE -------------------------------------------------------------------------------------------- PART 2 -- Certification -- Under penalties of perjury, I certify that: PAYER'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification Number (or I am TAXPAYER IDENTIFICATION waiting for a number to be issued to me) and NUMBER ("TIN") (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). SIGN HERE SIGNATURE: -------------------------------- DATE: -------------------------- -------------------------------------------------------------------------------------------- PART 3 -- Awaiting TIN [ ] - - -------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld. Signature: - - --------------------------------------------------------- Date: - - ------------------------------ 11 The Information Agent for the Offer is: INNISFREE M&A INCORPORATED 501 Madison Avenue, 20th Floor New York, New York 10022 Bankers and Brokers Call Collect: (212) 750-5833 All Others Call Toll Free: (888) 750-5834 March 31, 1999 EX-99.D.3 18 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. As set forth in "The Tender Offer -- Section 3" of the Offer to Purchase described below, this instrument or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for Shares (as defined below) are not immediately available or the certificates for Shares and all other required documents cannot be delivered to American Stock Transfer & Trust Company (the "Depositary") prior to the Expiration Date (as defined in "The Tender Offer -- Section 1" of the Offer to Purchase) or if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand or (for Eligible Institutions only) Overnight Delivery: 40 Wall Street New York, New York 10005 (718) 236-4588 40 Wall Street New York, New York 10005 For Information Telephone: (212) 936-5100
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX IN THE LETTER OF TRANSMITTAL. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED 2 Ladies and Gentlemen: The undersigned hereby tender(s) to Vestar/Sheridan, Inc., a Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company, upon the terms and subject to the conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation, pursuant to the guaranteed delivery procedure set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. Signature(s) - - -------------------------------------- Name(s) of Record Holders - - ---------------------------------------------------- PLEASE TYPE OR PRINT Number of Shares - - -------------------------------- Certificate Nos. (If Available) - - ---------------------------------------------------- - - ---------------------------------------------------- Dated - - --------------------------------------------- Address(es) - - -------------------------------------- - - ---------------------------------------------------- ZIP CODE Area Code and Tel. No(s) - - ---------------------------------------------------- Check box if Shares will be tendered by book-entry transfer [ ] The Depository Trust Company Account Number - - --------------------------------- - - ---------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. - - ---------------------------------------------------- NAME OF FIRM - - ---------------------------------------------------- ADDRESS - - ---------------------------------------------------- Zip Code Area Code and Tel. No. - - ---------------------------------------------------- - - ---------------------------------------------------- AUTHORIZED SIGNATURE Name - - --------------------------------------------- (PLEASE TYPE OR PRINT) Title - - ---------------------------------------------- Dated - - --------------------------------------------- NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH LETTER YOUR OF TRANSMITTAL. EX-99.D.4 19 LETTER FROM INFORMATION AGENT 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. AT $9.25 NET PER SHARE BY VESTAR/SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN HOLDINGS, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN INVESTORS, LLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. March 31, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company ("Holdings"), to act as Information Agent in connection with Purchaser's offer to purchase for cash all the outstanding shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, less applicable withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated March 31, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in "The Tender Offer -- Section 3" of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase; 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares; 3. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if Share Certificates are not immediately available or if such Share Certificates and all other required documents cannot be delivered to American Stock Transfer & Trust Company (the "Depositary") by the Expiration Date or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 2 4. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. A return envelope addressed to the Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book- entry delivery of Shares, and other required documents should be sent to the Depositary and (ii) either Share Certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share Certificates or other required documents on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in "The Tender Offer -- Section 3" of the Offer to Purchase. Purchaser will not pay any commissions or fees to any broker, dealer or other person (other than the Depositary and Information Agent) for soliciting tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent, at its address and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent. Very truly yours, Innisfree M&A Incorporated NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON, THE AGENT OF THE PURCHASER, PARENT, HOLDINGS, THE COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.D.5 20 LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. AT $9.25 NET PER SHARE BY VESTAR/SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN HOLDINGS, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN INVESTORS, LLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration is an Offer to Purchase dated March 31, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") relating to the offer by Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company ("Holdings"), to purchase all of the outstanding shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, less applicable withholding taxes upon the terms and subject to the conditions set forth in the Offer. We are the holder of record of Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is directed to the following: 1. The tender price is $9.25 per Share, net to the seller in cash without interest thereon. 2. The Offer is made for all of the outstanding Shares. 3. The Board of Directors of the Company has unanimously determined that the Merger Agreement (as defined below) and the transactions contemplated thereby, including each of the Offer and the Merger (as defined below), are fair to and in the best interests of the holders of the Shares and resolved to recommend that the holders of the Shares accept the Offer and tender their Shares to Purchaser. 2 4. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of March 24, 1999 (the "Merger Agreement"), which provides that subsequent to the consummation of the Offer, Purchaser will merge into the Company (the "Merger"). At the effective time of the Merger (the "Effective Time"), each then outstanding Share (other than Shares owned by Parent and its subsidiaries and Shares held by stockholders who have not voted in favor of or consented to the Merger and who have properly demanded appraisal of their Shares in accordance with Section 262 of the Delaware General Corporation Law) will be canceled, extinguished and converted into the right to receive $9.25 in cash, without interest, less any withholding taxes required under applicable law. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Tuesday, April 27, 1999, unless the Offer is extended. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. 7. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the expiration of the Offer a number of Shares which, together with any shares owned by Parent or Purchaser, or any controlled affiliate thereof, constitutes at least a majority of the voting power (determined on a fully-diluted basis), on the date of purchase, of all the securities of the Company entitled to vote generally in the election of directors or in a merger and (ii) the satisfaction of the Financing Condition referred to in the Offer to Purchase. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and any ancillary documents thereto and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer, Purchaser will make a good faith effort to comply with such statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. IF YOU WISH TO HAVE US TENDER ANY OR ALL OF THE SHARES HELD BY US FOR YOUR ACCOUNT, PLEASE INSTRUCT US BY COMPLETING, EXECUTING AND RETURNING TO US THE INSTRUCTION FORM CONTAINED IN THIS LETTER. IF YOU AUTHORIZE A TENDER OF YOUR SHARES, ALL SUCH SHARES WILL BE TENDERED UNLESS OTHERWISE SPECIFIED IN SUCH INSTRUCTION FORM. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON STOCK OF SHERIDAN HEALTHCARE, INC. BY VESTAR/SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN HOLDINGS, INC. A WHOLLY OWNED SUBSIDIARY OF VESTAR/SHERIDAN INVESTORS, LLC The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase dated March 31, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal pursuant to an offer by Vestar/Sheridan, Inc., a Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company, to purchase all outstanding shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share (the "Class A Common Stock" and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned. DATE: - - --------------- NUMBER OF SHARES TO BE TENDERED:* --------------- SHARES SIGN HERE - - -------------------------------------------------------------------------------- Signature(s) - - -------------------------------------------------------------------------------- Please Print Name(s) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- (Address(es) - - -------------------------------------------------------------------------------- Area Code and Telephone Number - - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number - - --------------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.D.6 21 JOINT PRESS RELEASE 1 Vestar Capital Partners and Management of Sheridan Healthcare to Take the Company Private Sheridan Healthcare Shareholders to Receive $9.25 Per Share In Cash NEW YORK and HOLLYWOOD, Fla. (March 25, 1999) Sheridan Healthcare, Inc. (Nasdaq/NM: SHCR) today announced the signing of a definitive merger agreement between the Company and an investor group led by Vestar Capital Partners and Sheridan Healthcare senior management. Sheridan Healthcare is a physician practice management company primarily providing anesthesia and women's health services to patients in Florida and Texas. The management investors are led by Dr. Mitchell Eisenberg and Dr. Lewis Gold, the current Chief Executive Officer and Executive Vice President of the Company, respectively. Under the terms of the agreement, the investor group will offer Sheridan Healthcare shareholders $9.25 per share in cash for all outstanding common shares in a tender offer to commence within the next five business days. Including debt and other obligations of the Company, and costs expected to be incurred in connection with the acquisition, the total value of the transaction is approximately $155 million. NationsBank, N.A. and its affiliates, the Companys existing lender, have committed to provide $75 million in bank financing to fund the acquisition. Through Vestar Capital Partners III, L.P., Vestar has committed to provide the remaining funds necessary to complete the transaction. NationsBank has also committed to provide a $50 million credit facility to fund the Companys long-term future growth and expansion. Sheridan Healthcare entered into the merger agreement following a unanimous recommendation by the Companys Board of Directors. The Board received fairness opinions from Bowles Hollowell Conner, a division of First Union Capital Markets Corp., and Salomon Smith Barney Inc., who, as previously announced, had been retained to assist the Company in exploring strategic alternatives. Dr. Eisenberg stated, "Sheridan Healthcare has engaged in an extensive process, with the assistance of its financial advisors, in soliciting and evaluating third party interest in a sale of the Company. Our new partnership with Vestar provides Sheridan Healthcare with a much needed capital base to achieve its longer-term growth objectives. It also importantly provides Sheridan Healthcares community of employees, physician partners, hospitals and payors with a stronger sense of stability and financial backing." 2 Jim Elrod, Managing Director of Vestar, said, "Vestar believes that physicians, like those affiliated with Sheridan Healthcare, will always be at the center of quality healthcare. Sheridan Healthcare has an enviable record of delivering real value to its physicians while serving a growing patient base in very attractive markets. We're extremely pleased to be investing with Dr. Eisenberg, Dr. Gold, and the rest of the management team in the business they've built." Following completion of the tender offer, Vestar will be entitled to designate a majority of the Board of Directors of Sheridan Healthcare. The parties will complete a second-step cash merger at $9.25 per share as promptly as practicable following completion of the tender offer. The transaction is subject to a variety of conditions, including receipt of at least a majority of the voting stock in the tender offer, shareholder approval, financing and regulatory approvals. Sheridan Healthcare, Inc., based in Hollywood, Fla., is a physician practice management company which employs or manages specialist physicians providing services at hospitals and ambulatory surgical facilities in the areas of anesthesia, neonatology, pediatrics, emergency services, obstetrics and pain management. In addition, it owns and operates, or manages, office-based gynecological, obstetrical, infertility, perinatology, primary care and surgical physician practices. The Company is affiliated with approximately 363 physicians and 161 allied health professionals, practicing under 55 specialty service contracts at 37 hospitals and at 28 office locations. Vestar Capital Partners is a leading investment firm that manages more than $1 billion in equity capital and specializes in management buyouts and growth capital investments. Vestar invests, as partners with management teams, in high-quality, middle market companies. Since its founding in 1988, Vestar has completed approximately 30 transactions with a total value in excess of $5 billion. Statements contained in this press release which are not historical facts may be considered forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include fluctuations in the volume of procedures performed by the Company's affiliated physicians, changes in the reimbursement rates for those procedures, uncertainty about the ability to collect the appropriate fees for those procedures, the loss of significant hospital or third-party payor relationships, and changes in the number of patients using the Company's physician services, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission. ### Contact: Kara Fitzsimmons or Gene Donati Clark & Weinstock 212-953-2550 Jim Elrod Vestar Capital Partners 212-351-1609 Michael Schundler Sheridan Healthcare, Inc. 954-986-7506 EX-99.D.7 22 SUMMARY ADVERTISEMENT 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated March 31, 1999 and the related Letter of Transmittal and is being made to all holders of Shares (as defined below). Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer, Purchaser will make a good faith effort to comply with such statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. In any jurisdiction where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock and Class A Common Stock of Sheridan Healthcare, Inc. at $9.25 Net Per Share by Vestar/Sheridan, Inc. a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc. a wholly owned subsidiary of Vestar/Sheridan Investors, LLC Vestar/Sheridan, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc., a Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC, a Delaware limited liability company ("Holdings"), hereby offers to purchase for cash all of the outstanding shares of Common Stock, par value $0.01 per share ("Common Stock"), and Class A Common Stock, par value $0.01 per share ("Class A Common Stock and, together with the Common Stock, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated March 31, 1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 27, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES OWNED BY PARENT OR PURCHASER, OR ANY CONTROLLED AFFILIATE THEREOF, CONSTITUTES AT LEAST A MAJORITY OF THE VOTING POWER (DETERMINED ON A FULLY-DILUTED BASIS), ON THE DATE OF PURCHASE, OF ALL THE SECURITIES OF THE COMPANY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN A MERGER (THE "MINIMUM CONDITION") AND (ii) (1) PURCHASER SHALL HAVE RECEIVED FUNDING FOR THE OFFER SUFFICIENT TO PAY FOR ALL SHARES TENDERED PURSUANT TO THE OFFER AND NOT VALIDLY WITHDRAWN AND TO PAY ALL FEES AND EXPENSES RELATED TO THE OFFER AND OTHERWISE ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE NATIONSBANK COMMITMENT LETTER (AS DEFINED IN THE MERGER AGREEMENT) AND (2) THE PERMANENT FACILITIES (AS DEFINED IN THE MERGER AGREEMENT) SHALL HAVE BEEN FULLY EXECUTED AND DELIVERED AND SHALL BE IN FULL FORCE AND EFFECT AND ALL CONDITIONS TO FUNDING THEREUNDER THAT ARE REQUIRED TO BE, OR ARE CAPABLE OF BEING, SATISFIED PRIOR TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER SHALL HAVE BEEN SATISFIED AND THERE IS NO REASON TO BELIEVE THAT ANY OF THE OTHER CONDITIONS TO FUNDING UNDER THE PERMANENT FACILITIES WILL NOT BE SATISFIED PRIOR TO THE TERMINATION OF THE MERGER AGREEMENT OR THE PERMANENT FACILITIES. The purpose of the Merger Agreement is to acquire control of, and the entire equity interest in, the Company. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger (as defined below) set forth in the Merger Agreement (as defined below), Purchaser intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of March 24, 1999 (the "Merger Agreement"), among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by Purchaser, and further provides that, following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the Delaware General Corporation Law ("DGCL"), Purchaser will be merged into the Company (the "Merger"). At the effective time of the Merger (the "Effective Time") each Share outstanding immediately prior to the Effective Time (other than Shares owned by Parent and its subsidiaries and Shares held by stockholders who have not voted in favor of or consented to the Merger and who have properly demanded appraisal of their Shares in accordance with Section 262 of the DGCL) will, by virtue of the Merger and without any action on the part of the holders thereof, be canceled, extinguished and converted into the right to receive $9.25 in cash, or any higher price that may be paid pursuant to the Offer, payable to the holder thereof, without interest, less any withholding taxes required under applicable law. The Merger Agreement is more fully described in the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (EXCLUDING ABSTAINING DIRECTORS WHO WOULD BE CONSIDERED "INTERESTED DIRECTORS" UNDER THE DGCL) DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS OF SHARES, APPROVED THE MERGER AGREEMENT AND THE OFFER AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, DECLARED THE MERGER TO BE ADVISABLE AND RESOLVED TO RECOMMEND THAT THE HOLDERS OF THE SHARES ACCEPT THE OFFER, TENDER THEIR SHARES TO PURCHASER AND ADOPT THE MERGER AGREEMENT. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to American Stock Transfer & Trust Company (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates representing Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), Purchaser reserves the right, in its sole discretion, to waive any or all conditions to the Offer (other than the Minimum Condition) and to make any other changes in the terms and conditions to the Offer. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the Commission, if by the Expiration Date any or all of such Offer Conditions have not been satisfied, Purchaser reserves the right (but shall not be obligated) to (i) terminate the Offer and return all tendered Shares to tendering stockholders, (ii) waive such unsatisfied conditions (other than the Minimum Condition) and purchase all Shares validly tendered or (iii) extend the Offer and, subject to the terms of the Offer (including the rights of stockholders to withdraw their Shares), retain the Shares which have been tendered, until the termination of the Offer, as extended. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the Commission, Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the Offer Conditions set forth in the Offer to Purchase shall have occurred or shall have been determined by Purchaser to have occurred, to (i) extend the period of time during which the Offer is open and thereby delay acceptance of payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, April 27, 1999, unless and until the Purchaser, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable except that they may be withdrawn after May 29, 1999 unless theretofore accepted for payment as provided in the Offer to Purchase. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of the certificates, the name of the registered holder (if different from the tendering stockholder) and the serial numbers shown on such certificates must be submitted to the Depositary, together with a signed notice of withdrawal, the signatures on which must be guaranteed by an Eligible Institution unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination will be final and binding. None of Holdings, Purchaser, Parent, any of their affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in the Offer to Purchase. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by Purchaser to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent as set forth below. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent and copies will be furnished promptly at Purchaser's expense. Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: [Innisfree Logo] 501 Madison Avenue, 20th Floor New York, New York 10022 Banks and Brokers Call Collect: (212) 750-5833 All Others Call Toll Free: (888) 750-5834 March 31, 1999 EX-99.D.8 23 GUIDELINES FOR CERTIFICATION 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU) TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service. ------------------------------------------------------------------ GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - - --------------------------------------------------------------------- 1. Individual The individual 2. Two or more individuals (joint The actual owner of the ac- account) count or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor-trustee(1) trust account (grantor is also trustee) The actual owner(1) b. So-called trust account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - - --------------------------------------------------------------------- GIVE THE EMPLOYER IDEN- FOR THIS TYPE OF ACCOUNT: TIFICATION NUMBER OF -- - - --------------------------------------------------------------------- 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or The legal entity(4) pension trust 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational, or other tax-exempt organization account 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments
------------------------------------------------------------------ 1. List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. 2. Circle the minor's name and furnish the minor's social security number. 3. You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). 4. List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5. Application for a Social Security Card, at the local Social Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from withholding include: - - - An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). - - - The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any one or more of the foregoing. - - - An international organization or any agency or instrumentality thereof. - - - A foreign government and any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: - - - A corporation. - - - A financial institution. - - - A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. - - - A real estate investment trust. - - - A common trust fund operated by a bank under Section 584(a). - - - An entity registered at all times during the tax year under the Investment Company Act of 1940. - - - A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. - - - A futures commission merchant registered with the Commodity Futures Trading Commission. - - - A foreign central bank of issue. Payments of dividends and patronage dividends generally exempt from backup withholding include: - - - Payments to nonresident aliens subject to withholding under Section 1441. - - - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. - - - Payments of patronage dividends not paid in money. - - - Payments made by certain foreign organizations. - - - Section 404(k) payments made by an ESOP. Payments of interest generally exempt from backup withholding include: - - - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and you have not provided your correct taxpayer identification number to the payer. - - - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - - - Payments described in Section 6049(b)(5) to nonresident aliens. - - - Payments on tax-free covenant bonds under Section 1451. - - - Payments made by certain foreign organizations. - - - Mortgage interest paid to you. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N. Exempt payees described above must file Form W-9 or a substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct taxpayer identification number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.E 24 SECTION 262 OF DELAWARE GENERAL CORPORATION LAW 1 SCHEDULE IV The following is the text of Section 262 of the Delaware General Corporation Law. 262 APPRAISAL RIGHTS -- (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger of consolidation nor consented thereto in writing pursuant to sec.228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec.251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec.253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate IV-2 2 of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of (1)such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of (1)such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subscription and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec.228 or sec.253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall not be more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a IV-3 3 determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw (1)such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement will be mailed to the stockholder within 10 days after (1) such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted (1) such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that (2) such stockholder is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. IV-4 4 (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded(1) appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of (1)such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 339, L. '98, eff. 7-1-98.) - - --------------- Ch. 339, L. '98, eff. 7-1-98, added matter in italic and deleted (1)"his" and (2)"he". IV-5 EX-99.G 25 TENDER OFFER STATEMENT 1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND STATEMENT ON SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ SHERIDAN HEALTHCARE, INC. (NAME OF SUBJECT COMPANY) VESTAR/SHERIDAN, INC. VESTAR/SHERIDAN HOLDINGS, INC. VESTAR/SHERIDAN INVESTORS, LLC (BIDDER) COMMON STOCK, PAR VALUE $0.01 PER SHARE CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLES OF CLASSES OF SECURITIES) ------------------------ 823781109 823781208 (CUSIP NUMBERS OF CLASSES OF SECURITIES) ------------------------ JAMES L. ELROD, JR. VESTAR/SHERIDAN INVESTORS, LLC 245 PARK AVENUE, 41ST FLOOR NEW YORK, NY 10167 TELEPHONE: (212) 351-1600 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER) COPY TO: PETER J. GORDON, ESQ. SIMPSON THACHER & BARTLETT 425 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 TELEPHONE: (212) 455-2000 ------------------------ CALCULATION OF FILING FEE - - --------------------------------------------------------------------------------------------- - - --------------------------------------------------------------------------------------------- Transaction Valuation* $73,719,530.75 Amount of Filing Fee** $14,743.91 - - --------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------
* Based on the offer to purchase all of the outstanding shares of Common Stock, par value $0.01 (the "Common Stock"), and Class A Common Stock, par value $0.01 (the "Class A Common Stock"), of the Subject Company at $9.25 per share in cash, 6,290,178 shares of Common Stock and 296,638 shares of Class A Common Stock outstanding, and options to purchase 1,382,863 shares of Common Stock outstanding as of March 28, 1999. ** 1/50 of 1% of Transaction Valuation. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Form or Registration No.: Filing Party: Date Filed: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 CUSIP NO. (COMMON STOCK) 823781109 - - ---------------------------------------------------------------------------------------------------------- NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Vestar/Sheridan, Inc. - - ---------------------------------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] 2 (b) [X] - - ---------------------------------------------------------------------------------------------------------- SEC USE ONLY 3 - - ---------------------------------------------------------------------------------------------------------- SOURCE OF FUNDS 4 AF, BK - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED 5 PURSUANT TO ITEMS 2(d) or 2(e) [ ] - - ---------------------------------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 DELAWARE - - ---------------------------------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SOLE VOTING POWER 7 0 ----------------------------------------------------------------- SHARED VOTING POWER* 8 698,759 SHARES OF COMMON STOCK ----------------------------------------------------------------- SOLE DISPOSITIVE POWER 9 0 ----------------------------------------------------------------- SHARED DISPOSITIVE POWER* 10 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING 11 PERSON* 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES 12 CERTAIN SHARES [ ] - - ---------------------------------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO ISSUANCE OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11)) - - ---------------------------------------------------------------------------------------------------------- TYPE OF REPORTING PERSON 14 CO - - ----------------------------------------------------------------------------------------------------------
* Beneficial ownership is based solely on the provisions of the Tender Agreement and the Subscription and Tender Agreements described in Item 7 herein, pursuant to which, among other things, certain officers of Sheridan Healthcare, Inc. who beneficially own Common Stock have agreed with the sole stockholder of the reporting person to (1) vote the shares of Common Stock shown here as beneficially owned in favor of the adoption of the Merger Agreement and against any action or agreement that would impede, interfere with, delay or prevent the purchase of shares pursuant to the Offer or the consummation of the Merger or would result in a breach of any covenant, representation or warranty contained in the Merger Agreement and (2) tender such shares into the Offer. Capitalized terms have the meanings assigned thereto herein. 2 3 CUSIP NO. (COMMON STOCK) 823781109 - - ---------------------------------------------------------------------------------------------------------- NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Vestar/Sheridan Holdings, Inc. - - ---------------------------------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] 2 (b) [X] - - ---------------------------------------------------------------------------------------------------------- SEC USE ONLY 3 - - ---------------------------------------------------------------------------------------------------------- SOURCE OF FUNDS 4 AF - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED 5 PURSUANT TO ITEMS 2(d) or 2(e) [ ] - - ---------------------------------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 DELAWARE - - ---------------------------------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SOLE VOTING POWER 7 0 ----------------------------------------------------------------- SHARED VOTING POWER* 8 698,759 SHARES OF COMMON STOCK ----------------------------------------------------------------- SOLE DISPOSITIVE POWER 9 0 ----------------------------------------------------------------- SHARED DISPOSITIVE POWER* 10 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING 11 PERSON* 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES 12 CERTAIN SHARES [ ] - - ---------------------------------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO ISSUANCE OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11)) - - ---------------------------------------------------------------------------------------------------------- TYPE OF REPORTING PERSON 14 CO - - ----------------------------------------------------------------------------------------------------------
* Beneficial ownership is based solely on the provisions of the Tender Agreement and the Subscription and Tender Agreements, described in Item 7 herein, pursuant to which among, other things, certain officers of Sheridan Healthcare, Inc. who beneficially own Common Stock have agreed with the reporting person to (1) vote the shares of Common Stock shown here as beneficially owned in favor of the adoption of the Merger Agreement and against any action or agreement that would impede, interfere with, delay or prevent the purchase of shares pursuant to the Offer or the consummation of the Merger or would result in a breach of any covenant, representation or warranty contained in the Merger Agreement and (2) tender such shares into the Offer. Capitalized terms have the meanings assigned thereto herein. 3 4 CUSIP NO. (COMMON STOCK) 823781109 - - ---------------------------------------------------------------------------------------------------------- NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Vestar/Sheridan Investors, LLC - - ---------------------------------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] 2 (b) [X] - - ---------------------------------------------------------------------------------------------------------- SEC USE ONLY 3 - - ---------------------------------------------------------------------------------------------------------- SOURCE OF FUNDS 4 AF - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED 5 PURSUANT TO ITEMS 2(d) or 2(e) [ ] - - ---------------------------------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 DELAWARE - - ---------------------------------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SOLE VOTING POWER 7 0 ----------------------------------------------------------------- SHARED VOTING POWER* 8 698,759 SHARES OF COMMON STOCK ----------------------------------------------------------------- SOLE DISPOSITIVE POWER 9 0 ----------------------------------------------------------------- SHARED DISPOSITIVE POWER* 10 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING 11 PERSON* 698,759 SHARES OF COMMON STOCK - - ---------------------------------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES 12 CERTAIN SHARES [ ] - - ---------------------------------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 10.7% (BASED ON 6,516,551 SHARES OF COMMON STOCK OUTSTANDING AFTER GIVING EFFECT TO ISSUANCE OF SHARES OF COMMON STOCK UNDERLYING OPTIONS INCLUDED IN ROW (11)) - - ---------------------------------------------------------------------------------------------------------- TYPE OF REPORTING PERSON 14 HC - - ----------------------------------------------------------------------------------------------------------
* Beneficial ownership is based solely on the provisions of the Tender Agreement and the Subscription and Tender Agreements described in Item 7 herein, pursuant to which among, other things, certain officers of Sheridan Healthcare, Inc. who beneficially own Common Stock have agreed with a wholly owned subsidiary of the reporting person to (1) vote the shares of Common Stock shown here as beneficially owned in favor of the adoption of the Merger Agreement and against any action or agreement that would impede, interfere with, delay or prevent the purchase of shares pursuant to the Offer or consummation of the Merger or would result in a breach of any covenant, representation or warranty contained in the Merger Agreement and (2) tender such shares into the Offer. Capitalized terms have the meanings assigned thereto herein. 4 5 This Tender Offer Statement on Schedule 14D-1 and Statement on Schedule 13D (the "Schedule 14D-1/13D") relates to the offer by Vestar/Sheridan, Inc., (formerly known as Vestar/Calvary, Inc.) a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Vestar/Sheridan Holdings, Inc.(formerly known as Vestar/Calvary Holdings, Inc.), a Delaware corporation ("Parent") and a wholly owned subsidiary of Vestar/Sheridan Investors, LLC (formerly known as Vestar/Calvary Investors, LLC) ("Holdings"), a Delaware limited liability company, to purchase for cash all of the outstanding shares of Common Stock, par value $0.01 per share, and Class A Common Stock, par value $0.01 per share (collectively, the "Shares"), of Sheridan Healthcare, Inc., a Delaware corporation (the "Company"), at a purchase price of $9.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated as of March 31, 1999 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal (which, together with the Offer to Purchase, as amended from time to time, constitute the "Offer"), a copy of which is attached hereto as Exhibit (a)(2). ITEM 1. SECURITY AND SUBJECT COMPANY. a. The name of the subject company is Sheridan Healthcare, Inc. The information set forth in "THE TENDER OFFER -- Section 6" ("Certain Information Concerning the Company") of the Offer to Purchase is incorporated herein by reference. b. The exact title of the class of equity securities being sought in the Offer is Common Stock, par value $0.01 per share, and Class A Common Stock, par value $0.01 per share, of the Company. The information set forth in the Introduction (the "Introduction") of the Offer to Purchase is incorporated herein by reference. c. The information set forth in "THE TENDER OFFER -- Section 5" ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is filed by Purchaser, Parent and Holdings. The information set forth in "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase and in Schedule I thereto is incorporated herein by reference. (e) and (f) During the last five years, neither Purchaser, Parent nor Holdings nor, to the best knowledge of Purchaser, Parent or Holdings, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings"), "SPECIAL FACTORS -- Background of the Transactions" and "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement" of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in "SPECIAL FACTORS -- Financing of the Transactions" of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. 5 6 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in the Introduction, "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- The Merger Agreement and The Management Agreement" "SPECIAL FACTORS -- Purpose and Structure of the Transactions", SPECIAL FACTORS -- Future Plans in Addition to the Merger", "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions" and "SPECIAL FACTORS -- Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is incorporated herein by reference. (f)-(g) The information set forth in "SPECIAL FACTORS -- Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration" of the Offer to Purchase is incorporated herein by reference. Except as contemplated by the Merger Agreement, the Tender Agreement, the Stockholders Agreement and the Subscription and Tender Agreements, none of Holdings, Parent and Purchaser has any plans or proposals which relate to or would result in (x) the acquisition by any person of additional securities of the Company or the disposition of securities of the Company, or (y) changes to the Company's charter, bylaws or instruments corresponding thereto or other action which may impede the acquisition of control of the Company by any person. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction and "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of and Schedule I to the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings"), "SPECIAL FACTORS -- Background of the Transactions", "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement", "SPECIAL FACTORS -- Purpose and Structure of the Transactions" and "SPECIAL FACTORS -- Future Plans in Addition to the Merger" of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and "THE TENDER OFFER -- Section 11" ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in "THE TENDER OFFER -- Section 7" ("Certain Information Concerning Purchaser, Parent and Holdings") of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in "SPECIAL FACTORS -- Interests of Certain Persons in the Transactions" and "SPECIAL FACTORS -- The Merger Agreement and the Management Agreement" is incorporated herein by reference. (b) and (c) The information set forth in "THE TENDER OFFER -- Section 10" ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in "SPECIAL FACTORS -- Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration" and "THE TENDER OFFER -- Section 10" ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. 6 7 (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase dated as of March 31, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement as published on March 31, 1999. (a)(8) Joint Press Release issued by Sheridan Healthcare, Inc. and Vestar/Sheridan Holdings, Inc. on March 25, 1999. (b)(1) Commitment Letter, dated March 24, 1999, to the Purchaser from NationsBank, N.A. and NationsBanc Montgomery Securities LLC. (c)(1) Agreement and Plan of Merger, dated as of March 24, 1999, by and among Vestar/Sheridan Holdings, Inc., Vestar/Sheridan, Inc. and Sheridan Healthcare, Inc. (c)(2) Stockholders Agreement, dated as of March 24, 1999, among Parent, the Company, Holdings, Gilbert Drozdow, Jay Martus, Michael Schundler, Lewis Gold and Mitchell Eisenberg. (c)(3) Confidentiality Agreement, dated as of December 1, 1998, by and between Vestar Capital Partners III, L.P. and Sheridan Healthcare, Inc. (c)(4) Employment Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and the Company. (c)(5) Employment Agreement, dated as of March 24, 1999, between Lewis Gold and the Company. (c)(6) Employment Agreement, dated as of March 24, 1999, between Michael Schundler and the Company. (c)(7) Employment Agreement, dated as of March 24, 1999, between Jay Martus and the Company. (c)(8) Subscription and Tender Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and Parent. (c)(9) Subscription and Tender Agreement, dated as of March 24, 1999, between Lewis Gold and Parent. (c)(10) Subscription and Tender Agreement, dated as of March 24, 1999, between Jay Martus and Parent. (c)(11) Subscription and Tender Agreement, dated as of March 24, 1999, between Michael Schundler and Parent. (c)(12) Subscription and Tender Agreement, dated as of March 24, 1999, between Parent and Gilbert Drozdow. (c)(13) Tender Agreement, dated as of March 24, 1999, between Parent and Robert Coward. 7 8 (c)(14) Management Agreement, dated as of March 24, 1999, among Sheridan Healthcare, Inc., Vestar/Sheridan Holdings, Inc. and Vestar Capital Partners. (c)(15) Guaranty Agreement dated as of March 24, 1999, between Vestar Capital Partners III, L.P. and the Company. (d) Not applicable. (e) Not applicable. (f) Not applicable. 8 9 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. VESTAR/SHERIDAN INVESTORS, LLC By: VESTAR CAPITAL PARTNERS III, L.P., ------------------------------------ its Sole Member By: VESTAR ASSOCIATES III, L.P., ------------------------------------ its General Partner By: VESTAR ASSOCIATES CORPORATION III ------------------------------------ its General Partner By: /s/ JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: Vice President VESTAR/SHERIDAN HOLDINGS, INC. By: /s/ JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: President VESTAR/SHERIDAN, INC. By: /s/ JAMES L. ELROD, JR. ------------------------------------ Name: James L. Elrod, Jr. Title: President Date: March 31, 1999 9 10 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. - - ------- ----------- ---- (a)(1) Offer to Purchase dated as of March 31, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement as published on March 31, 1999. (a)(8) Joint Press Release issued by Sheridan Healthcare, Inc. and Vestar/Sheridan Holdings, Inc. on March 25, 1999. (b)(1) Commitment Letter, dated March 24, 1999, to the Purchaser from NationsBank, N.A. and NationsBanc Montgomery Securities LLC. (c)(1) Agreement and Plan of Merger, dated as of March 24, 1999, by and among Vestar/ Sheridan Holdings, Inc., Vestar/Sheridan, Inc. and Sheridan Healthcare, Inc. (c)(2) Stockholders Agreement, dated as of March 24, 1999, among Parent, the Company, Holdings, Gilbert Drozdow, Jay Martus, Michael Schundler, Lewis Gold and Mitchell Eisenberg. (c)(3) Confidentiality Agreement, dated as of December 1, 1998, by and between Vestar Capital Partners III, L.P. and Sheridan Healthcare, Inc. (c)(4) Employment Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and the Company. (c)(5) Employment Agreement, dated as of March 24, 1999, between Lewis Gold and the Company. (c)(6) Employment Agreement, dated as of March 24, 1999, between Michael Schundler and the Company. (c)(7) Employment Agreement dated as of March 24, 1999, between Jay Martus and the Company. (c)(8) Subscription and Tender Agreement, dated as of March 24, 1999, between Mitchell Eisenberg and Parent. (c)(9) Subscription and Tender Agreement, dated as of March 24, 1999, between Lewis Gold and Parent. (c)(10) Subscription and Tender Agreement, dated as of March 24, 1999, between Jay Martus and Parent. (c)(11) Subscription and Tender Agreement, dated as of March 24, 1999, between Michael Schundler and Parent. (c)(12) Subscription and Tender Agreement, dated as of March 24, 1999, between Parent and Gilbert Drozdow. (c)(13) Tender Agreement, dated as of March 24, 1999, between Parent and Robert Coward. (c)(14) Management Agreement, dated as of March 24, 1999, among Sheridan Healthcare, Inc., Vestar/Sheridan Holdings, Inc. and Vestar Capital Partners.
11
EXHIBIT PAGE NO. DESCRIPTION NO. - - ------- ----------- ---- (c)(15) Guaranty Agreement dated as of March 24, 1999, between Vestar Capital Partners III, L.P. and the Company. (d) Not applicable. (e) Not applicable. (f) Not applicable.
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