<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION NO. 333-4262
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
COMPLETE MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 8742 11-3149119
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Identification Number)
of Incorporation or Classification
Organization) Code Number)
254 West 31st Street, New York, New York 10001-2813
(212) 868-1188
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Executive Offices)
------
STEVEN M. RABINOVICI
Chairman and Chief Executive Officer
Complete Management, Inc.
254 West 31st Street
New York, New York 10001-2813
(212) 868-1188
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code
of Agent for Service)
------
with a copy to:
STEPHEN A. ZELNICK, Esq. ALAN I. ANNEX, Esq.
Morse, Zelnick, Rose & Lander, LLP Camhy Karlinsky & Stein LLP
450 Park Avenue 1740 Broadway, Sixteenth Floor
New York, New York 10022 New York, N.Y. 10019-4315
(212) 838-8040 (212) 977-6600
(212) 838-9190 (FAX) (212) 977-8389 (FAX)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
COMPLETE MANAGEMENT, INC.
PURSUANT TO ITEM 501(B) OF REGULATION S-K
CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION)
<TABLE>
<CAPTION>
Item and Caption in Form S-1 Location in Prospectus
----------------------------------------------------- ------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus .................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ....................................... Inside Front and Outside Back Cover of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ....................... Prospectus Summary; Investment Considerations
4. Use of Proceeds ................................. Prospectus Summary; Use of Proceeds
Outside Front Cover Page of Prospectus; Investment
5. Determination of Offering Price ................. Considerations; Underwriting
Outside Front Cover Page of Prospectus;
6. Determination of Conversion Price ............... Investment Considerations; Underwriting
7. Dilution ........................................ Not Applicable
8. Selling Security Holders ........................ Not Applicable
9. Plan of Distribution ............................ Outside Front Cover Page of Prospectus; Underwriting
10. Description of Securities to be Registered ...... Description of Capital Stock; Underwriting
11. Interests of Named Experts and Counsel .......... Legal Matters; Experts
Outside Front Cover Page of Prospectus; Prospectus Summary
-- The Company; Investment Considerations; Capitalization;
Dividend Policy; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and Results
of Operations; Business; Management; Certain Transactions;
Principal Shareholders -- Description of Capital Stock;
Index to Financial Statements and referenced Financial
12 Information with Respect to the Registrant ....... Statements
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... Management
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JUNE 3, 1996
PROSPECTUS
$30,000,000
COMPLETE MANAGEMENT, INC.
[7% TO 8 1/2 %] CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
INTEREST PAYABLE AUGUST 15 AND FEBRUARY 15
The debentures (the "Debentures") are convertible into common shares, par
value $.001 per share (the "Common Shares"), of Complete Management, Inc.
("CMI") at any time prior to maturity, unless previously redeemed, at a
conversion price of $[ ]per share [120% to 130% of the closing price of the
Common Shares on the American Stock Exchange on the effective date of this
offering], subject to adjustment in certain events. On May 17, 1996 the
closing sale price for the Common Shares on the American Stock Exchange
("AMEX") was $10.875 per share. See "Price Range for Common Shares." The
Common Shares are listed on the AMEX under the symbol "CMI". Application has
been made for listing of the Debentures on the AMEX under the symbol "CMI.A."
The Debentures are redeemable, in whole or in part on 45 days' prior
written notice, at the option of CMI at a redemption price equal to 100% of
the principal amount, plus accrued interest, at any time on or after ,
1999, provided that the Closing Price (as defined) of the Common Shares,
during the 20 consecutive trading days prior to the date of notice of such
redemption, has equaled or exceeded $ , [150% of the closing price of the
Common Shares on the effective date of this Offering], subject to adjustment
in certain events. The Debentures are subordinated to all existing and future
Senior Indebtedness (as defined) and are effectively subordinated to all
indebtedness of CMI's subsidiaries. At March 31, 1996, CMI had indebtedness
to which the Debentures would be effectively subordinated aggregating
$4,195,000. See "Description of Debentures."
See "Investment Considerations" on page 8 hereof for a discussion of
certain factors that should be considered by prospective purchasers of the
Debentures.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
===============================================================================
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(2) (3)
- -------------------------------------------------------------------------------
Per Debenture ......... 100% 8.0% 92.00%
- -------------------------------------------------------------------------------
Total (4) ............ $30,000,000 $2,400,000 $27,600,000
===============================================================================
(1) Plus accrued interest, if any, from __________, 1996.
(2) Does not include additional compensation to National Securities
Corporation, the representative of the several underwriters (the
"Representative"), in the form of a non-accountable expense allowance
equal to 2% of the gross proceeds of this offering of Debentures (this
"Offering"). CMI has also agreed to issue to the Representative warrants
(the "Representative's Warrants") to purchase up to ____ Common Shares.
For indemnification arrangements with the Underwriters and additional
compensation payable to the Representative, see "Underwriting."
(3) Before deduction of expenses payable by CMI estimated at $________
(including the nonaccountable expense allowance).
(4) CMI has granted to the Underwriters an option, exercisable within 45 days
of the date hereof, to purchase up to an additional $4,500,000 principal
amount of Debentures solely for the purpose of covering over- allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $34,500,000,
$2,760,000 and $31,740,000, respectively. See "Underwriting."
The Debentures are offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, subject to approval of certain
legal matters by their counsel and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify this Offering
and to reject any order in whole or in part. It is expected that delivery of
certificates representing the Debentures will be made against payment
therefor at the office of National Securities Corporation, 1001 Fourth
Avenue, Seattle, Washington 98154 on or about , 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1996
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes appearing
elsewhere in this Prospectus.
On January 3, 1996 CMI acquired the assets and business of Medical
Management, Inc. ("MMI") through the merger (the "Merger") of MMI into a
wholly owned subsidiary of CMI, which changed its name to Medical Management,
Inc. upon consummation of the Merger. MMI is principally engaged in providing
and administratively managing diagnostic imaging equipment in physicians'
offices and hospitals. Unless otherwise indicated, all references to the
Company herein include CMI and MMI and "MMI" refers to Medical Management,
Inc., both before and after the Merger.
THE COMPANY
Complete Management, Inc. is a physician practice management company. It
provides physician and hospital management and support services to medical
practice groups and hospitals in the greater New York metropolitan area,
primarily to medical practice groups focused on the treatment and evaluation
of patients with injury-related conditions. The services offered by the
Company include substantially all aspects of business, financial and
marketing support required by a medical practice but do not include providing
any type of medical diagnostic or treatment services. The Company offers
sophisticated business and management systems and a high level of
professional competence to doctors and hospitals that, increasingly, are
faced with complex, time-consuming and expensive reporting, record-keeping,
purchasing, collections and other non-medical requirements of a successful
practice. Historically, all of CMI's revenue and most of MMI's revenue have
come from a single medical practice group, Greater Metropolitan Medical
Services ("GMMS") (formerly doing business as "Greater Metropolitan Neurology
Services"), and the Company's future growth prospects are substantially
linked to the prospects of the continued growth of this client as well as to
acquisitions the Company might identify and make in the future.
Services provided by the Company include the provision of office space and
equipment, non-medical personnel, administrative services, billing,
receivables collection, regulatory compliance, and non-medical services
related to its clients' diagnostic imaging services. The Company also offers
consultation regarding marketing strategies and provides financing for the
expansion of its clients' medical practices. By focusing solely on the
business support of medical practices, the Company is able to offer a variety
of operating efficiencies that would be difficult to establish and maintain
by the typical, unassisted medical practice.
The Company's current medical practice clients focus on the treatment of
patients with injury-related conditions in which the reporting,
record-keeping and other requirements imposed by governmental regulations,
payor policies or litigation or other dispute resolution processes are highly
complex, change rapidly and unpredictably and require a high level of
specialized non-medical knowledge. The Company offers both management and
staff with high levels of training and experience in these activities. In
order to maximize the benefits of its expertise, the Company has focused its
marketing efforts on medical practices, such as GMMS, that have the ability
to provide medical services for work-related, automotive and other injury
cases in which the degree of regulation is particularly high. Initially,
these practices related primarily to automobile no-fault injury claims;
however, GMMS, supported by the Company, is aggressively expanding into the
treatment and evaluation of workplace injuries covered under workers'
compensation statutes. The Company believes that the opportunity to use a
medical management service company to service the administrative burdens
dictated by the regulatory environment will encourage neurological,
orthopedic and other medical practices to expand and focus on the area of
injury-related services and expects that such expansion should produce a
corresponding demand for the Company's services. The Company also believes
that similar business opportunities may exist in a variety of other medical
practice areas, such as managed healthcare. Managed healthcare, which has
evolved more slowly in New York State than in many other states, is expected
to become more widely established in New York State in the future.
3
<PAGE>
The Company's management has experience in hospital administration and
attempts to recruit and train staff to operate at a high level of efficiency
in the management of medical practices. To that end, the Company emphasizes a
high level of standardization of procedures and seeks to automate significant
aspects of record-keeping, reporting, collections and other critical business
activities of its clients' practices. Under the Company's management, GMMS
has established a multi-location practice that benefits from such management
efficiencies as centralized purchasing and collection functions and a
standard office format that supports the flexible use of both medical and
non-medical personnel and equipment in its various offices as required. The
Company also uses standardized and automated systems to produce and
administer the various financial and other records used to support its
clients' claims for payment.
Clients of the Company are expected to support claims for reimbursement
for their services and provide data relevant to their patients' related
claims, such as those for lost wages. While medical diagnosis, treatment,
reporting and provision of expert testimony are matters requiring medical
expertise, the related administrative processes require expertise and systems
for which medical personnel and the typical medical office staff are not well
suited. By providing an effective system to process claims for reimbursement,
the Company assists its clients in the collection of their professional fees.
The preponderance of GMMS' medical practice has historically been referred by
attorneys representing clients with automobile no-fault injury or workers'
compensation claims. By administering an effective claims process, the
Company believes that it supports its clients in their collection of fees. By
providing high quality medical services, the Company's clients have developed
a reputation as "definers" of injury, rather than advocates for a particular
medical evaluation. This reputation has led plaintiffs' attorneys to
recommend GMMS and increasingly has caused insurance companies to retain GMMS
to perform independent medical evaluations ("IME's").
The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere
in New York State by implementing an aggressive growth strategy. The key
elements of the Company's strategy to achieve this objective are:
o marketing its services to medical practices and hospitals with
substantial involvement in the medical specialties in which the
Company's services can increase efficiency and add value;
o assisting its clients to expand their practices by advising with
respect to management, marketing, financing and other techniques to
increase patient referrals and broaden the range of diagnostic and
treatment services offered and, where appropriate, to open new offices
and acquire other medical practices;
o establishing a network of client physicians suitable for providing
services under managed care contracts;
o establishing client relationships with medical practices and hospitals
that have achieved a high level of credibility among third-party
payors, referring attorneys and others with respect to the quality and
integrity of the medical treatments and evaluations performed; and
o establishing a position of industry leadership by providing effective
management systems for medical practices requiring complex management
services.
CMI was incorporated in New York on December 30, 1992 and commenced
operations on April 1, 1993. On January 3, 1996, CMI completed its initial
public offering (the "IPO") of 2,000,000 Common Shares at a price of $9.00
per share and received net proceeds of $13,912,000. Also on January 3, 1996,
CMI acquired the assets and business of MMI through its merger into CMI
Acquisition Corporation which, upon consummation of the Merger, changed its
name to Medical Management, Inc. MMI is principally engaged in providing
diagnostic imaging equipment and billing and management services related
thereto, thus broadening the range of testing services the Company's clients
are able to provide. Currently, MMI operates six diagnostic imaging units for
two clients. MMI has also entered into two additional agreements
4
<PAGE>
for diagnostic imaging units at two metropolitan area hospitals. GMMS is the
primary client of MMI and the sole client of CMI. The acquired Medical
Management, Inc. was incorporated on December 24, 1991. The Company's
principal executive offices are located at 254 West 31st Street, New York,
New York 10001 and its telephone number is (212) 868-1188.
THE OFFERING
Securities Offered............. $30,000,000 aggregate principal amount of [7
to 8 1/2 %] Convertible Subordinated
Debentures Due 2003.
Interest Payment Dates ........ August 15 and February 15, commencing August
15, 1996
Maturity Date.................. , 2003
Conversion..................... The Debentures are convertible into Common
Shares, par value $.001 per share, of the
Company, at any time prior to maturity,
unless previously redeemed, at a conversion
price of $ per share [120% to 130% of the
closing sale price of the Common Shares on
the AMEX on the effective date of this
Offering], subject to adjustment in certain
events.
Redemption at Option of the
Company ..................... The Debentures are not redeemable prior to
, 1999. Thereafter, the Debentures are
redeemable, in whole or in part, from time
to time, at the option of the Company at a
redemption price equal to 100% of the
principal amount thereof plus accrued
interest, provided that the Debentures may
not be redeemed prior to maturity unless,
during the 20 consecutive trading days prior
to the date of notice of such redemption,
the closing price as defined has equaled or
exceeded $------, [150% of the closing price
of the Common Shares on the Effective Date],
subject to adjustment in certain events. See
"Description of Debentures -- Optional
Redemption."
Redemption at Option of
Holders ..................... In the event that a Repurchase Event (as
defined) occurs, subject to certain
conditions, each holder of a Debenture shall
have the right, at the holder's option, to
require the Company to purchase all or any
part of such holder's Debentures at 100% of
the principal amount thereof plus accrued
interest.
Sinking Fund .................. If a sinking fund is established for any
indebtedness that is junior or pari passu
with the Debentures and which has a maturity
or weighted average time to maturity which
is on or prior to , 2003, the Debentures
will be entitled to an annual sinking fund
beginning in the Company's next fiscal year
calculated to retire that amount of
Debentures equal to the lesser of (i) the
same percentage of outstanding Debentures
prior to maturity as the percentage of the
principal amount of such other indebtedness
to be retired prior to maturity on the same
payment schedule as such other indebtedness
or (ii) such amount of Debentures necessary
to result in the Debentures having the same
weighted average time to maturity as the
other indebtedness.
Subordination ................. The Debentures are subordinated in right of
payment to all present and future Senior
Indebtedness (as defined) of the Company.
The Indenture will not restrict the
incurrence of additional Senior Indebtedness
by the Company or any indebtedness by any
subsidiary of the Company. See "Description
of Debentures."
5
<PAGE>
Use of Proceeds ............... To provide added funds for the Company's
acquisition program and for working capital
and general corporate purposes. See "Use of
Proceeds."
Trading Symbols ............... Application has been made for listing the
Debentures on the AMEX under the symbol
"CMI.A." The Common Shares are listed on the
AMEX under the symbol "CMI."
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
For the period Three Months
from inception Ended
(April 1, 1993) Years Ended December 31, March 31,
to December 31, ------------------------ -------------------
1993 1994 1995 1995 1996
--------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue ................................. $5,283 $10,654 $12,294 $3,000 $5,200
Interest discount (1) ................... (865 ) (1,744 ) (2,016 ) (487 ) (515 )
--------------- ---------- ---------- -------- --------
Net revenue ............................. 4,418 8,910 10,278 2,513 4,685
Operating expenses ...................... 2,790 4,520 5,745 1,257 3,048
--------------- ---------- ---------- -------- --------
Operating income ........................ 1,628 4,390 4,533 1,256 1,637
Interest discount included in income (2) . 207 922 1,585 302 587
Net income .............................. $1,006 $ 2,845 $ 3,227 826 $1,110
--------------- ---------- ---------- -------- --------
Net income per share (3) ................ $ 0.34 $ 0.95 $ 1.08 $ 0.28 $ 0.15
=============== ========== ========== ======== ========
Weighted average number of shares outstanding 2,981 2,981 2,981 2,981 7,438
=============== ========== ========== ======== ========
Ratio of earnings to fixed charges (4) .. N/A N/A 133.35 N/A 8.11
--------------- ---------- ---------- -------- --------
</TABLE>
MEDICAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue ................................................. $3,279 $6,049 $7,287
Interest discount (1) ................................... -- -- (702)
------- ------- -------
Net revenue ............................................. 3,279 6,049 6,585
Operating expenses ...................................... 2,039 3,574 5,174
------- ------- -------
Operating income ........................................ 1,240 2,475 1,411
Interest discount included in income (2) ................ -- -- 651
Cumulative effect of change in accounting principle net of
income tax benefit of $196,000 ......................... (222)
Net income .............................................. $ 346 $1,302 $ 781
======= ======= =======
Cumulative effect per share of change in accounting
principle net of income taxes .......................... $(0.07)
=======
Net income per share .................................... $ 0.43 $ 0.26
======= =======
Pro forma net income (5) ................................ $ 575
=======
Pro forma net income per share .......................... $ 0.26
=======
Pro forma amounts assuming the discounting of certain accounts
receivable is applied retroactively:
Pro forma net income .................................... $ 554 $1,211 $1,003
======= ======= =======
Pro forma net income per share .......................... $ 0.25 $ 0.40 $ 0.33
======= ======= =======
Weighted average number of shares outstanding ........... 2,185 3,008 3,035
======= ======= =======
</TABLE>
6
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Complete Management, Inc.
As at March 31, 1996
-------------------------
As
Adjusted
Actual (6)
-------- -----------
<S> <C> <C>
Cash and cash equivalents ...................... $ 2,540 $29,040
Marketable securities .......................... 9,599 9,599
Accounts receivable, net (7) ................... 25,851 25,851
Purchase price in excess of net assets acquired . 8,567 8,567
Total assets ................................... 54,354 84,354
Current liabilities ............................ 7,240 7,240
Long-term obligations, less current portion .... 3,591 33,591
Shareholders' equity ........................... 37,621 37,621
Working capital ................................ 16,775 43,275
</TABLE>
- ------
(1) Represents an interest discount taken to reflect the presumed collection
of revenues over a period in excess of one year. See "Notes to
Consolidated Financial Statements of CMI and MMI."
(2) Represents interest income included in income as a result of the
amortization of the interest discount on revenues over a three year
period, and a two year period for CMI and MMI, respectively. See "Notes
to Consolidated Financial Statements of CMI and MMI."
(3) Assuming the conversion as of January 1, 1996 of $30,000,000 aggregate
principal amount of Debentures at the estimated conversion price of
$13.05 per share into 2,299,000 Common Shares, fully diluted earnings per
share would be $0.11. The Representative's Warrants will be exercisable
at an estimated price per share of $17.94. As the Representative's
Warrants would be anti-dilutive, they are excluded from the calculation
of additional shares to be offered in this Offering.
(4) As there was no interest expense incurred in 1993, 1994 and the first
quarter of 1995, the ratio of earnings to fixed charges is not
applicable.
(5) Pro forma net income for MMI reflects (i) an adjustment to include
compensation expense for the President and Chief Executive Officer and
the Vice President and Chief Operating Officer under employment contracts
which became effective after MMI's initial public offering, even though
such officers did not receive and are not owed any compensation for the
period from inception to October 26, 1993 and (ii) a provision for income
taxes based upon pro forma income since MMI had been an S Corporation
through such date.
(6) The As Adjusted Balance Sheet Data gives effect to this Offering as if it
had occurred on March 31, 1996.
(7) Includes both the current and long-term portions of the accounts
receivable.
7
<PAGE>
INVESTMENT CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER
MATTERS AND FINANCIAL INFORMATION DISCUSSED ELSEWHERE HEREIN, THE FOLLOWING
MATTERS RELATING TO THE BUSINESS OF THE COMPANY AND THE SECURITIES OFFERED
HEREBY.
Ratios of Debt to Net Tangible Book Value and Earnings to Fixed
Charges. At March 31, 1996, CMI had a net tangible book value of
approximately $29,000,000 and its ratio of total debt to net tangible book
value was .14 to 1. Giving pro-forma effect to the issuance of the Debentures
at March 31, 1996, the Company's consolidated assets would have been
approximately $84,400,000, its long term debt would have been $33,600,000 and
its ratio of assets to long term debt 1.34 to 1. Further, the Company's net
tangible book value would be reduced by the creation of approximately
$3,500,000 of intangible assets (capitalized debt issuance costs) as a result
of the issuance of the Debentures, which, for computation and amortization of
interest expense on the Debentures will be treated as a reduction in the
carrying amount of the debt in order to generate a constant rate of interest
over the life of the Debentures. If the Company experiences unanticipated
costs, write-offs of investments or other assets or operating or other
losses, the Company's leverage could increase. This leverage (i) could
adversely affect the ability of the Company to obtain additional financing in
the future for working capital, capital expenditures or other purposes,
should it need to do so, (ii) will require a substantial portion of the
Company's cash flow from operations to be dedicated to debt service, (iii)
may place the Company at a competitive disadvantage, if the Company is more
highly leveraged than its competitors, and (iv) may make the Company more
vulnerable to a downturn in its business.
Assuming that the Debentures had been outstanding during 1995, the ratio
of pro forma consolidated 1995 income, before income taxes, to fixed charges
(assuming an interest rate of 8.5% on the Debentures) would have been 2.4 to
1.
Dependence on Principal Client. All of CMI's net revenues in 1994 and 1995
and approximately 93% of the Company's pro forma combined net revenue in 1995
were earned under management contracts with GMMS and a substantial part of
the growth in the Company's business is a direct result of comparable growth
of GMMS' medical practice. The Company expects that its relationship with
GMMS will be a dominant factor in its business for the foreseeable future.
The continued vitality of GMMS' medical practice is subject to numerous
risks, including its continued ability to retain its key medical personnel,
malpractice claims and regulatory compliance. There is no assurance that GMMS
will continue to operate successfully. Moreover, although the Practice
Management Services Agreement (the "PMSA") and the Management Services
Agreement for Magnetic Resonance Imaging Practice (the "MSA") between the
Company and GMMS, which cover all management services provided to GMMS,
expire June 2025 and July 2001 (with a provision for the automatic extension
of the MSA in five (5) year intervals at the option of MMI), respectively,
there is no assurance that the Company and GMMS will continue to maintain a
productive working relationship. The founder of GMMS, Lawrence Shields, M.D.,
and his son Dennis Shields are principal shareholders of the Company. See
"Business -- Principal Client."
Dependence on Third-Party Payor Reimbursements; Possible Decreases in
Reimbursement Rates. For the year ended December 31, 1995, approximately 46%
and 20% of the revenues of GMMS came from no-fault auto insurance carriers
and workers' compensation insurers, respectively. Payments from these sources
generally have long collection cycles. The Company's engagement by its
clients is based, in part, on such clients' belief in the Company's
receivables collection skills and its ability to collect such payments for
them as expeditiously as feasible. If the laws and regulations establishing
these third-party payors are amended, rescinded or overturned with the effect
of eliminating this system of payment reimbursement for injured parties, the
ability of the Company to market its management services could be adversely
affected. To the extent that the medical practices which contract to receive
the Company's services are dependent on third-party payors, changes in the
policy implemented by such payors that result in reduced reimbursement rates
could impair clients' ability to pay management fees to the Company. See
"Business -- Third-Party Reimbursement."
Risk of Lower Margins. The preponderance of services offered by the
Company are provided in accordance with a fee schedule that is based on the
Company's estimate of the cost of providing the service but that
8
<PAGE>
is not readily subject to modification if the estimates vary from actual
results. Accordingly, higher than expected personnel, space, equipment,
capital or other costs would have a substantial and adverse impact on the
Company's operating margins and net income. There is no assurance that the
Company will be able to control its costs in accordance with the assumptions
made in contracting with its clients. Both the professional fees earned by
hospitals and medical practices and the cost of providing non-medical
services to them vary substantially with the nature of the medical activities
undertaken, the effectiveness of the medical services provided, the location
of the hospital or medical practice and numerous other factors. Further there
is no assurance that other relationships into which the Company may enter (or
assist GMMS in entering) will provide margins comparable to those earned on
the existing services provided to GMMS. See "Business-Medical Practice
Management Services."
Inability to Collect or Delay in Collecting Management Fees. Collection by
the Company of its management fees may be adversely affected by the
uncollectibility of its clients' medical fees from third-party payors
(including workers' compensation insurers, no-fault insurance carriers,
no-fault payment pool, Medicare and commercial insurers) or by the long
collection cycles for those receivables, even though clients of the Company
are liable to the Company for payment of its fees regardless of whether they
receive payment for their medical services. The Company has historically
deferred collecting amounts owed to it when its clients have experienced
delays in collecting from third-party payors. The application forms required
by third-party payors for payment of medical claims are long, detailed and
complex and payments may be delayed or refused unless such forms are properly
completed. Many third-party payors, particularly insurance carriers covering
automobile no-fault and workers' compensation claims refuse, as matter of
business practice, to pay claims unless submitted to arbitration. It is the
Company's experience that the insurance carriers from which it seeks
reimbursement delay payment of claims until just prior to the arbitration
hearing. The Company's management has determined based on actual results,
industry factors, and GMMS' historical collection experience prior to its
association with the Company, that this entire collection process generally
spans a period averaging approximately three years and two years for those
GMMS receivables due to CMI and MMI, respectively. As a result, the Company
requires more capital to finance its receivables than do businesses with
shorter receivables collection cycles. Further, third-party payors may reject
medical claims if, in their judgment, the procedures performed were not
medically necessary or if the charges exceed such payor's allowable fee
standards. Although the Company is generally prepared to take all legally
available steps, including legally prescribed arbitration, to collect the
receivables generated by its clients, whether owned by the Company or by the
client, some of those receivables may not be collected due to the
determination by third-party payors that certain procedures performed by the
Company's clients were not medically necessary or were performed at excessive
fees or because of omissions or errors in timely completion of the required
claim forms. The inability of the Company's clients to collect their
receivables could adversely affect the clients' ability to pay in full all
amounts owed by them to the Company. See "Business -- Third Party
Reimbursement."
Government Regulation. The health care industry is highly regulated by
numerous laws and regulations, at the federal, state and local levels.
Regulatory authorities have broad discretion to interpret and enforce these
laws and promulgate corresponding regulations. Violations of these laws and
regulations (as determined by agencies or judicial authorities) may result in
substantial criminal and/or civil penalties. The Company believes that its
operations under agreements pursuant to which it is currently providing
services are in material compliance with these laws and regulations.
Nevertheless, because of the uniqueness of the structure of the Company's
relationships with its medical practice and hospital clients (including GMMS,
the Company's principal medical practice client, whose 95% shareholder, Dr.
Lawrence Shields, is a founder and principal shareholder of the Company),
many aspects of the Company's business and business opportunities have not
been the subject of federal or state regulatory review or interpretation, and
the Company has not obtained, nor applied for, any opinion of any regulatory
or judicial authority that its business operations are in compliance with
applicable laws and regulations. However, there is no assurance that a court
or regulatory authority will not determine that the Company's operations
(including arrangements with new or existing clients, such as the purchase
and lease-back of assets, providing financing to new or existing clients, the
purchase of client accounts receivable and, if appropriate, providing an
equity interest in the Company to a client) violate applicable laws or
regulations. If the Company's interpretation of the relevant laws and
regulations is inaccurate, the Company's business and its prospects could be
materially and adversely affected. For example, if the Company were
determined to be a diagnostic and treatment center or engaged in the
corporate practice of medicine, it could be found guilty of criminal offenses
and be subject to substantial civil penalties, including fines, and an
injunction preventing con
9
<PAGE>
tinuation of its business. The following are among the laws and regulations
that affect the Company's operations and development activities: Corporate
Practice of Medicine; Fee Splitting; Anti-Referral Laws; Anti-Kickback Laws;
Certificates of Need; Regulation of Diagnostic Imaging; No-Fault Insurance
and Workers' Compensation.
In addition to current laws and regulations, the federal government and
New York State are considering numerous new laws and regulations that, if
enacted, could result in comprehensive changes affecting the health industry
and the payment for, and availability of, health care services.
Many aspects of the laws and regulations that cover the Company's
operations and relationships have not been definitively interpreted by
regulatory authorities. Regulatory authorities have broad discretion
concerning how these laws and regulations are interpreted and how they are
enforced. The Company may, therefore, be subject to lengthy and expensive
investigations of its business operations or to prosecutions which may have
uncertain merit, by a variety of state and federal governmental authorities.
If the Company or any of its physician or hospital clients were found by an
agency or judicial authority to be in violation of these laws and
regulations, the Company could be subject to criminal and/or civil penalties,
including substantial fines and injunction. Such developments could limit the
Company's ability to provide or could restrict or make unprofitable some of
the services the Company provides to its clients, generally, in connection
with governmental health care programs such as Medicare and Medicaid. Many
aspects of the Company's business and business opportunities have not been
the subject of state or federal regulatory review or interpretation, and the
Company has not obtained, nor applied for, any opinion of any regulatory or
judicial authority that its business operations are in compliance with
applicable laws and regulations. Therefore, there is no assurance that
scrutiny of the Company's business or its relationship with its medical
practice or hospital clients by court or regulatory authorities will not
result in determinations adverse to the Company. If the Company's
interpretation of the relevant laws is inaccurate, or if laws and regulations
change or are adopted so as to restrict the operations of the Company or its
clients' operations or expansion plans, the Company's business and its
prospects could be materially and adversely affected. See "Business --
Government Regulation."
Dependence Upon Key Personnel. The Company will be primarily dependent
upon the expertise and abilities of its management, including Steven
Rabinovici and David Jacaruso. The loss of the services of either Mr.
Rabinovici or Mr. Jacaruso or other key members of management could have a
material adverse effect on the business of the Company. The Company is also
indirectly dependent on Dr. Lawrence W. Shields and other senior physicians
at GMMS, whose loss could adversely affect GMMS' practice and the financial
condition and results of operations of the Company. See "Management" and
"Certain Transactions."
Competition. The medical practice management field is highly competitive.
A number of large hospitals in New York State and elsewhere have acquired
medical practices and this trend is expected to continue. The Company expects
that more competition will develop, in part as a result of its having
demonstrated that management companies can operate in the highly regulated
New York environment. Potential competitors include large hospitals and a
number of public corporations operating through a regional or national
network of offices that have greater financial and other resources than the
Company. See "Business -- Competition."
Technological Obsolescence. Both the software and hardware used by the
Company in connection with the services it provides have been subject to
rapid technological change. Although the Company believes that this
technology can be upgraded as necessary, the development of new technologies
or refinements of existing technology could make the Company's existing
equipment obsolete. Although the Company is not currently aware of any
pending technological developments that would be likely to have a material
adverse effect on its business, there is no assurance that such developments
will not occur.
Inability to Collect Loans to Clients. The Company's expansion strategy,
particularly as it relates to the acquisition of certain assets of medical
practices and the financing of medical practice acquisitions by its clients,
requires that the Company have access to capital at reasonable rates. The
Company has provided financing to GMMS and expects to provide financing to
future clients, either in the form of loans or the purchase of receivables,
to enable them to open new offices, add medical specialties, focus on the
evaluation, diagnosis and treatment of patients' automobile no-fault and
workers' compensation claims, acquire diagnostic imaging and other equipment
and renovate their offices. If the Company makes loans to its clients for the
acquisition of medical practices or otherwise, it will take a security
interest in receivables owned by such clients and not assigned to
10
<PAGE>
the Company to secure repayment. Inasmuch as clients' receivables may also
secure payment to the Company of any unpaid management fees from such
clients, there is a risk that its clients will be unable to repay such loans
on a timely basis, if at all, and, in any such event, that the Company's
security interest in its clients' receivables will be inadequate to repay
both the loan obligations and other amounts due to the Company. See "Business
- -- Growth Strategy."
Inability to Effect Expansion Strategy. The Company's expansion strategy
includes increasing the number of medical practices to which it provides
management services in its current market, the greater New York metropolitan
area and other locations in New York State, as well as the nearby states of
New Jersey and Connecticut, and securing contracts on behalf of its clients
with managed care organizations. A primary means of accomplishing this growth
involves the identification of high volume medical practices which might be
acquired by GMMS or might directly contract with the Company to receive its
management services, possibly incidental to the Company's purchase of certain
fixed assets and/or accounts receivable of such medical practice. There is no
assurance, however, that suitable medical practices will be identified which
are either willing to become acquisition candidates or to contract for the
management services offered by the Company, that any such prospective new
clients will choose to use the Company's services or that existing clients
will renew their management agreements with the Company. Moreover, there is
no assurance that the Company can expand its business into other parts of New
York State or into other states. In order to operate effectively in such new
locations, the Company must achieve acceptance in the local market and, in
the case of other states, the Company must adapt its procedures to each such
state's no-fault, workers' compensation and other regulatory requirements and
systems. See "Business -- Growth Strategies."
Liability to Clients' Patients and Others; Insurance. If misdiagnoses are
made by the Company's clients using equipment furnished by the Company or if
clients' patients or operating personnel suffer injury as a result of the use
of such equipment or if persons are injured on premises leased by the Company
to its clients, there is a risk that claims may be filed by such client or
patient, as the case may be, against the Company. While the Company seeks to
protect itself from liability claims both by requiring that clients with
which it contracts carry a substantial amount of medical malpractice and
other liability insurance and by carrying its own general liability
insurance, there is no assurance that such insurance would be adequate to
fund such claims or that the insurance companies would not find a basis to
deny coverage.
Control by Certain Shareholders. Steven Rabinovici, David Jacaruso, Marie
Graziosi, Dennis Shields and Dr. Lawrence Shields, the founders of the
Company, are parties to a shareholders' agreement (the "Shareholders'
Agreement") pursuant to which they have agreed until June 1, 2005 to vote all
of their shares of CMI in favor of the election to the Board of Directors of
the Company of the nominees approved by the Board and to vote on all other
matters in accordance with the recommendations of the Board. Mr. Rabinovici
is Chairman of the Board and Chief Executive Officer of the Company and Mr.
Jacaruso is President of the Company. Dr. Shields is the Company's largest
shareholder and the father of Dennis Shields, who is Executive Vice President
and Director of the Company. Marie Graziosi is the wife of David Jacaruso.
Messrs. Rabinovici, Jacaruso, Dennis Shields, Ms. Graziosi and Dr. Lawrence
Shields beneficially own an aggregate of approximately 3,094,581 shares or
41.60% of the Company's outstanding Common Shares and, accordingly, as long
as they vote as required by the Shareholders' Agreement, may be in a position
to elect all of the persons nominated by the Board of Directors. Furthermore,
such control could preclude any unsolicited acquisition of the Company which
may adversely affect the market price of the Common Shares. See "Principal
Shareholders."
Broad Discretion in Application of Proceeds. Of the estimated net proceeds
from this Offering, approximately $25,000,000 (94.3%) has been allocated to
the Company's acquisition program and $1,500,000 (5.7%) to working capital
and other general corporate purposes. None of the funds allocated to the
foregoing purposes is subject to binding agreements requiring such use and no
specific acquisition now being negotiated is likely to occur. Accordingly,
the Company will have broad discretion in the application of such proceeds.
See "Use of Proceeds."
Limitation of Director Liability. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of
the fiduciary duty of care as a director, including breaches which constitute
gross negligence, subject to certain
11
<PAGE>
limitations imposed by the New York Business Corporation Law. Thus, under
certain circumstances, neither the Company nor the stockholders will be able
to recover damages even if directors take actions which harm the Company. See
"Management -- Limitation of Director Liability; Indemnification."
No Prior Public Market Risks. Prior to this Offering, there has been no
market for the Debentures offered hereby by the Company and there is no
assurance that an active trading market will develop or be sustained
following this Offering. The public offering price of the Debentures will be
determined in negotiations between the Company and the Representative and may
be greater or less than the price established by market trading following
this Offering.
Potential Adverse Impact on Market Price of Securities; Shares Eligible
for Future Sale. Sales of substantial amounts of the Company's securities in
the public market after this Offering or the perception that such sales may
occur could materially adversely affect the market price of the Common Shares
and the Debentures. An aggregate of [2,672,279] Common Shares, now subject to
contractual lock-up agreements entered into in connection with the Company's
IPO, will become eligible for sale upon expiration of such contractual
lock-ups on December 27, 1996 and all of the ______ Common Shares into which
the Debentures are convertible will be saleable publicly immediately upon
conversion of the Debentures. See "Shares Eligible for Future Sale." In
addition, 222,222 Common Shares underlying $2,000,000 face amount of 8%
Convertible Subordinates Notes due March 20, 2001 (the "Notes") which the
Company issued on March 20, 1996 and up to an additional 333,333 Common
Shares underlying an additional $300,000 face amount of Notes which the
purchasers thereof have an option to acquire until July 18, 1996, will become
eligible for sale under Rule 144 two years after the insurance thereof. Sales
in the public market of substantial numbers of Common Shares may affect the
price of the Common Shares and could impair the Company's ability to raise
additional capital through equity offerings. Securities of many companies, in
particular, newer and smaller companies, have experienced substantial
fluctuations and volatility that, in some cases, were unrelated or
disproportionate to the performance of the companies themselves. Any such
fluctuations, or general economic or market trends, could adversely affect
the price of the Common Shares.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures offered hereby are estimated to be approximately $26,500,000,
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. Of these net proceeds, approximately
$25,000,000 will be added to funds available for the Company's acquisition
program, and the balance will be used for working capital and general
corporate purposes. The acquisition program may include acquisition of
minority equity positions in subsidiary or joint venture entities with which
the Company will have management service or other business relationships.
Pending any such uses, the net proceeds of this Offering will be invested in
interest-bearing deposit accounts, certificates of deposit or similar
short-term investment grade financial instruments.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds to be received by it from this Offering based upon its
currently contemplated operations, its business plan, current legislation and
regulations and current economic and industry conditions; such allocation is
subject to reapportionment among the categories described above or to new
categories in response to, among other things, changes in the Company's plans
and its future revenues and expenditures, as well as changes in existing
regulations, general industry conditions and technology.
The Company believes that the net proceeds of this Offering and cash flow
from operations will be sufficient to meet its expected cash needs and
finance its plans for expansion for the indefinite future, and in any case
for not less than 12 months from the date of this Prospectus. This belief is
based upon certain assumptions regarding the Company's business and cash
flow, as well as prevailing regulatory and economic conditions. The Company's
capital requirements may vary significantly, depending on how rapidly
management seeks to expand the business and the expansion strategies elected.
Accordingly, the Company may, in the future, require additional financing to
continue to expand its business. There is no assurance that the Company will
be successful in obtaining additional financing, if required, on favorable
terms, or at all. If the Company were unable to obtain additional financing,
its ability to meet its current plans for expansion could be materially and
adversely affected. See "Capitalization," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and "Business
Growth Strategy."
12
<PAGE>
RECENT FINANCING
On March 20, 1996, the Company borrowed an aggregate of $2,000,000 due
March 20, 2001 from seven accredited investors (the "Purchasers"): $500,000
from The William Harris & Co. Employee's Profit Sharing Trust, $500,000 from
the WHI Growth Fund, LP, $250,000 from the Harris Foundation #2, $250,000
from HFF Partners, $250,000 from the Irving B. Harris Foundation, $200,000
from Astro Communications, Inc. and $50,000 from Fred Holubow, evidenced by
the Notes. The Notes bear interest at the rate of 8% per annum, payable on
June 1, 1996 and on the first day of September, December, March and June of
each year thereafter until the Notes are paid in full. Holders of the Notes
may convert all or any portion of the principle amount of the Notes into
Common Shares of the Company at an initial conversion price of $9.00 per
share, subject to adjustment for stock splits, dividends, recapitalization
and certain other capital changes. No fractional shares will be issued upon
conversion, but in lieu thereof, an amount will be paid in cash based upon
the market price of the Common Shares on the last trading day prior to the
date of conversion. Under certain circumstances, such as a change in control,
holders of the Notes may require the Company to redeem the Notes at 125% of
their principal amount plus all accrued and unpaid interest thereon. The
Notes are subordinate in right of payment to certain future indebtedness
which may be incurred by the Company. The Purchasers or parties related to or
affiliated with any of the Purchasers have an option until July 18, 1996 to
acquire an additional $3,000,000 of Notes from the Company under the same
terms and conditions. If such option is exercised in full, the Notes would be
converted into approximately 555,555 Common Shares of the Company.
13
<PAGE>
PRICE RANGE FOR COMMON SHARES
The Common Shares traded on the Nasdaq National Market under the symbol
"CMGT" from December 27, 1995 until the close of trading on May 3, 1996 and
commenced trading on the AMEX under the symbol "CMI" on May 6, 1996. The
following table indicates the closing sale prices of the Common Shares on the
Nasdaq National Market and the AMEX for the periods indicated beginning with
the commencement of trading on December 28, 1995 following the Company's IPO.
Closing Sale Price
----------------------------
High Low
-------- -------
1995
Fourth Quarter (from December 28) ... 8 7/8 8 3/4
1996
First Quarter ....................... 9 1/4 8
Second Quarter (through May 17) ..... 10 7/8 7 7/8
On June , 1996 the closing price of the Common Shares was $ .
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of CMI and (ii) on an as adjusted basis the estimated net
proceeds from this Offering. The table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
AS AT MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
As adjusted
Actual (2)
--------- --------------
<S> <C> <C>
Current portion of long-term obligations ............................ $ 604 $ 604
Long-term obligations (3) ........................................... 3,591 33,591
Shareholders' equity
Preferred Shares, $.001 par value, 2,000,000 shares authorized; none
issued ......................................................... -- --
Common Share, $.001 par value, 20,000,000 shares authorized; 2,980,573
issued and outstanding, 7,438,298 issued and outstanding, as adjusted
(1) ............................................................ 7 7
Additional paid-in capital ........................................ 29,426 29,426
Retained earnings ................................................. 8,188 8,188
Total shareholders' equity ...................................... 37,621 37,621
--------- -----------
Total capitalization .............................................. $ 41,816 $71,816
========= ===========
Net tangible book value ............................................. $ 28,958 $25,458
========= ===========
Ratio of total debt to tangible net worth ........................... .14x 1.34x
========= ===========
</TABLE>
- ------
(1) Excludes (i) 700,000 Common Shares reserved for issuance pursuant to the
Company's 1995 Stock Option Plan, of which 400,000 shares are issuable
upon the exercise of options which were granted upon completion of the
IPO at an exercise price equal to $9.00 per share and (ii) 200,000 Common
Shares reserved for issuance upon exercise of warrants granted to the
representatives of the underwriters participating in the IPO (the "IPO
Representatives' Warrants").
(2) Reflects the issuance of $30,000,000 aggregate principal amount of the
Debentures less estimated offering expenses of $3,500,000.
(3) Long-term obligations consist of:
Long-term debt ......................................... 2,339,000
Obligations under capital leases ....................... 1,252,000
3,591,000
14
<PAGE>
DIVIDEND POLICY
Holders of Common Shares are entitled to such dividends as may be declared
by the Board of Directors and paid out of funds legally available therefor.
The Company has never paid any dividends on the Common Shares. The Company
intends to retain earnings to finance the development and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Future determinations regarding the payment of dividends is subject
to the discretion of the Board of Directors and will depend upon a number of
factors, including future earnings, capital requirements, financial
condition, and the existence or absence of any contractual limitations on the
payment of dividends.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Statement of Income for CMI and MMI
for the year ended December 31, 1995, which are set forth below, give effect
to the Merger and the IPO based upon assumptions set forth below, and in the
notes to such statements. The Merger has been accounted for as a "purchase."
However, because CMI and MMI have a common control group (the "Management
Control Group"), that portion of the assets of MMI attributable to the
Management Control Group, approximately 39.0% of total assets, was acquired
at a carryover historical basis. The excess of purchase price over the value
of the remaining net assets acquired as if the Merger occurred on December
31, 1995, was estimated at approximately $8,248,000 while the actual gross
amount recorded at March 31, 1996 was $8,675,000, and will be amortized over
a period not to exceed 20 years. The consolidated unaudited pro forma
financial information assumes that the Merger and IPO were completed January
1, 1995 for the Unaudited Pro Forma Consolidated Statement of Income for the
year ended December 31, 1995. The unaudited pro forma financial information
has been included pursuant to the requirements set forth in applicable rules
of the Securities and Exchange Commission (the "SEC") and is provided for
comparative purposes only. The unaudited pro forma financial information
presented is based upon the respective historical consolidated financial
statements of CMI and MMI and should be read in conjunction with such
financial statements and related notes thereto, all of which are included
elsewhere in this Registration Statement. The Company believes that the
accompanying consolidated unaudited pro forma financial information contains
all the material adjustments necessary to fairly present the pro forma
consolidated results of operations of CMI and MMI as of December 31, 1995.
The unaudited pro forma financial information presented should not be
construed as representative of the Company's results of operations for any
future date or period.
The pro forma adjustments are based on available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the Merger was based on
ultimate appraisals, evaluations and estimates of fair values. If these
appraisals and evaluations identified assets with lives shorter than twenty
years, such assets will be amortized over their expected useful lives.
Management has determined a 20-year amortization period to be appropriate
based on the continuing relationship between MMI and GMMS which is expected
to continue beyond 20 years. Periodically, but no less than quarterly, the
Company will evaluate the relative fair market value of the intangible assets
identified (including goodwill, if any) in the acquisition of MMI by
estimating the future earning streams of the related business lines and
comparing the present value of the result of that estimation to the stated
value of the related assets. Impairments, if any, will be charged to
operations when identified.
15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CMI MMI Sub-total Adjustments (1) Pro forma
---------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue ............................. $12,294 $7,287 $19,581 $ -- $19,581
Interest discount ................... (2,016) (702) (2,718) -- (2,718)
---------- --------- ----------- --------------- -----------
Net revenue ......................... 10,278 6,585 16,863 0 16,863
Cost of revenue ..................... 2,771 2,792 5,563 5,563
General and administrative expenses . 2,974 2,382 5,356 434 (2) 6,150
360 (3)
---------- --------- ----------- --------------- -----------
Operating income .................... 4,533 1,411 5,944 (794) 5,150
Interest discount included in income . 1,585 651 2,236 -- 2,236
Other expense, net .................. (30) (170) (200) -- (200)
---------- --------- ----------- --------------- -----------
Income before provision for income taxes
and cumulative effect of change in
accounting principle ............... 6,088 1,892 7,980 (794) 7,186
Provision (benefit) for income taxes . 2,861 889 3,750 (169) (4) 3,581
---------- --------- ----------- --------------- -----------
Income before cumulative effect of change
in accounting principle ............ 3,227 1,003 4,230 (625) 3,605
Cumulative effect of change in accounting
principle net of income taxes ...... -- (222) (222) 222 (5) --
---------- --------- ----------- --------------- -----------
Net income .......................... $ 3,227 $ 781 $ 4,008 $ (403) $ 3,605
========== ========= =========== =============== ===========
Income per share before cumulative effect $ 1.08 $ 0.33
Cumulative effect of change in accounting
principle net of income taxes per share -- (0.07)
---------- ---------
Net income per share(6) ............. $ 1.08 $ 0.26 $ 0.48
========== ========= ===========
Weighted average number of shares
outstanding ........................ 2,981 3,035 7,438
========== ========= ===========
</TABLE>
- ------
(1) Reflects the Merger and the consummation of the IPO as if they had
occurred on January 1, 1995.
(2) Reflects the amortization of purchase price in excess of net assets
acquired recorded at approximately $8,675,000 assuming a useful life of
20 years.
(3) Reflects increased costs of employment contracts.
(4) Assumes an effective tax rate after adjustments of 47%.
(5) The cumulative effect of change in accounting principle is removed as it
is a nonrecurring charge.
(6) Assuming the conversion as of January 1, 1995 of $30,000,000 aggregate
principal amount of Debentures at the estimated conversion price of
$13.05 per share into 2,299,000 Common Shares, fully diluted earnings per
share would be $0.37. The Representative's Warrants will be exercisable
at an estimated price per share of $17.94. As the Representative's
Warrants would be anti-dilutive, they are excluded from the calculation
of additional shares to be offered in the Offering.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of CMI presented below as of December 31,
1993, 1994, 1995 and March 31, 1995 and 1996 have been derived from the
Consolidated Financial Statements of CMI, which Consolidated Financial
Statements have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this Registration Statement.
The selected financial data of MMI presented below as of December 31, 1993
and 1994 and for the years then ended have been derived from the Financial
Statements of MMI which have been audited by Ernst & Young L.L.P.,
independent auditors. The selected financial data for the year ended December
31, 1995 has been derived from the Consolidated Financial Statements of MMI,
which Consolidated Financial Statements have been audited by Arthur Andersen
LLP. The data set forth below should be read in conjunction with the
Company's Financial Statements, related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
17
<PAGE>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED INCOME DATA:
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
For the period Three
from inception Months
(April 1, 1993)
to For the years ended ended
December 31, December 31, March 31,
--------------------
1993 1994 1995 1995 1996
---------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue ...................................... $5,283 $10,654 $12,294 $3,000 $5,200
Interest discount (1) ........................ (865) (1,744) (2,016) (487) (515)
---------------- ---------- ---------- -------- --------
Net revenue .................................. 4,418 8,910 10,278 2,513 4,685
Cost of revenue .............................. 1,103 1,949 2,771 567 1,725
General and administrative expenses .......... 1,687 2,571 2,974 690 1,323
---------------- ---------- ---------- -------- --------
Operating income ............................. 1,628 4,390 4,533 1,256 1,637
Interest discount included in income (2) ..... 207 922 1,585 302 587
Other income (expense), net .................. 62 55 (30) -- (33)
---------------- ---------- ---------- -------- --------
Income before provision for taxes ............ 1,897 5,367 6,088 1,558 2,191
Provision for income taxes ................... 891 2,522 2,861 732 1,081
---------------- ---------- ---------- -------- --------
Net income ................................... $1,006 $ 2,845 $ 3,227 $ 826 $1,110
================ ========== ========== ======== ========
Net income per share ......................... $ 0.34 $ 0.95 $ 1.08 $ 0.28 $ 0.15
================ ========== ========== ======== ========
Weighted average number of shares outstanding . 2,981 2,981 2,981 2,981 7,438
================ ========== ========== ======== ========
Ratio of earnings to fixed charges (3) ....... N/A N/A 133.35 N/A 8.11
================ ========== ========== ======== ========
</TABLE>
MEDICAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue ........................................................ $3,279 $6,049 $7,287
Interest discount (1) .......................................... -- -- (702)
--------- --------- ---------
Net revenue .................................................... 3,279 6,049 6,585
Cost of revenue ................................................ 761 1,221 2,792
General and administrative expenses (6) ........................ 1,278 2,353 2,382
--------- --------- ---------
Operating income ............................................... 1,240 2,475 1,411
Interest discount included in income (2) ....................... -- -- 651
Other income (expense), net .................................... 31 (2) (170)
--------- --------- ---------
Income before provision for taxes and cumulative effect ........ 1,271 2,473 1,892
Provision for income taxes ..................................... 925 1,171 889
--------- --------- ---------
Income before cumulative effect ................................ 346 1,302 1,003
Cumulative effect of change in accounting principle net of income
taxes (4) ..................................................... -- -- (222)
--------- --------- ---------
Net income ..................................................... $ 346 $1,302 $ 781
========= ========= =========
Income per share before cumulative effect of change in accounting
principle net of income taxes ................................. -- -- $ 0.33
Cumulative effect per share .................................... -- -- (0.07)
---------
Net income per share ........................................... -- $ 0.43 $ 0.26
========= =========
Pro forma net income (5) ....................................... $ 575 -- --
=========
Pro forma net income per share ................................. $ 0.26 -- --
=========
Pro forma amounts assuming the discounting of certain accounts receivable
is applied retroactively:
Pro forma net income ........................................... $ 554 $1,211 $1,003
========= ========= =========
Pro forma net income per share ................................. $ 0.25 $ 0.40 $ 0.33
========= ========= =========
Weighted average number of shares outstanding .................. 2,185 3,008 3,035
========= ========= =========
</TABLE>
18
<PAGE>
- ------
(1) Reflects an interest discount taken for the presumed collection cycle of
certain revenues at a 12% interest rate over a three and two year period
for CMI and MMI, respectively, which is management's best estimate of its
incremental borrowing rate.
(2) Represents interest income earned as a result of the amortization over
the applicable period of the interest discount in (1) above.
(3) As there was no interest expense incurred in 1993, 1994 and the first
quarter of 1995, the ratio of earnings to fixed charges is not
applicable.
(4) Reflects a change in accounting principle and the cumulative effect on
income net of income taxes arising from MMI's no longer providing for a
provision for bad debts due to its adoption of the discounting of certain
of its accounts receivables, amortizing the discount and including the
amount in income over a two year period.
(5) Pro forma net income for MMI reflects (i) an adjustment to include
compensation expense for the President and Chief Executive Officer and
the Vice President and Chief Operating Officer under employment contracts
which became effective after MMI's initial public offering, even though
such officers did not receive and are not owed any compensation for the
period from inception to October 26, 1993 and (ii) a provision for income
taxes based upon pro forma income since MMI had been an S Corporation up
to the date of its initial public offering.
(6) Includes provision for uncollectible accounts receivable of $107,000 and
$502,000 for 1993 and 1994, respectively. No such provision was made or
necessary in 1995.
(IN THOUSANDS)
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Medical Management,
Inc. Complete Management, Inc.
------------------- -------------------------------------
As at December 31, As at December 31, March 31, 1996
------------------- ---------------
1994 1995 1994 1995 Actual
------- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ......... $ 93 $ 104 $ -- $ -- $ 2,540
Marketable securities ............. 905 122 -- -- 9,599
Accounts receivable, net (1) ...... 5,232 7,419 7,679 14,884 25,851
Purchase price in excess of net assets
acquired ......................... -- -- -- -- 8,567
Total assets ...................... 9,717 13,519 8,009 17,860 54,354
Current liabilities ............... 1,947 3,375 2,461 5,744 7,240
Long-term obligations, less current
portion .......................... 374 1,520 -- 228 3,591
Shareholders' equity .............. 6,355 7,293 3,854 7,330 37,621
Working capital ................... 2,137 1,213 1,615 (63) 16,775
</TABLE>
- ------
(1) Includes both the current and long-term portions of the accounts
receivable.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPLETE MANAGEMENT, INC.
The following discussion of the results of the operations and financial
condition of CMI should be read in conjunction with CMI's Audited and
Unaudited Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
OVERVIEW
On April 1, 1993 CMI commenced operations and servicing GMMS, its initial
client, a multi-site neurological medical practice in the New York
metropolitan area. For the period from commencement to December 31, 1993, and
the years ended December 31, 1994 and 1995, all fee revenue was derived from
the management of GMMS.
CMI's revenues are derived primarily from agreed upon fees for management
services. CMI's charges are intended to reflect the varying costs associated
with its provision of services to clients including rental costs,
compensation of personnel supplied by CMI, costs of third-party payor
documentation, costs of billing and collections, and the provision by CMI of
financing to enable its clients to acquire high cost diagnostic imaging
equipment, as well as to acquire other medical practices.
GMMS pays the management fees it owes CMI by assigning ownership, on a
recourse basis, of its receivables with a net collectible value equal to the
then current management fee owed to CMI.
GMMS is a multi-specialty medical practice group which evaluates,
diagnoses and treats patients in the New York metropolitan area. Currently,
GMMS' primary medical focus is the treatment of patients with injury- related
conditions who carry insurance with various insurance carriers under the
workers' compensation and no-fault guidelines. GMMS currently includes
sixteen (16) physicians, (including seven neurologists, one chiropractor, one
physiatrist, two orthopedists, one general surgeon, one family practitioner,
two psychologists and one radiologist) who operate in offices throughout the
New York metropolitan area.
The following unaudited tabulation sets forth the operating results of
GMMS for the years ended December 31, 1993, 1994, 1995 and for the quarters
ended March 31, 1995 and 1996. GMMS is an entity separate from CMI and the
amounts reflected below are not included in the results of operations of CMI,
except for the portion of the management fee due to CMI, which is exclusive
of fees due to MMI for diagnostic imaging services.
Year Ended
December 31,
1993
-----------------------------------------
Unaudited: General
Services Imaging GMMS
------------ ------------ ------------
Services rendered
Contractual $ 9,414,011 $3,855,618 $13,269,629
allowances ....
Net medical servic (1,849,637) (107,000) (1,956,637)
fee ...........
Less expenses: 7,564,374 3,748,618 11,312,992
Medical
personnel
payroll ....
Other ......... 1,205,684 429,793 1,635,477
319,622 40,196 359,818
------------ ------------ ------------
Total expense 1,525,306 469,989 1,995,295
------------ ------------ ------------
Owner physician
payroll and
entity income 756,454 -- 756,454
Management fee $ 5,282,614 $3,278,629 $ 8,561,243
============ ============ ============
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1994 1995
----------------------------------------- -----------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Unaudited: Services Imaging GMMS Services Imaging GMMS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Services rendered $15,873,681 $6,362,166 $22,235,847 $17,324,953 $6,685,483 $24,010,436
Contractual
allowances .... (2,243,719) (502,000) (2,745,719) (2,037,223) (302,297) (2,339,520)
Net medical servic
fee ........... 13,629,962 5,860,166 19,490,128 15,287,730 6,383,186 21,670,916
Less expenses:
Medical
personnel
payroll .... 1,418,973 665,695 2,084,668 1,969,157 371,148 2,340,305
Other ......... 474,998 1,177 476,175 502,367 22,186 524,553
------------ ------------ ------------ ------------ ------------ ------------
Total expense 1,893,971 666,872 2,560,843 2,471,524 393,334 2,864,858
------------ ------------ ------------ ------------ ------------ ------------
Owner physician
payroll and
entity income 1,081,693 -- 1,081,693 522,376 -- 522,376
Management fee $10,654,298 $5,193,294 $15,847,592 $12,293,830 $5,989,852 $18,283,682
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1995 March 31, 1996
------------------------------------------- -------------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Services Imaging GMMS Services Imaging GMMS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ......... $4,529,253 $1,577,028 $6,106,281 $5,044,019 $2,052,998 $7,097,017
Contractual allowances .... (382,723) (68,981) (451,704) (448,856) (176,753) (625,609)
------------ ------------ ------------ ------------ ------------ ------------
Net medical service fees .. 4,146,530 1,508,047 5,654,577 4,595,163 1,876,245 6,471,408
------------ ------------ ------------ ------------ ------------ ------------
Less expenses:
Medical personnel payroll . 369,460 105,711 475,171 688,930 82,802 771,732
Other ................... 101,605 3,774 105,379 342,652 26,498 369,150
------------ ------------ ------------ ------------ ------------ ------------
Total expenses ....... 471,065 109,485 580,550 1,031,582 109,300 1,140,882
------------ ------------ ------------ ------------ ------------ ------------
Owner physician payroll and
entity income ........ 675,465 -- 675,465 252,518 -- 252,518
------------ ------------ ------------ ------------ ------------
Management fee ............ $3,000,000 $1,398,562 $4,398,562 $3,311,063 $1,766,945 $5,078,008
============ ============ ============ ============ ============ ============
</TABLE>
GENERAL
GMMS' operations are limited to the following activities:
1) Rendering services to patients;
2) Compensating both owner physicians and other medical personnel; and
3) Paying miscellaneous expenses incidental to the rendering of the
medical service.
As more fully discussed below, as well as elsewhere in this Prospectus,
the Company provides the following services to GMMS:
1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
2) Billing in GMMS' name and collection for all medical services rendered
to patients by GMMS; and
3) Any other business activity necessary to ensure the proper business
operations of GMMS' practice.
ECONOMICS
Because the activities of GMMS are limited to rendering medical services,
its principal asset is the accounts receivable due from third-party payors
and/or its patients (minimal services are paid for by the patient at the time
service is rendered). Substantially all of GMMS' non-clinical activities, as
defined in the PMSA, are performed by the Company. GMMS' principal
liabilities are the fee due under the PMSA and the amounts due owner
physicians and other medical personnel for services rendered. This is
reflected in the above tabulation in that revenues generated by GMMS in the
amounts of $13,269,629, $22,235,847, and $24,010,436 for the years ended
December 31, 1993, 1994 and 1995, respectively, have been allocated to the
owner physician, medical personnel, other medical related expenses and the
management fee.
Because the management fee is paid through recourse assignment of GMMS'
accounts receivable and the doctors' compensation is paid currently, GMMS'
cash flow is used principally for the payment of remaining GMMS expenses and
doctor's compensation.
FINANCIAL STATEMENTS OF GMMS
Audited financial statements for GMMS have not been presented because
management believes they would not provide any additional information that
would be meaningful to the evaluation of the Company's financial position,
results of operations and cash flow given that GMMS' balance sheet, prepared
on an accrual basis, would include a limited amount of accounts receivable
and immaterial liabilities for miscellaneous costs not paid, due to timing of
cash flow. Further, GMMS' statement of operations would reflect three
components: (1)
21
<PAGE>
revenues, (2) compensation to owner physicians and medical personnel and (3)
management fees, which are presented in substantially this form in the table
above as well as elsewhere in this Prospectus. Finally, GMMS is merely a
vehicle for physicians to achieve cash compensation from the practice of
their medical profession.
To ensure that all GMMS' billings result in bona fide accounts receivable,
the Company interviews all patients and reviews their insurance documentation
before any medical services are rendered by GMMS. If, as a result of this
review, the Company determines any billing to be doubtful, such bills, for
the purposes of paying the Company's management fee or as amounts available
under the recourse rights, are not included in GMMS' accounts receivable,
which are assigned to the Company.
The process of determining the timing and the probability of collecting
third-party accounts receivable is an integral part of the activities of the
Company. Such information is used by the Company to determine which
receivables are to be assigned to it to pay its management fees and which
receivables are to be retained by GMMS to compensate the owner physicians and
medical personnel. The Company believes that because of this process, the
amount of accounts receivable that would revert back to GMMS as a result of
the recourse right is not material. To date, the Company has not had to
exercise this right with respect to any accounts receivable assigned to it.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1995 AND 1996
The Company's actual results for the quarter ended March 31, 1996 reflect
substantial changes in revenue, cost of revenue, general and administrative
expenses, interest expense and net income as compared to the quarter ended
March 31, 1995 primarily as a result of the acquisition of MMI on January 3,
1996. The acquisition of MMI contributed $1,868,000, $558,000, $412,000 and
$56,000 to the increases in 1996 of revenue, cost of revenue, general and
administrative expenses and interest expense, respectively. MMI contributed
approximately $453,000 in net income to the merged Company. This increase was
offset by an increase in goodwill amortization and officer compensation
expense in 1996, which aggregated approximately $184,000 net of income tax
expense.
As a result of the acquisition of MMI, the Company's combined results of
operations for the three months ended March 31, 1995 are discussed on a pro
forma consolidated basis as if MMI had been consolidated with CMI for the
entire period. The results of operations for the three months ended March 31,
1996 reflect the actual consolidation of MMI into CMI for the entire reporting
period.
REVENUE
Revenue in 1995 was $4,738,000 as compared to $5,200,000 in 1996, an
increase of $462,000 (9.7%). The most significant increase ($332,000)
resulted from management services rendered by the Company to GMMS due to an
increase in the number patients treated and evaluated by GMMS. Additionally,
three new GMMS offices (Garden City, Staten Island and Newburgh, New York)
opened during the fourth quarter of 1995 became fully integrated in 1996. The
remaining increase ($130,000) resulted from a 31% increase in the volume of
diagnostic imaging scans in 1996 provided by GMMS, which were offset by the
termination of an agreement with an existing metropolitan area hospital
client during January 1996.
COST OF REVENUES
Cost of revenue was $1,107,000 in 1995 as compared to $1,725,000 in 1996,
an increase of $618,000 (55.8%). A significant portion of this increase
($298,000) was due to the hiring of additional practice management and other
support personnel such as appointment schedulers and intake examiners in
order to properly administer GMMS' expanding medical practices. Patient
transportation cost increased by $50,000 as a result of the increase in the
number of patient services and diagnostic imaging scans provided by GMMS in
1996. Depreciation and amortization increased by $74,000 primarily as a
result of an increase in medical equipment purchases of $1,858,000.
Consulting fees and rent expense increased by $71,000 and $105,000
respectively, as a result of the reclassification in 1996 of these expenses
from general and administrative expenses to cost of revenues in order to be
consistent with the Company's new practice management services agreement.
22
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses (including fees paid to related
parties) decreased in 1996 by $238,000 from $1,561,000 in 1995 to $1,323,000
in 1996. The decrease was primarily due to the reclassification of the
consulting fees and rent expense, as discussed under "Cost of Revenues"
above, to cost of revenues ($71,000 and $105,000 for consulting fees and rent
expense, respectively) in order to be consistent with the Company's new
practice management services agreement.
INTEREST EXPENSE
Interest expense increased in 1996 as compared to 1995 by approximately
$265,000. The principal increase is attributable to the write-off of
($237,500) of original issue discount related to the repayment of the Secured
Notes. The balance of the increase ($33,000) was the interest incurred
related to the mobile diagnostic testing machine utilized at a metropolitan
area medical center.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenue in 1994 was $10,654,000 as compared to $12,294,000 in 1995, an
increase of 15.4%. The increase in revenue resulted from an increase in
services provided to GMMS due to the increase in the number of patients
evaluated and treated by GMMS. The number of procedures GMMS performed
increased from 128,500 in 1994 to 157,000 in 1995.
Cost of Revenue increased $822,000 or 42.2%, from $1,949,000 to $2,771,000
in 1995. A significant portion of this increase ($694,000) was due to the
hiring of an additional 23 practice management and other support personnel
such as appointment schedulers, record transcribers and intake examiners in
order to properly administer GMMS' expanding medical practice and to prepare
a base for future clients and projected acquisitions. Transcription costs
increased by $129,000 due to the greater number of patients evaluated and
treated.
General and Administrative Expenses (including fees paid to related
parties) increased by $403,000, or 15.7%, from $2,571,000 in 1994 to
$2,974,000 in 1995. The increase is primarily attributable to an increase in
space rental costs ($126,000) associated with the opening of three additional
GMMS offices, related incremental depreciation and amortization ($38,000),
upgrading of the billing system ($68,000) and increased marketing efforts
($57,000). Additionally, the Company incurred one time costs ($32,500)
associated with its fourth quarter financing and incremental insurance costs
($23,000) in conjunction with its IPO.
Depreciation and Amortization Expense increased by $47,000 from $55,000 in
1994 to $102,000 in 1995. This increase was directly related to the purchase
of property and equipment, primarily leasehold and replacement expenditures,
totaling $93,000 in 1994 and $199,000 in 1995.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
CMI began servicing GMMS on April 1, 1993 and therefore only nine months
of operations are included in the 1993 financial results.
Revenue in 1993 was $5,283,000 as compared to $10,654,000 in 1994, an
increase of 101.7%. The primary reason for the increase of $ 5,371,000 is the
incremental three months included in 1994. In addition, during the year ended
December 31, 1994, GMMS increased the number and size of its practice offices
from five in 1993 to six in 1994 and the number of procedures performed
increased from 88,450 in 1993 to 128,500 in 1994. GMMS, originally a
neurological practice, added additional medical specialties and
rehabilitative services and therefore increased its physician and medical
support staff from 12 in 1993 to 23 in 1994 to accommodate its growth. As a
result of GMMS' growth, CMI has provided additional rental space (an
incremental 1,200 square feet associated with the new GMMS office),
additional personnel (from 48 employees in 1993 to 60), and increased billing
and collection services causing CMI's fees from GMMS to correspondingly
increase.
Cost of Revenue increased by $846,000 or 76.7%, from $1,103,000 in 1993 to
$1,949,000 in 1994. Cost of revenue includes personnel who directly support
the medical practice in rendering patient care and who directly support its
billing and collection process. The support services include patient
scheduling and assisting patients in producing background and medical
coverage information necessary for GMMS' physicians to properly diag
23
<PAGE>
nose, test and bill for services they render. CMI charges GMMS fees for the
services provided by its personnel under the terms of the PMSA. A significant
portion of the difference, $367,000, was attributable to the incremental
three months included in 1994. A substantial part of the remaining increase
was due to hiring management and support personnel such as patient schedulers
and medical record maintainers to properly service GMMS' expanding medical
practice and to prepare a base for future clients and anticipated
acquisitions. As a result, personnel and related payroll costs increased by
$288,000. Other increases in cost of revenues were due to a greater volume of
patients seen by the medical practice, higher equipment costs including
leasing and maintenance ($33,000), transcription fees ($80,000), medical and
related supplies ($47,000) and employee health insurance costs ($31,000).
General and Administrative Expenses (including fees paid to related
parties) increased by $884,000 or 52.4%, in 1994 from $2,571,000 as compared
to $1,687,000 in 1993. General and administrative costs represent overhead
and administrative expenses excluding costs directly related to operations
and generation of revenue, such as space costs, office supplies and general
and administrative costs of CMI including corporate management and
professional fees. The primary difference ($562,000) was attributable to the
incremental three months included in 1994. The increase is primarily
attributable to the rapid expansion of GMMS' medical practice and the
resultant expenditures required to keep pace with such expansion. In
addition, CMI's philosophy has been to significantly upgrade and increase its
infrastructure (at a cost in 1994 of $203,000) to ensure its ability to
adequately service additional clients and anticipated acquisitions while
continuing to provide a comprehensive range of management services to GMMS.
CMI has also hired additional experienced marketing personnel and has
established more aggressive marketing programs (at a cost in 1994 of
$77,000). Additionally, insurance costs increased by ($42,000). CMI increased
expenditures during 1993, 1994 and in the beginning of 1995 in order to
prepare itself to service additional clients in 1996 and beyond.
Depreciation and Amortization Expenses increased by $38,000 in 1994 from
$17,000 in 1993 to $55,000 in 1994. This increase is directly related to the
purchase of capital assets by CMI totaling $183,000 in 1993 and $193,000 in
1994.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly operating results for the
years ended December 31, 1994, 1995 and March 31, 1996. In the opinion of
management, all necessary adjustments (consisting only of normal recurring
adjustments) have been included below to present fairly the quarterly results
when read in conjunction with the audited consolidated financial statements
and notes thereto, included elsewhere in this Prospectus.
QUARTERLY STATEMENTS OF INCOME SUMMARY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND THE QUARTER ENDED MARCH 31,
1996
(UNAUDITED)
AS PERCENTAGE OF REVENUES:
<TABLE>
<CAPTION>
1995
Quarter
1994 Quarters ended 1995 Quarters ended ended
----------------------------------------- ----------------------------------------- ----------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Interest discount ......... -18.7% -16.4% -15.5% -15.5% -16.2% -14.7% -18.6% -16.5% 9.9%
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Net revenue ............... 81.3% 83.6% 84.5% 84.5% 83.8% 85.3% 81.4% 83.5% 90.1%
Cost of revenue ........... 18.2% 18.0% 17.5% 19.5% 18.9% 16.3% 22.7% 32.4% 33.2%
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Gross profit .............. 63.1% 65.6% 67.0% 65.0% 64.9% 69.0% 58.7% 51.1% 56.9%
Gen. & administrative expenses 25.2% 28.3% 22.4% 21.0% 23.0% 19.9% 30.1% 24.9% 25.4%
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Operating income .......... 37.9% 37.3% 44.6% 44.0% 41.9% 49.1% 28.6% 26.2% 31.5%
Interest discount included in
income ................... 5.7% 5.9% 8.7% 13.9% 10.0% 9.7% 19.3% 13.6% 11.3%
Other income (expense), net . -- % 2.0% -- % -- % -- % -- % 0.5% -1.3% -0.7%
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Pre-tax income ............ 43.6% 45.2% 53.3% 57.9% 51.9% 58.8% 48.4% 38.5% 42.1%
Income taxes .............. 20.5% 21.2% 24.9% 27.3% 24.4% 27.5% 23.0% 18.1% 20.8%
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Net income ................ 23.1% 24.0% 28.4% 30.6% 27.5% 31.3% 25.4% 20.4% 21.3%
======== ======== ======== ======== ======== ======== ======== ======== ==========
</TABLE>
24
<PAGE>
The management fees under the PMSA would tend to generate higher
management fees than fixed annual amounts payable under prior arrangements
with GMMS because the PMSA seeks to recoup incremental costs (on a cost-plus
or unit of activity basis) incurred by CMI as a result of the commensurate
needs for additional services GMMS provides as its medical practice grows.
Accordingly, operating income as a percentage of revenues would tend to
remain constant or abate and receivables would increase accordingly.
Cost of revenue as a percentage of revenue has shown a pattern of increase
during the reported quarters. The most recent two quarters reflect the
incremental personnel costs associated with the opening of three new GMMS
offices.
Conversely, general and administrative expenses have decreased as a
percentage of revenue in most quarters as a result of the increase in revenue
since the commencement of operations. During the quarters ended June 30, 1994
and September 30, 1995 these expenses were somewhat higher than normal as a
result of anticipated increases in the level of operations.
LIQUIDITY AND CAPITAL RESOURCES
On January 3, 1996, the Company completed an initial public offering of
2,000,000 common shares at $9.00 per share and received proceeds net of
underwriter's commission and expenses of $16,380,000. Costs incurred with
respect to the registration of the common shares in addition to the
underwriter's commission and expenses were $2,468,000, of which the Company
paid $1,166,992 in the three months ended March 31, 1996. In addition, the
Company sold to the underwriter, or its designee, at a price of $.001 per
Representative's Warrant, 200,000 Warrants entitling the holders thereof to
purchase 200,000 common shares of the Company at a purchase price of $10.80
per share for a period of four years commencing one year from the date of the
IPO.
Also, on January 3, 1996, the Company completed the merger of Medical
Management, Inc. into a wholly- owned subsidiary of CMI. The terms of the
Merger provided that MMI shareholders receive .778 CMI common shares for each
MMI common share which they held based upon the IPO price of $9.00 per share.
The holders of outstanding options to purchase MMI common shares received
93,281 CMI common shares based upon the difference between their aggregate
option exercise prices and the value thereof at $7.00 per share divided by
the IPO price. In January 1996, the Company issued 2,211,953 common shares to
effect the merger including shares to be issued in satisfaction of
outstanding options and warrants to purchase MMI shares. The excess of cost
over net assets acquired (goodwill) of $8,676,000 as a result of the
acquisition of MMI will be amortized on a straight-line basis over a period
not to exceed twenty years.
The Company's principal cash requirements to date have been to fund
working capital, primarily to support higher levels of receivables generated
by increased management fees as well as capital expenditures. The Company has
financed these requirements primarily through cash flow from operations, the
proceeds from the Notes and from the IPO it completed on January 3, 1996.
During the first three months of 1996, the principal uses of cash have
been to support operating activities and to repay short-term debt. Net cash
used for operating activities in 1995 was $3,955,000. In January 1996, the
Company loaned GMMS for working capital needs approximately $1,590,000 due on
demand at interest of 9% per annum. The Company does not anticipate making
any additional loans to GMMS. At March 31, 1996 the Company had working
capital of $16,775,000.
The Company repaid $1,000,000 in short-term debt to three lenders with
proceeds from the IPO as called for in the lender's agreements. There was no
pre-payment penalty or additional costs associated with the prepayment.
The Company currently has certain commitments for capital expenditures of
approximately $1,140,000 for new diagnostic testing units to be constructed
and installed in two major metropolitan area hospitals. The current
availability of funds is adequate to facilitate such costs of the projects in
addition to the initial startup costs. Historically, whenever the Company
begins servicing a new client for diagnostic testing, the Company requires
funding to acquire, setup, develop and manage the operating facilities of the
client during the period from the initial startup until sufficient cash flow
levels from reimbursements from third-party payors is achieved. During these
periods the Company's clients cash flow is negatively affected by the slow
payment of medical claims from
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third-party payors. As a result of the slow payment pattern the Company's
clients delay payment of management fees thus causing the Company to require
more capital to finance its management fee receivables than would be required
with traditionally faster receivable payment cycles for its clients.
The Company expects cash, cash equivalents, short-term investments, cash
generated from operations and short-term borrowings to be sufficient to meet
its working capital requirements for the next 12 months. However, if the
Company's cash requirements for capital expenditures for new clients,
acquisitions and working capital, exceed expected levels, the Company may be
required to obtain additional funds in the credit or capital markets.
For the years ended December 31, 1993, 1994 and 1995, net cash provided by
operating activities was $117,000, $111,000 and $1,088,000, respectively.
Although CMI provided cash through its operating activities, a significant
amount of cash was used to support higher levels of accounts receivable. The
amount of cash used was $2,623,000, $6,536,000 and $7,636,000 for 1993, 1994
and 1995, respectively.
The ability of GMMS to pay the management fees which it owes to CMI is
dependent upon GMMS' ability to collect its accounts receivable from
insurance carriers, primarily no-fault and workers' compensation carriers,
though GMMS is obligated to pay such fees regardless of its collections.
Receipts from these sources generally have long collection cycles. These
claims can be subjected to dispute and are often referred to arbitration.
Many third-party payors, particularly insurance carriers covering automobile
no-fault and workers' compensation claims refuse, as matter of business
practice, to pay claims unless submitted to arbitration. It is the Company's
experience that the insurance carriers from which it seeks reimbursement
delay payment of claims until just prior to the arbitration hearing.
Management has determined, based on actual results, industry factors, and
GMMS' historical collection experience prior to its association with the
Company, that this entire collection process generally spans a period
averaging approximately three years. The Company believes that its experience
to date is a good indication of the timing of the collection process in the
future. Therefore, CMI requires more capital to finance its receivables than
businesses with a shorter receivable collection cycle. In the event that the
laws and regulations establishing these third-party payors are amended,
rescinded or overturned with the effect of eliminating this system of payment
reimbursement for injured parties, the ability of CMI to market its
management services could be affected. CMI takes ownership on a recourse
basis of GMMS' receivables with a net collectible value equal to the then
current management fee owed to CMI. The collection cycle for these
receivables are generally in excess of one year and as a result of such
delayed payment the financial statements include an imputed interest discount
against gross revenues. This discount is recaptured as the accounts
receivable are collected and is accounted for as reversal of interest
discount in the financial statements.
Cash was provided due to an increase in accounts payable of $195,000,
$403,000 and $1,946,000 for 1993, 1994 and 1995, respectively. The increases
were caused by the deferred registration costs incurred as a result of the
IPO and by the increase in services rendered and costs incurred by the
Company as the result of the rapid expansion of GMMS' practice. The Company's
estimate of its cash needs includes, in part, an estimate of the timing of
its collections of accounts receivable.
For the period from inception (April 1, 1993) to December 31, 1993, and
for the years ended December 31, 1994 and 1995, the Company made capital
expenditures totaling $183,000, $193,000 and $178,000, respectively. These
expenditures were for office furniture, computer hardware/software, telephone
and medical equipment.
Deferred registration costs incurred for 1995 were $1,985,000. These costs
represent primarily professional fees incurred in conjunction with the IPO.
These fees were charged to paid-in capital upon the consummation of the IPO
in 1996.
In September and October 1995, CMI borrowed an aggregate of $1,000,000
secured by all its assets from three lenders (the "Secured Lenders"):
InterEquity Capital Partners ("IECP"), Astro Communications, Inc. and William
Harris & Company Employee Profit Sharing Trust, which loaned $400,000,
$300,000 and $300,000, respectively. The loans were evidenced by secured
notes (the "Secured Notes") which were paid in full in January 1996 from the
proceeds of the IPO. The Company paid IECP a processing fee of $12,500 and
reimbursed it for costs of approximately $20,000, which were charged to
operations in the period paid. The Company issued
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to the Secured Lenders 27,778 Common Shares having an aggregate value of
$250,000 when valued at the IPO price of $9.00 per share. This original issue
discount of $250,000 was charged to operations over the term of the loan;
$12,500 in 1995 and the balance when the loans were paid in full. The
unamortized portion of the discount of $237,500 at December 31, 1995 is
included in prepaid and other current assets on the accompanying balance
sheet.
In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") to accredited investors. The Notes bear interest at 8%,
payable quarterly. The entire principal is due five years from the date of
issuance. Holders of the Notes may convert all or any portion of the Notes
into Common Shares of the Company at $9.00 per share, subject to adjustment
for stock splits, dividends, recapitalization, etc. Under certain
circumstances, such as a change in control, holders of the Notes may require
the Company to redeem the Notes at 125% of the original principal amount. The
Notes are subordinate in right of payment to certain future indebtedness
which may be incurred by the Company. The purchasers and/or affiliates have
an option for 120 days from March 20, 1996 to acquire an additional
$3,000,000 of Notes from the Company under the same terms and conditions.
In July 1995, CMI and GMMS entered into a revised agreement for its
services. The revenues are primarily generated on a cost plus basis (e.g.,
personnel, space and supplies) and for activity based efforts at pre-
determined rates (e.g., collection, consulting). The agreement is for a term
of 30 years commencing April 1, 1995 and shall be automatically renewed for
six five-year periods thereafter unless notice is given six months prior to
the expiration of the initial term. These fees for services are believed by
management to be usual and customary in the industry and at levels consistent
with those that would have been determined through "arms-length" negotiation.
In management's opinion, the revenue generated during the first quarter of
1995 approximates the revenue that would have been recorded if the revised
agreement had been in effect during that quarter.
MEDICAL MANAGEMENT, INC.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 AND 1995
MMI's revenue for the year ended December 31, 1995 was $7,287,000 as
compared to $6,049,000 in 1994, an increase of 20.5%.
Revenue increased for the year ended December 31, 1995, as compared to
1994, primarily because of the increase in the volume of diagnostic imaging
and other diagnostic testing scans provided by MMI's clients. Scans for the
year ended December 31, 1995 numbered 9,532 as compared to 6,341 for 1994.
Discounting of certain accounts receivable was implemented in 1995.
Discounting was not implemented in prior years as the Company's period of
operations was insufficient to adequately determine the appropriate
collection period. In 1995, discounting of certain accounts receivable was
adopted based upon the results of the Company's periodic reviews of its
accounts receivable from GMMS and its updated analysis of the related
collection period which indicated that these receivables have a collection
cycle of approximately two years. The applicable accounts receivable were
discounted utilizing an interest rate of 12% per annum, which was
management's best estimate of its incremental borrowing rate from April 1992
(commencement of operations) through December 31, 1995. The impact of this
change in accounting policy considers accounts receivable generated in prior
years. The effect of the change in 1995 was to decrease income before income
taxes by approximately $51,000. The adjustment of approximately $222,000
(after an income tax benefit of $196,000) is shown as the cumulative effect
of change in accounting principle in the accompanying statements of income.
The most significant factor resulting in the increase in the volume of
diagnostic imaging and other scans by GMMS was the relocation of its
operations to a newly constructed operating medical office in February 1994.
In February 1994, MMI discontinued providing GMMS with an off-site mobile
diagnostic imaging unit and began providing a new fixed-site unit which it
had purchased and located at the newly constructed medical office. The
efficiencies of having all the operations of this unit at one site coupled
with the faster scanning of its patients by GMMS using the new medical
equipment resulted in an increased volume of scans during the year ended
December 31, 1995. In 1994, since the transfer of the operations to the new
office did not occur until the midpoint of the first quarter, the advantages
of using the new medical equipment for GMMS were not realized
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until the beginning of the second quarter. In 1995, MMI was servicing a
hospital located in the New York metropolitan area and an ultrasound unit for
GMMS resulting in revenue of $1,076,000. MMI managed these units only during
the fourth quarter of 1994. The comparable revenue for 1994 was $155,000.
In the second quarter of 1995, MMI began servicing a new client, a
neurology practice located in the New York metropolitan area. For the year
ended December 31, 1995, fee revenue from this client was $269,000. In
September 1995, MMI began renting a mobile diagnostic imaging unit on a per
scan basis for GMMS to provide diagnostic services to its Newburgh, New York
practice office which contributed $44,000 in revenues in 1995. The increase
in revenues was partially offset by the termination of an agreement with an
existing client in the second quarter of 1995. The agreement was terminated
by mutual consent upon the determination that the client's existing patient
volume did not warrant the agreement's continuation.
Cost of Revenue was $2,792,000 for the year ended December 31, 1995 as
compared to $1,221,000 for 1994, an increase of 128.7%. Cost of revenue
includes non-technical personnel who directly support the medical practice in
rendering diagnostic testing to patients. The support services include
patient scheduling, assisting patients in the provision of certain
information necessary for the proper diagnosis of their ailment(s) by the
physicians and gathering insurance and other information for billing
purposes. The most significant increases were payroll related costs
($278,000), equipment costs ($97,000), medical supplies ($181,000) and
depreciation and amortization ($489,000). During the first quarter of 1994,
MMI only serviced GMMS. In the second quarter of 1994, MMI began servicing a
CAT-scan unit for GMMS and began servicing two additional clients (one client
for only one month.) During the fourth quarter of 1994, MMI began servicing a
hospital located in the New York metropolitan area.
During 1995, in addition to continuing to service the same clients as it
did in 1994, MMI serviced two additional clients as well as an ultrasound
unit for GMMS. In the third quarter of 1995, MMI began renting a mobile
diagnostic imaging unit on a per scan basis for GMMS to provide diagnostic
services to its Newburgh, New York practice office. Except for one client
which terminated its contract after April 1995 and one client which began
operations in April 1995, each unit was in operation for the entire 1995
year. Expenditures required by MMI to service the additional clients in 1995
as compared to 1994 as well as expenditures made to build an infrastructure
in anticipation of higher future revenues and new clients has resulted in a
higher level of cost of revenues in 1995 as compared to 1994. However, MMI
expects that the additional expenditures currently made in operational
management personnel, support staff and services provided as part of the
enhancement of MMI's infrastructure will result in economies of scale when
future revenue streams are integrated with current operations.
General and Administrative Expenses were $2,382,000 for the year ended
December 31, 1995, as compared to $2,353,000 in 1994. The 1994 figure
includes a provision for uncollectible accounts receivable of $502,000. 1994
general and administrative expenses not including such provision were
$1,852,000 and 1995 general and administrative expenses represent an increase
of $530,000, or 28.6% over $1,852,000. General and administrative expenses
primarily reflect management compensation, professional fees and office and
related administrative costs. The increase in general and administrative
expenses is primarily a result of MMI's positioning itself to adequately
service additional diagnostic imaging units as MMI's operations expand. In
order to achieve this goal, during the middle-to-latter part of 1994, MMI
increased the quality and quantity of its staff by hiring additional middle
management personnel. In addition to increasing its management staff in order
to adequately service its new clients, MMI significantly expanded its support
staff of administrative, marketing, accounting, billing, verification and
collection personnel. The increases in management and support staff accounted
for approximately 75% of the increase in general and administrative expenses
for 1995, as compared to 1994. As indicated in the previous paragraph, the
expansion of MMI's client operations for the year ended December 31, 1995 as
compared to 1994 also contributed to the increased general and administrative
expenses. The more significant expense increases in 1995 were payroll related
costs ($396,000) and depreciation and amortization ($105,000). These expenses
were phased in during the middle-to-latter part of 1994 as new clients were
added and existing clients expanded their operations. The full impact of
these expenses is reflected in 1995; 1994 does not have a comparable level of
equivalent expenses.
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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
Revenue for the year ended December 31, 1994 was $6,049,000 compared to
$3,279,000 for 1993, an increase of 84.5%. Correspondingly, 1994 net income
increased approximately 126% to $1,302,000, or $.43 per share, from pro forma
net income of $575,000, or $.26 per share, in 1993.
The significant increases in revenue, net income and earnings per share
for 1994 as compared to 1993 are a result of several prominent factors. The
most significant is the increase in volume of diagnostic imaging scans by
GMMS which was a result of the relocation of its operations to new offices in
January 1994. In February 1994, MMI discontinued providing GMMS with an
off-site mobile diagnostic imaging unit, which MMI had been leasing from a
third party, and began providing GMMS with a new fixed-site unit which MMI
purchased and located at the new GMMS office. The efficiencies of having all
the operations at one site coupled with the faster scanning of patients by
GMMS using the new medical equipment resulted in an increased volume of scans
by GMMS (5,808 diagnostic imaging scans in 1994 versus 4,013 diagnostic
imaging scans in 1993) and resulted in the realization by MMI of additional
fee revenue of approximately $1,764,000 for 1994 compared to 1993.
An equally important factor in the enhanced results of operations in 1994
as compared to 1993 was the servicing by MMI in the second quarter of 1994 of
two additional clients: a medical P.C. specializing in physiatry
(rehabilitative medicine) and a multi-specialty medical practice, both
located in the New York metropolitan area. In addition, in the second quarter
of 1994, MMI began servicing a CAT-scan unit for GMMS and in the fourth
quarter of 1994 MMI began servicing a hospital located in the New York
metropolitan area as well as servicing an ultrasound unit for GMMS. Although
these clients' units were in operation for only a portion of 1994, they added
revenue of approximately $1,006,000. In November 1994, an agreement with a
multi-specialty medical practice was discontinued by mutual consent, as MMI
determined, based upon volume during the initial six- month trial period,
that future volume would not be sufficient to support the unit. The increase
in revenues in 1994 as compared to 1993 was somewhat diminished by the harsh
winter weather experienced in the New York metropolitan area, specifically
during the first quarter of 1994. The severe weather forced MMI's clients to
curtail business hours as well as close operations for several days during
this period. It also resulted in a higher than normal "no show" rate for
patients of MMI's clients.
Cost of Revenue was $1,221,000 for 1994 as compared to $761,000 for 1993,
an increase of 60.4%. Cost of revenues include non-technical personnel who
directly support the medical practice in rendering diagnostic testing to
patients. The support services include patient scheduling, assisting patients
in their provision of certain information necessary for the proper diagnosis
of their ailment(s) by the physicians and gathering insurance and other
information for billing purposes. The most significant increases were payroll
related costs ($129,000), medical supplies ($96,000) and depreciation and
amortization ($329,000) related to the commencement of the operations of
MMI's second, third and fourth clients and the expansion of GMMS to include a
CAT-scan and ultrasound unit. These additional costs were incurred primarily
during the latter half of 1994.
General and Administrative Expenses were $2,353,000 for 1994 and
$1,278,000 for 1993. These figures include provisions for uncollectible
accounts receivable of $502,000 and $107,000 for 1994 and 1993, respectively.
General and administrative expenses not including such provision were
$1,852,000 and $1,170,000 for 1994 and 1993, respectively. General and
administrative expenses primarily reflect management compensation,
professional fees and office and related administrative costs. These
increases resulted primarily from the additional costs incurred after the
initial start-up of GMMS in mid-1992. As the number of diagnostic imaging
scans and the hours of operations increased in 1992 and 1993, it was
necessary to increase staffing, both managerial and clerical, as well as
incur other expenses associated with an expanding and growing business. Costs
of office staffing, rental of office space, depreciation of additional office
computers, etc., increased with the view toward the eventual expansion of the
operations to accommodate additional diagnostic imaging units. The increase
in general and administrative expenses was incurred incrementally during the
period from inception (December 24, 1991) to December 31, 1993; however,
these expenses were incurred primarily during the middle-to-latter part of
1993. An increase in general and administrative expenses also resulted from
the servicing in 1994 of an ultrasound and a CAT-scan unit for GMMS and
servicing three additional clients. The expenses attributed to servicing
these new units for GMMS and for the three additional clients were phased in
during 1994. The most significant increases were payroll ($384,000) and
office and administrative costs ($36,000). In addition, following its initial
public offering in October 1993, MMI incurred certain increased expenses
inherent in being a public corporation, including professional fees
($189,000) and fees for investor relations ($50,000).
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Interest and Dividend Income increased in 1994 as compared to 1993 by
$90,000, primarily as a result of the receipt of proceeds from MMI's initial
public offering, effective October 26, 1993. MMI invested a substantial
portion of these funds, approximately $2,000,000, in marketable securities
and money market funds.
Interest Expense increased in 1994 as compared to 1993 by approximately
$93,000; $134,000 in 1994 as compared to $41,000 in 1993. A significant
portion of the increase in interest expense was due to interest costs related
to the construction of the corporate office and operating facility being
capitalized as part of the construction costs in 1993. Effective February
1994, when these facilities were completed, related interest costs were
expensed. This resulted in increased interest expense of $96,000 in 1994 as
compared to zero in 1993. In addition, during 1994, MMI financed the purchase
of medical, computer and office equipment resulting in interest expense of
$37,000 in 1994 as compared to related interest expense of zero in 1993. In
July 1993, MMI obtained a bridge loan of $50,000 at an interest rate of 10%
per annum. As an inducement to the lender, certain principal stockholders of
MMI sold an aggregate of 10,000 shares to the lender at a nominal cost. In
1993, MMI recorded a deferred financing interest charge of $40,000
representing the estimated fair value attributed to the shares by MMI. In
1994, MMI did not have a comparable interest cost.
LIQUIDITY AND CAPITAL RESOURCES
To date, MMI's principal cash requirements have been to fund working
capital and capital expenditures in order to support the growth of revenues.
MMI has financed these requirements primarily through cash flow from
operations and from the proceeds received from an initial public offering
completed on October 26, 1993.
During 1995, the principal uses of cash were to support operating
activities, fund the costs associated with the Merger and to fund the
start-up costs of adding new clients. Net cash used in operating activities
in 1994 was $446,000 as compared to cash provided by operations of $700,000
in 1993. Operating activities for the year ended December 31, 1995 provided
cash of $797,000. At December 31, 1994 MMI had working capital of $2,137,000.
At December 31, 1995, MMI's working capital was $1,213,000.
During the years ended December 31, 1994 and 1995, marketable securities
decreased $737,000 and $783,000, respectively. During the same periods, gross
property and equipment increased $1,381,000 and $283,000, respectively. These
changes are a result of MMI's increased net use of cash for support of
operating activities which has resulted primarily from the servicing of three
additional new clients in 1994 as well as the expansion of services to MMI's
initial client to include CAT-scan and ultrasound units. Whenever MMI begins
servicing a new client, MMI requires funding to acquire, set-up, develop and
manage the operating facilities of the client during the period from initial
start-up until sufficient cash flow levels from reimbursements from third
party payors is achieved. During these periods, the cash flow of MMI's
clients is negatively affected by the slow payment of medical claims from
third-party payors. As a result of this slow payment pattern, MMI's clients
delay payment of management fees to MMI causing MMI to require more capital
to finance its management fee receivables than would be required with
traditionally faster receivable payment cycles. As a result of the slow
payment pattern and the additional expenses incurred as a result of servicing
additional clients, accounts payable and other accrued expenses increased in
1994 and in 1995 by $71,000 and $899,000, respectively. During the same
periods accounts receivable increased $3,433,000 and $2,356,000. Net cash of
$583,000 was generated through investing activities in 1995 as compared to
cash used in investing activities in 1994 and 1993 of $917,000 and
$2,847,000, respectively. The more significant items which resulted in a net
use of cash in investing activities for the three year period ended December
31, 1995 were approximately $2,808,000 used for capital expenditures as well
as $2,157,000 used to purchase marketable securities. Substantially all of
MMI's capital expenditures were for the purchase of medical and related
equipment to service the Company's clients and the completion of the
corporate headquarters and operating facility of GMMS.
Whenever MMI begins servicing a new client, the Company incurs various
pre-operating costs which MMI capitalizes and amortizes over the life of the
related management services agreement which defines the future period during
which income will be realized. During 1994, MMI incurred $159,000 of
pre-operating costs which it deferred to future periods; none were incurred
in 1995. MMI amortized $21,000 and $34,000 of these costs during 1994 and
1995, respectively. $121,000 of net pre-operating costs were written off
during 1995.
In June 1992, MMI entered into a loan and security agreement with Pantepec
International, Inc. ("Pantepec") to borrow up to $700,000 to finance the
purchase of a fixed-rate diagnostic imaging unit for
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GMMS, payable over three years and terminating on June 30, 1995. Over the
loan period principal payments ranged from $16,000 to $26,000, and interest
payments ranged from $3,800 to $12,000. Any and all unpaid principal and
interest was paid in full on June 30, 1995. The diagnostic system was
capitalized and is included in property and equipment in the financial
statements of the Company.
In addition to interest, Pantepec is entitled to lender participation
payments of $10 per scan. Lender participation payments were $70,000 for the
loan years ended June 30, 1993 and 1994 and $62,000 for the loan year ended
June 30, 1995.
Lender participation payments are recorded as interest expense in the
financial statements. In addition, during 1994, the Company entered into a
loan and security agreement to borrow $440,000 to purchase a mobile
diagnostic imaging unit. This borrowing bears an effective annual interest
rate of 13.2% and is payable in equal monthly installments of $11,559
(including interest) through April 1998. During 1995, MMI entered into
capital leases aggregating $1,951,000 for the rental of computer, medical and
office equipment ranging in terms from 36 to 60 months with interest rates
ranging from 10% to 13%. As a result of the increases in capital leases
during 1995, total interest expense increased by $200,000 as compared to
1994.
MMI expects cash and cash equivalents, short-term investments and cash
generated from operations to be sufficient to meet its working capital
requirements over the near term and at least through the next year. However,
if MMI feels that its requirements for capital expenditures for new clients
and working capital exceed current anticipated levels, MMI may be required to
obtain additional funds in the credit or capital markets.
Although MMI currently does not have material commitments pending for
capital expenditures, MMI may make additional capital expenditures in
connection with future new clients.
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BUSINESS
Complete Management, Inc. is a physician practice management company. It
provides physician and hospital management and support services to medical
practice groups and hospitals in the greater New York metropolitan area,
primarily to medical practice groups focused on the treatment and evaluation
of patients with injury-related conditions. The services offered by the
Company include substantially all aspects of business, financial and
marketing support required by a medical practice but do not include providing
any type of medical diagnostic or treatment services. The Company offers
sophisticated business and management systems and a high level of
professional competence to doctors and hospitals that, increasingly, are
faced with complex, time- consuming and expensive reporting, record-keeping,
purchasing, collections and other non-medical requirements of a successful
practice. Historically, all of CMI's revenue and most of MMI's revenue have
come from a single medical practice group, GMMS, and the Company's future
growth prospects are substantially linked to the prospects of the continued
growth of this client as well as to acquisitions the Company might identify
and make in the future.
Services provided by the Company include the provision of office space and
equipment, non-medical personnel, administrative services, billing,
receivables collection, regulatory compliance, and non-medical services
related to its clients' diagnostic imaging services. The Company also offers
consultation regarding marketing strategies and provides financing for the
expansion of its clients' medical practices. By focusing solely on the
business support of medical practices, the Company is able to offer a variety
of operating efficiencies that would be difficult to establish and maintain
by the typical, unassisted medical practice.
The Company's current medical practice clients focus on the treatment of
patients with injury-related conditions in which the reporting,
record-keeping and other requirements imposed by governmental regulations,
payor policies or litigation or other dispute resolution processes are highly
complex, change rapidly and unpredictably and require a high level of
specialized non-medical knowledge. The Company offers both management and
staff with high levels of training and experience in these activities. In
order to maximize the benefits of its expertise, the Company has focused its
marketing efforts on medical practices, such as GMMS, that have the ability
to provide medical services for work-related, automotive and other injury
cases in which the degree of regulation is particularly high. Initially,
these practices related primarily to automobile no-fault injury claims;
however, GMMS, supported by the Company, is aggressively expanding into the
treatment and evaluation of workplace injuries covered under workers'
compensation statutes. The Company believes that the opportunity to use a
medical management service company to service the administrative burdens
dictated by the regulatory environment will encourage neurological,
orthopedic and other medical practices to expand and focus on the area of
injury-related services and expects that such expansion should produce a
corresponding demand for the Company's services. The Company also believes
that similar business opportunities may exist in a variety of other medical
practice areas, such as managed healthcare. Managed healthcare, which has
evolved more slowly in New York State than in many other states, is expected
to become more widely established in New York State in the future.
The Company's management has experience in hospital administration and
attempts to recruit and train staff to operate at a high level of efficiency
in the management of medical practices. To that end, the Company emphasizes a
high level of standardization of procedures and seeks to automate significant
aspects of record- keeping, reporting, collections and other critical
business activities of its clients' practices. Under the Company's
management, GMMS has established a multi-location practice that benefits from
management efficiencies such as centralized purchasing and collection
functions and a standard office format that supports the flexible use of both
medical and non-medical personnel and equipment in its various offices as
required. The Company also uses standardized and automated systems to produce
and administer the various financial and other records to support its
clients' claims for payment.
Clients of the Company are expected to support a claim for reimbursement
for their services and provide data relevant to their patients' related
claims, such as for lost wages. While medical diagnosis, treatment, reporting
and provision of expert testimony are matters requiring medical expertise,
the related administrative processes require expertise and systems for which
medical personnel and the typical medical office staff are not well suited.
By providing an effective system to process claims for reimbursement, the
Company assists its clients in the collection of their professional fees. The
preponderance of GMMS' medical practice has historically been referred by
attorneys representing clients with automobile no-fault injury or workers'
compensation claims. By
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administering an effective claims process, the Company believes that it
supports its clients in their collection of fees. By providing high quality
medical services, the Company's clients have developed a reputation as
"definers" of injury, rather than advocates for a particular medical
evaluation. This reputation has led plaintiffs' attorneys to recommend GMMS
and increasingly has caused insurance companies to retain GMMS to perform
IME's.
On January 3, 1996, CMI completed its IPO of 2,000,000 Common Shares at a
price of $9.00 per share and received net proceeds of $13,480,000. Also on
January 3, 1996, CMI acquired the assets and business of MMI, through its
Merger into CMI Acquisition Corporation which, upon consummation of the
Merger, changed its name to Medical Management, Inc. MMI is principally
engaged in providing diagnostic imaging equipment and billing and management
services related thereto. Currently, MMI operates six diagnostic imaging
units for two clients. MMI has also entered into two additional agreements
for diagnostic imaging units at two metropolitan area hospitals. GMMS is the
primary client of MMI and the sole client of CMI. CMI believes that the
Merger with MMI will help it accomplish its overall growth strategy.
BACKGROUND
Injury-related medicine is the process of evaluating and diagnosing the
nature and extent of a patient's injury, treating the injury and, where
appropriate, providing rehabilitation therapy to restore a maximum level of
physical capability to individuals whose capacity to perform basic and
meaningful life functions has been impaired.
Annual medical expenses in the United States related to accidents exceeded
$75 billion in 1992, with the largest categories as follows: work-related --
<F1>
$22 billion; motor vehicle -- $20.7 billion; and home -- $21.6 billion.1 The
medical costs for claims covered by workers' compensation have been growing
<F2>
at a faster rate than the cost for all medical claims.2 Neurologists and
orthopedic surgeons, the medical specialists most often involved in the
evaluation and treatment of injury-related healthcare problems, have grown in
number from 7,776 and 17,166 doctors in 1986 to 11,294 doctors and 22,740
<F3>
doctors, respectively in 1995.3
Historically, the medical evaluation, diagnosis and treatment of
injury-related cases covered by no-fault and workers' compensation has been a
highly fragmented and an inefficiently practiced area of medicine. This has
been due, in part, to the burdensome regulatory requirements, lengthy
reimbursement cycles and, until recently, the below-average reimbursement
rates associated with such services. Since the majority of reimbursement
claims for these medical services are from no-fault insurance policies and
state workers' compensation boards, physicians have had to cope with the
bureaucratic procedures associated with the processing of such claims. In
addition, the high costs of healthcare in general has created pressure on
medical providers from third-party payors and others to lower their rates.
Traditional medical practices, including injury-related practices, face high
operating costs, little or no ability to secure volume discounts on supplies
or effectively negotiate contracts, insufficient capital to purchase new
medical technologies and inexperience regarding the complexity of laws and
regulations affecting their practice. They also generally lack sophisticated
administrative and financial systems needed to process such claims. The
Company believes these regulatory, administrative and other factors have
increased the need for professional management to assist medical practices in
lowering costs and increasing efficiencies and also to market their services
more effectively to managed care plans. The Company also believes physicians
often require additional financial resources to invest in equipment and
facilities or to acquire other physician practices to build market share.
The Company believes the practice of injury-related medicine is
experiencing significant growth primarily as a result of governmentally
mandated and regulated payment programs that require either third-party
insurers
1. Accident Facts 1993 edition, utilizing data from the National Safety
Council. Workers' compensation medical claims, including medical benefits
paid by private insurance carriers and self insurers, grew from $1.4
<F4>
billion in 1970 to $17.8 billion in 1991.
2. "Workers Compensation Medical Price Index: 1987-1994" by N. Mike
Helvacian, Ph.D. and Christopher K. Fred, published by National Council on
Compensation Insurance, Inc.
3. American Medical Association, unpublished data.
33
<PAGE>
(in the case of no-fault automobile claims) or employers (in the case of
work-related injuries) to bear the costs of medical services, lost wages and
other expenses. However, the programs have given rise to an abundance of
complex and overlapping regulations, caused the medical treatment and payment
therefore to become adversarial in nature and created a paperwork jungle of
complicated forms. The untimely or improper preparation of these forms has
substantially contributed to long collection cycles for medical practices.
GROWTH STRATEGY
The Company's objective is to become the dominant provider of medical
management services in the greater New York metropolitan area and elsewhere
in New York State by implementing an aggressive growth strategy. The key
elements of the Company's strategy to achieve this objective are:
o Increase Number of Clients Serving Injury-Related Medical
Practices. The Company is seeking to secure contracts with additional
medical practices that focus or have the potential to grow by focusing
on injury-related medicine as well as with hospitals. As a part of this
process, the Company will typically purchase fixed assets, leasehold
interests and/or accounts receivable from the medical practice and will
enter into a service contract to provide medical management services.
The Company believes that there are numerous existing medical practices
whose performance could benefit from an increased focus on
injury-related medicine combined with efficient administrative support
services such as those provided by the Company.
o Support the Growth of Existing Client Medical Practices. The Company
will advise its existing clients with respect to methods to expand
their medical practices by adding patient referral sources, providing a
broader range of diagnostic and treatment and evaluation services, and
opening additional medical offices. The Company will advise with
respect to the acquisition by its clients of other medical practices.
It will identify acquisition candidates, assist in structuring and
negotiating the acquisition and, in some cases, provide or arrange for
financing for the acquisition. The Company has had considerable success
in supporting the growth of GMMS and believes that the continuation of
that growth, together with similar growth strategies for other clients,
offers an attractive method to achieve Company growth and management
efficiencies.
o Create a Network of Physicians to Develop Managed Care Practice. The
advent of managed care arrangements as a significant format for general
medical insurance programs has imposed on physicians marketing,
regulatory, record-keeping, billing, collection and other
administrative burdens similar to those encountered by injury-related
practices. The Company believes that it can assist clients and
potential clients by establishing a network of physicians to compete
for managed care, injury-related and other medical care contracts by
offering a broad range of medical services and a high level of
administrative support.
o Assist Clients in Maintaining High Credibility with Third-Party Payors
and other Referral Sources. The Company believes that its clients'
success is dependent to a great extent on the perceived accuracy and
integrity both of the medical diagnoses and evaluations performed by
the Company's clients and the records supporting such diagnoses and
evaluations. The Company seeks to associate itself with medical
practices comprised of highly qualified physicians (such as those with
board certifications) having a reputation for an unbiased approach to
medical evaluations and diagnoses. As a result of these factors, GMMS
has, to an increasing extent, been retained to provide IME's on behalf
of third-party payors that have come to respect the quality of GMMS'
work as a definer of injuries. The Company believes that the
credibility of these processes is a critical factor in increasing
patient referrals.
o Establish Industry Leadership in Medical Management Systems. The
Company seeks to develop and maintain state-of-the-art record keeping,
billing and collections software and to hire and retain a staff of
highly trained administrative support personnel. The Company believes
that a highly automated and standardized support system supports a
higher level of efficiency for its clients' medical personnel and also
leads to faster and more complete collections of fees.
The Company's growth strategy is intended to enable its medical practice
clients to offer patients cost- effective medical care within an integrated
practice offering a broad range of evaluation, testing, diagnostic, treatment
and therapeutic services. The Company believes that such a strategy could, in
turn, enhance its clients'
34
<PAGE>
revenue opportunities in a competitive environment generally affected by
shrinking profit margins. The Company believes that its greatest growth
potential will be in the high volume injury-related medical market. The
Company believes it has competitive advantages in this market because of its
skills in managing these practices and its experience in operating in the New
York regulatory environment. In the longer term, as the network of offices to
which it provides its management services grows, the Company believes that it
will be in an excellent position to attract managed care contracts for its
clients from employers and insurance carriers. The Company's ability to grow
is, however, dependent upon its ability to identify suitable candidates for
its services, as to which there is no assurance.
The Company regularly explores new opportunities and negotiates
arrangements with medical practices for the provision of general medical
management services or limited medical management services related to
diagnostic imaging. However, at present, the Company has no commitments or
agreements with respect to any new service contracts with medical practices
nor has the state of negotiations with any medical practice reached a level
where the Company believes that it is reasonably likely that a new commitment
or agreement will be reached.
MEDICAL PRACTICE AND HOSPITAL MANAGEMENT SERVICES
The Company provides a broad range of medical practice and hospital
management services, particularly those necessary for the efficient and
profitable operation of high volume injury-related medical practices. These
services encompass substantially all the non-medical aspects of its clients'
operations and are designed to increase client revenue levels through a
combination of strategies, which include revenue enhancing marketing methods,
integration of multi-specialty practices to reduce the need for patient
referrals, maximized use of diagnostic and treatment equipment and offices
and improved receivable collection efforts. The principal areas of the
Company's services include:
Offices; Equipment. The Company develops, administers and leases office
space and equipment to its medical practice clients. The Company also
oversees, manages and finances construction, decorating and other
improvements to leaseholds or other real estate and assists its clients in
site selection. Where appropriate, the Company advises its clients on their
need to improve, update, expand or adapt to new technology.
Personnel. The Company staffs all the non-medical positions of its clients
with its own employees, thereby eliminating the client's need to interview
and train non-medical employees, as well as the related demands of processing
the tax, insurance and other regulatory documentation associated with an
employment relationship.
Administrative. The Company assists in the scheduling of patient
appointments, the purchasing of medical supplies and equipment and the
handling of reporting, accounting, processing and filing systems, including
reviewing the completeness of the physician portions of the increasingly
complex forms to ensure and expedite full and timely regulatory compliance
and appropriate cost reimbursement under no-fault insurance and workers'
compensation guidelines. Among other things, the Company provides its clients
with timely management reports which include activity data, collection status
and other management information necessary to the operation of their
respective medical practices.
Receivable Collections. The Company has experience in the collection of
revenues from third-party payors governed by no-fault and workers'
compensation statutes, a process which is generally burdensome and
adversarial. The Company aggressively pursues all appropriate legally
available avenues for the collection of such medical receivables by, among
other things, effectively using various legally prescribed arbitration
dispute methodologies. The Company has also worked with third-party payors to
establish cooperative approaches to the collection process designed to reduce
costs to both the Company and to such payors.
Regulatory Compliance. The Company develops a compliance program
applicable to each client's medical practice area designed to ensure that
such client is notified of regulatory changes and operates in compliance with
applicable laws and regulations.
Cost Saving Programs. Based on available volume discounts, the Company
seeks to obtain favorable pricing for medical supplies, equipment,
pharmaceuticals and other inventory for its clients.
35
<PAGE>
Operational Efficiency. Through its training of employees, management of
the operations of expensive technological equipment and centralization and
standardization of various administrative procedures, the Company is able to
improve the productivity of both the professional and non-professional staff
and client equipment and facilities.
Diagnostic Imaging Services. With the merger with MMI, the Company offers
practice broadening opportunities, such as in-office diagnostic imaging
equipment, by providing a "turnkey" service to appropriate medical and
hospital clients allowing them to broaden their practices or services to
include diagnostic imaging services for their patients. In connection with
this service, the Company processes all applications required for filing with
regulatory authorities, finances the acquisition of capital intensive
equipment, oversees its installation and then manages its operations to
assure efficient use.
Marketing Strategies. The Company, in conjunction with its clients,
develops plans to enable such clients to increase the size and revenues of
their medical practices. Strategies developed by the Company for
implementation by its clients include: (a) increasing the range of
evaluation, diagnostic and treatment services offered by its clients; (b)
integrating other specialties into its clients' medical practices; (c)
expanding patient referral sources by helping its clients to establish
relationships with both attorneys for injury claimants and insurance
companies; (d) assisting its clients in the acquisition of other medical
practices; and (e) assisting clients in developing multi-office practices
which can be managed by application of the Company's fully-integrated network
computer system that provides necessary practice information to its clients
and coordinates the activities of multi-site, multi-specialty medical
practices. While the Company advises its clients with respect to these
marketing issues it does not engage in sales or marketing activities on
behalf of its clients.
Financing Opportunities. The Company, either directly through loans to its
clients or through assistance in presenting to sources of financing, intends
to provide its medical clients with greater access to the capital necessary
to develop, equip and expand their medical practices and to acquire other
medical practices.
Capital Support. In connection with the implementation of its growth
strategy below, the Company believes that it may increase its loans to GMMS
and other clients to enable them to further expand by acquiring medical
practices, opening additional offices and adding medical specialties and
sophisticated diagnostic equipment to their existing practices. The Company
may also make loans to, or purchase receivables from, new medical practice
clients to enable them to carry the long-term receivables generated by
injury-related practices. The Company intends to limit its loans in
connection with its clients' medical practice acquisitions to not more than
50% of the purchase price and to take a security interest in the receivables
and other assets being transferred. Inasmuch as such receivables are also
securing payment to the Company of its management fees from such clients,
there is a risk that its clients will be unable to repay such loans on a
timely basis, if at all, and that the Company's security in their receivables
may be inadequate to repay such indebtedness.
The Company provides its services pursuant to negotiated contracts with
its clients. While the Company believes it can provide the greatest value to
its clients by furnishing the full range of services appropriate to that
client, the Company is also willing to enter into contracts providing for a
more limited spectrum of selected services.
PRINCIPAL CLIENT
The Company's initial and principal client, GMMS, is a multi-specialty
medical practice that focuses on the diagnosis and treatment of injured
patients. Originally a one-office neurological practice, GMMS has now grown
to include sixteen physicians (including seven neurologists, one
chiropractor, one physiatrist, two orthopedists, one general surgeon, one
family practitioner, two psychologists, and one radiologist) operating a
total of nine offices in the greater New York metropolitan area (Brooklyn,
Manhattan, the Bronx, Queens, Staten Island, Long Beach, Long Island, and one
office located in Newburgh, New York). In 1995, GMMS saw patients at an
annual rate of more than 10,000 new patients per year for treatment, 6,000
new patient IME's (on behalf of insurance carriers and employers), 45,000
follow-up visits, 60,000 physical therapy visits, and performs more than
40,000 medical tests and 6,000 diagnostic imaging scans.
36
<PAGE>
The following table sets forth certain statistical data with respect to
GMMS:
<TABLE>
<CAPTION>
Quarter
Ended
Years Ended December 31, March 31,
--------------------------------- -----------
1993 1994 1995 1996
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
Procedures performed ........ 88,450 128,500 157,000 48,700
New patients for treatment .. 5,950 10,850 11,160 3,920
New patients for evaluation . * * 9,800 5,200
Patient by payor category --
No-fault .................. 59% 49% 46% 46%
Worker's compensation ..... 14% 17% 20% 20%
All other ................. 27% 34% 34% 34%
At period end --
Doctors ................... 7 10 16 16
Technicians and other staff . 7 15 20 28
Offices ................... 5 6 9 9
</TABLE>
- ------
* Not treated as a separate category for record keeping purposes.
All of CMI's revenues in 1994 and 1995 and approximately 93% of the
Company's pro forma combined net revenue in 1995 were generated under a
management contract with GMMS and a substantial part of the growth in the
Company's business is a direct result of comparable growth of GMMS' medical
practice. The Company expects that its relationship with GMMS will be a
dominant factor in its business for the foreseeable future. The continued
vitality of GMMS' medical practice is subject to numerous risks, including
its continued ability to retain its key medical personnel, malpractice claims
and regulatory compliance. There is no assurance that GMMS will continue to
operate successfully. Moreover, although the terms of the PMSA and the MSA
between the Company and GMMS, which cover all management services provided to
GMMS, expire June 2025 and July 2001 (with a provision for the automatic
extension of the MSA in five (5) year intervals at the option of MMI),
respectively, there is no assurance that the Company and GMMS will continue
to maintain a productive working relationship. The founder of GMMS and his
son are principal shareholders of the Company.
GMMS has advised the Company that it intends to continue its strategy of:
(a) integrating, through both internal growth and the acquisition of the
other medical practices, as many of the services rendered to patients (e.g.,
diagnostic tests and other non-neurological specialties such as orthopedics
and physical therapy) as possible; and (b) broadening its patient referral
base by continuing to provide diagnosis and treatment of patients referred by
attorneys handling their injury-related legal claims, as well as IME's of
injury claims required by insurance companies and employers. It is the intent
of the Company to obtain management agreements with other medical practices
throughout key markets in New York State and neighboring states as well as to
assist GMMS in providing services at additional locations throughout the
State. The Company believes that if it can provide services to a sufficient
number and variety of medical practices, it can form a network of these
physicians. The Company would attempt to assist network members in obtaining
new sources of patients by negotiating with managed care payors for a fixed
reimbursement schedule that would be advantageous to the network and managed
care payors. The Company may also be able to assist network members in
achieving efficiencies from centralized billing, purchasing and marketing
activities.
Under the PMSA, the Company furnishes GMMS with a comprehensive range of
management and related financial services encompassing all non-medical
aspects of the GMMS' medical practice, including: (a) renting "built-out"
medical offices, including furnishings; (b) leasing equipment, including
diagnostic equipment; (c) purchasing supplies; (d) providing non-medical
personnel; (e) providing managerial, administrative, marketing and fiscal
management services; (f) providing various consulting services in connection
with the acquisition by GMMS of medical practices; (g) billing and collection
services; and (h) inclusion of GMMS in a network of medical practices which
the Company may ultimately form. The Company's fees are related to services
provided and include specified flat fees, hourly charges, network fees and,
in the case of billing and collections, varying percentages of amounts
collected depending upon length of collection period. All such fees are
subject to periodic upward readjustment starting in the third year, based on
specified formulae or methods for calculating the revised amounts. The
Company has also agreed to consider making working capital advances in
unspecified amounts. Each month the Company takes ownership on a full
recourse basis of GMMS' receivables with a net
37
<PAGE>
collectible value equal to the amount of the management fee then currently
owed by GMMS, an estimated average of 72% of GMMS' aggregate monthly
receivables, and also takes a security interest in the balance of GMMS'
receivables as security for the payment of any uncollected fees. All of these
receivables may, however, be insufficient to secure all amounts due to the
Company by GMMS. The PMSA also gives the Company a right of first refusal to
purchase the medical practice of GMMS at its then fair market value in the
event that New York State permits the public corporate practice of medicine
without the need to apply for a CON. The transfer of ownership of a majority
of GMMS shares to anyone other than Dr. Lawrence Shields or Dr. Irving
Friedman (95% and 5% owners, respectively, of GMMS) constitutes an assignment
under such agreement and may not be made without the consent of the Company.
The term of the PMSA is thirty (30) years, expiring on June 2025 unless
earlier terminated in accordance with its terms for reasons such as material
breach. The initial term and any subsequent renewal term can be extended in
five (5) year increments.
MARKETING
The Company's marketing goal is to increase the size, number and locations
of medical practices to which it provides its services both in its current
market (the New York metropolitan area), selected new geographic markets
within New York State, and possibly in New Jersey, Connecticut and other
contiguous states. The Company's goal is also to broaden the types of medical
practices which it services, to develop a client base of managed care
organizations and to implement growth strategies for its existing and new
clients. Some of the marketing strategies which the Company expects to apply
to promote growth of its client's patient and revenue bases involve assisting
its clients in the development of multi-specialty medical practices to
eliminate the need for patient referrals, the opening of additional offices
and the implementing of an aggressive program of acquiring other medical
practices. A major focus of the Company's near term marketing efforts will be
the identification of high volume medical practices in the New York
metropolitan area and elsewhere in New York State, particularly those that
specialize in orthopedics and neurology, which could either be acquired by
GMMS or make effective use of the Company's management services. The Company
may make working capital advances and/or acquisition loans to its present and
future clients to enable them to implement such growth strategies.
The Company's marketing efforts to establish relationships with new
medical practice clients, both for its full range of management services and
for management services related to diagnostic imaging, are conducted by
employees under the direction of the Executive Vice President of Practice
Development and Managed Care. Marketing activities consist of locating
medical practices which meet the size, quality and operating parameters set
by the Company. Generally, the Company seeks high-volume practices that
handle a significant number of patients with injury-related conditions, or
practices believed to be suitable for expansion into such area. The Company's
marketing staff also helps existing clients analyze opportunities for
expanding the services they offer and expanding into new geographic areas
either through opening new offices or acquiring existing medical practices.
Strategies are also developed for increasing the patient volume of existing
clients, including identifying attorneys handling workers' compensation and
no-fault insurance claims and meeting with such attorneys to make them aware
of the medical capabilities of the Company's clients. Additionally, one
senior executive of the Company focuses on advising insurance carriers and
large employers, such as the Metropolitan Transit Authority, on GMMS'
abilities as a definer of injuries and skills as preparers of IME reports.
The marketing staff also oversees and facilitates the exchange of information
with attorneys and insurance companies that are sources of new patients for
the Company's clients.
The Company believes it can increase its market share in the medical
management services industry by providing its clients with significant
competitive advantages and by relieving them of the complex, burdensome and
time-consuming non-medical aspects of their businesses. The Company believes
that relieving medical personnel of these obligations may enhance the
productivity, efficiency and profitability of such personnel and the growth
potential of the clients and thus also enhance the ability of such clients to
serve the needs of their patients. The Company also believes that a fully
integrated medical office for the diagnosis and treatment of injuries, as
well as the medical evaluation of injury claims for insurance carriers,
provides significant advantages to patients and third-party payors. By
providing a full array of medical and testing services in one facility, a
medical practice will serve the patient more effectively and efficiently and
also alleviate the injured patient's burden of traveling from one location to
another. The centralization of comprehensive medical services also
facilitates administrative and regulatory reporting to third-party payors.
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<PAGE>
THIRD-PARTY REIMBURSEMENT
In order to comply with applicable federal and state laws, the Company's
management fees (including lease payments for office space and equipment) are
generally payable to the Company by its clients without regard to (i) the
fees which the client charges its patients for its medical services or (ii)
whether the client actually receives payment for its services. The Company's
ability to collect its management fees in a timely manner, or at all, is
affected by such factors as whether its client is reimbursed for its medical
services, the timing of such reimbursement and the amount of reimbursement.
The Company's own cash flow is adversely affected by its clients' long
collection cycle from various third-party payors, which typically range from
nine months to 40 months for workers' compensation insurers, six months to 32
months for no-fault insurance carriers of the no-fault payment pool, two
months to six months for Medicare and other commercial insurers and three
months to 24 months for medical malpractice injuries. The historical,
aggregate collection cycles of the Company's clients were based on the
Company's approximate three years of experience and GMMS' historical
collection experience. As a result of this slow payment pattern, the Company
requires more capital to finance its receivables than other businesses with
shorter receivable payment cycles. Further, third-party payors may reject the
clients' medical claims if, in their judgment, the procedures performed were
not medically necessary or if the charges exceeded such payors' allowable fee
standards. It is common practice for third-party workers' compensation and
no-fault payors to initially deny/reject the first submission of a medical
claim. This does not mean that the claim will not be ultimately paid. The
Company normally will re-submit the claim with such revised information as
requested and/or forms and documentation. Outstanding claims that continue to
be disputed after one year or more are then submitted to an arbitration
process. Normally, when final arbitration decisions are about to be rendered,
the third-party payor will settle. Under current law, the Company is entitled
to collect the settlement amount, filing fees and interest on the agreed-upon
payment. Finally, the reimbursement forms required by third-party payors for
payment of medical claims are long, detailed and complex and payments may be
delayed or refused unless these forms are properly completed in a timely
manner. Although the Company takes all legally available steps, including
legally prescribed arbitration, to collect the receivables generated by its
clients, there is a significant risk that some client receivables may not be
collected due to the determination by third-party payors that certain
procedures performed by the clients were not medically necessary or were
performed at excessive fees or because of omission or errors in timely
completion of the required claim. The inability of its clients to collect
their receivables could adversely affect their ability to pay in full all
amounts owed by them to the Company.
The healthcare industry is undergoing significant change as third-party
payors increase their efforts to control the cost, use and delivery of
healthcare services. Several states have taken measures to reduce the
reimbursement rates paid to healthcare providers in their states. The Company
believes that additional reductions will be implemented from time to time.
Reductions in Medicare rates often lead to reductions in the reimbursement
rates of other third-party payors as well and the Company believes that such
further reductions are probable. Further changes in Medicare reimbursement
rates whether pursuant to legislation presently under active consideration or
otherwise, or other changes in reimbursements by third-party payors to
clients of the Company, could have a material adverse affect on the Company's
operations and profitability.
RECENT DEVELOPMENTS
On April 10, 1996, in a transaction which the Company arranged, GMMS and
the Company entered into a letter of intent pursuant to which GMMS or its
designee, will acquire the practice of two Board Certified neurologists with
offices in the boroughs of the Bronx and Queens in New York City. After the
contemplated transaction, it is expected that the Company will assume the
administrative management of the acquired offices. The new offices are
expected to generate additional annual management fees of approximately
$700,000 to $1,000,000. The letter of intent is subject to various
conditions, including the execution of definitive agreements.
On April 10, 1996, MMI entered into an agreement with Brookdale Hospital,
a 1,000-bed teaching hospital in New York City, to provide diagnostic imaging
equipment and management services beginning in July 1996. It is expected that
annual revenues in excess of $2 million will be generated under these
arrangements, which expire in December 1997. Brookdale is planning to
construct and operate a multi modality imaging
39
<PAGE>
facility after the expiration of the agreement term which may not require
management services from the Company. MMI has also agreed to provide
diagnostic imaging equipment and administrative services to Bronx- Lebanon
Hospital Center, a 900 bed New York City hospital, commencing June 1996. It
is expected that annual revenues of approximately $1.5 million will be
generated.
On April 25, 1996, the Company entered into a letter of intent to finance
the acquisition by a professional corporation of the assets of a five
physician multi- specialty community based medical practice in Brooklyn, New
York. Under the contemplated transaction, the Company expects to provide
management and administrative services to the acquiring professional
corporation. The letter of intent is subject to various terms and conditions
including execution of definitive agreements, and provides for an approximate
purchase price of $500,000 payable 50% in Common Shares of the Company and 50%
in cash.
On May 7, 1996, the Company entered into a letter of intent to acquire, by
means of a merger or consolidation through a wholly owned subsidiary a
medical billing and collections company located in the New York metropolitan
area. It is the parties' intent that the transaction will qualify for
treatment as a tax-free reorganization under the Internal Revenue Code of
1986, as amended. The acquiree now serves a client base of more than 700
physicians and 20 hospitals and in 1995 generated sales of more than $3
million. The transaction is subject to significant conditions, including a
due diligence investigation by the Company confirming the absence of certain
changes, the level of 1995 income and the acquiree's prospects, as well as
the execution of a definitive agreement. The letter of intent provides for a
purchase price at closing of approximately $2,000,000, payable 40% in Common
Shares of the Company and 60% in cash.
GOVERNMENT REGULATION
The Company's business of providing management and administrative services
to medical practices and its proposed growth strategy of financing its
clients' acquisitions of medical practices and its purchase of certain
medical practice assets incidental to the obtaining of new practice
management service agreements is subject to extensive and increasing
regulation of numerous laws, rules, approvals and licensing requirements by
federal, state and local governmental agencies. The Company is also subject
to laws and regulations relating to business corporations in general.
The laws and regulations that cover the Company's operations and
relationships have not been definitively interpreted by regulatory
authorities. Regulatory authorities have broad discretion concerning how
these laws and regulations are interpreted and how they are enforced. The
Company may, therefore, be subject to lengthy and expensive investigations of
its business operations, or prosecutions by various state or federal
governmental authorities. If the Company or any of its medical practice or
hospital clients were found by an agency or judicial authority to be in
violation of these laws and regulations, the Company could be subject to
criminal and/or civil penalties, including substantial fines and injunctions,
which could limit or terminate the Company's ability to provide its services
to medical practices and hospital clients.
The Company believes that its operations are in material compliance with
applicable laws and regulations. Nevertheless, because of the uniqueness of
the structure of the Company's relationships with its medical practice and
hospital clients (including GMMS, the Company's principal medical practice
client, whose 95% shareholder, Dr. Lawrence Shields, is a founder and
principal shareholder of the Company), many aspects of the Company's business
and business opportunities have not been the subject of federal or state
regulatory review or interpretation, and the Company has not obtained nor
applied for any opinion of any regulatory or judicial authority that its
business operations are in compliance with applicable laws and regulations.
Therefore, there is no assurance that scrutiny of the Company's business or
its relationships with its medical practice or hospital clients by court or
regulatory authorities will not result in determinations adverse to the
Company. If the Company's interpretation of the relevant laws are inaccurate,
or if laws and regulations change or are adopted so as to restrict the
Company's or its clients' operations or expansion plans, the Company's
business and its prospects could be materially and adversely affected.
40
<PAGE>
The following are among the laws and regulations that affect the Company's
operations and development activities:
Corporate Practice of Medicine: The laws of New York State and various
other states prohibit public corporations such as the Company from practicing
medicine and employing physicians to practice medicine. New York also
prohibits any business corporation from operating a diagnostic and treatment
center unless licensed by the State and such a license is not currently
available to a public company in New York. The Company leases space and
equipment to medical practices and hospital clients and provides these
clients with a range of non- medical administrative and managerial services.
The Company also plans to provide financing for its clients' acquisitions of
physician practices. The Company does not, however, employ or supervise
physicians or other health professionals, does not represent to the public or
to the patients of its clients that it offers medical services, and does not
exercise influence or control over the practice of medicine by its clients.
The Company does not initiate direct contact with its clients' patients
except as an agent of its clients and at the specific request of its clients.
The Company does not direct outpatient referrals or assign patients to
particular physicians. The Company is not responsible for patient care
services, medical charts or patient records and does not provide any
ancillary medical services to patients or determine when patients will be
admitted to or discharged from care. The Company does not establish standards
of medical practice or policies for its clients, nor ensure adherence to such
standards or policies. Moreover, the Company does not determine what charges
are to be made to its clients' patients or to the third-party payors, nor are
patient care bills payable to the Company, but only to the Company's clients.
The Company does not determine how its clients' income will be distributed or
the scope of patient care services that its clients will provide.
Accordingly, the Company believes that it is not a diagnostic and treatment
center as such is defined by New York State and is not in violation of New
York State laws prohibiting the corporate practice of medicine. If the
Company were determined to be a diagnostic and treatment center or engaged in
the corporate practice of medicine, it could be found guilty of criminal
offenses and be subject to substantial civil penalties, including fines and
injunction preventing continuation of its business.
Fee Splitting: New York and various other states prohibit a physician from
sharing or "splitting" fees with persons not authorized to practice medicine.
This prohibition precludes the Company from receiving fees based upon a
percentage of its clients' gross income or net revenue. Accordingly, the fee
structure set forth in the Company's practice management service agreements
with its clients, including the Company's agreement for the use and
management of diagnostic imaging equipment based on a fixed fee per use
charge, provides for fixed remuneration based upon the estimated fair market
value of the services and equipment provided to such clients by the Company.
Although generally the Company's charges to its clients are payable to the
Company without regard to the amount of the fees charged by its clients to
their patients or whether such clients actually receive payment of their
fees, there is a risk that the inability of its clients to collect their
receivables will result in their being unable to make payments to the Company
on a timely basis, if at all. The Company believes that its charges to its
clients are not based upon their professional fees or level of income and,
accordingly, do not violate fee splitting prohibitions. If this belief is
incorrect and the Company is determined to be engaged in fee splitting
arrangements with its physician clients, such clients would be subject to
charges of professional misconduct and penalties ranging from censure and
reprimand to revocation of medical license. In addition, the Company could be
deprived of access to the courts to collect fees due from the physician
clients, thereby materially and adversely affecting the Company's revenues
and prospects.
Anti-Referral Laws: Under New York Law (and similar laws in a number of
other states) and the federal Stark Law (42 U.S.C. 1395nn) (which is
presently only applicable to Medicare and Medicaid patients), certain health
practitioners (including physicians, dentists, chiropractors and podiatrists)
are prohibited from referring their patients for the provision of designated
health services (including clinical lab and diagnostic imaging services) to
any entity with which they or their immediate family members have a financial
relationship. The penalties for violating the Stark Law include, among
others, denial of payment for the services performed, civil fines of up to
$15,000 for each service provided pursuant to a prohibited referral, a fine
of up to $100,000 for participation in a circumvention scheme and possible
exclusion from Medicare and Medicaid programs. Additional penalties of up to
$2,000 for each improperly billed service may also be imposed under the
Federal Civil Monetary Penalties Law. The Company believes that its
agreements with its health practitioner clients do not involve prohibited
referrals or the provision of designated health services by the Company as
the Company is neither a healthcare practitioner in a position to refer
patients nor an entity that provides prohibited designated health ser
41
<PAGE>
vices. Rather, the Company only furnishes management, administrative and
financial services to its healthcare practitioner clients who may perform
such designated health services. In the event that any of the Company's
healthcare clients make referrals that may be affected by the Stark Law (and
similar New York and other state anti-referral laws or regulations), they may
qualify for certain statutory exceptions to the general prohibition against
self-referrals which include, among others, direct physician services,
in-office ancillary services rendered within a group practice, space and
equipment rental, and services rendered to enrollees of certain prepaid
health plans. There can, however, be no assurance that future interpretations
or changes to the Stark Law (including its extension to all third-party
payors) or the regulations promulgated thereunder (and similar New York and
other state anti-referral laws or regulations) will not prohibit or otherwise
affect the Company's arrangements with its clients in ways that could
materially and adversely affect the Company's business.
Anti-Kickback Law: The Social Security Act imposes criminal penalties for
paying or receiving remuneration (which is deemed a kickback, bribe or
rebate) in connection with Medicare or Medicaid programs. Violation of this
law is a felony, punishable by fines of up to $25,000 per violation and
imprisonment for up to five (5) years. This law and related regulations have
been broadly interpreted to prohibit the payment, solicitation, offering or
receipt of any form of remuneration in return for the referral of Medicare or
Medicaid patients or any item or service that is covered by Medicare or
Medicaid reimbursement. Because the breadth of these prohibitions, when read
literally, may place many legitimate business relationships into question,
the U.S. Department of Health and Human Services ("HHS") promulgated "Safe
Harbor" regulations in 1991 specifying certain relationships and activities
that do not violate the law and regulations. The Company does not believe
that all of its business practices satisfy the conditions of the "Safe
Harbor" regulations; however, failure of an activity to fall within a "Safe
Harbor" provision does not mean that such activity constitutes a violation of
the law. The Company believes that its medical practice and hospital client
agreements under which it is currently providing management services do not
put it in a position to make or induce the referral of patients or services
reimbursed under government programs and, therefore, believes that the
likelihood of these agreements being determined to be in violation of the
federal anti-kickback law is remote. If, however, the Company's management
arrangements were found to violate this federal law, the Company and its
medical clients could be subject to substantial civil monetary fines and/or
criminal sanctions, including a minimum mandatory five year exclusion from
participation in the Medicare and Medicaid programs which would adversely
affect the Company's future results, operations and profitability.
Certificate of Need: In the case of the Company's magnetic resonance
imaging units, New York and several other states have laws and regulations
that require hospitals to obtain a CON approval to establish an imaging
center or to acquire magnetic resonance imaging or other major medical
equipment. Under CON laws, a hospital is required to substantiate the need
and financial feasibility for the establishment of new facilities,
commencement of new services or the acquisition of major medical equipment in
excess of statutory thresholds. The Company's ability to manage imaging
equipment for hospitals could be adversely affected by the existence of state
CON laws. Generally, a CON is not required for the acquisition or lease of a
magnetic resonance imaging unit by a physician engaged in the private
practice of medicine. Thus, GMMS and other medical practices which have
contracted with the Company have not been required to obtain a CON with
respect to any magnetic resonance imaging units leased from the Company. For
a number of years (but not in the most recent legislative session) New York
has considered and rejected legislation that would extend the CON requirement
to physicians engaged in private practice. The adoption of such legislation
would make it more difficult for physicians to obtain certain diagnostic
imaging equipment and could adversely affect the Company's expansion plans.
Regulation of Diagnostic Imaging Facilities: The operation by the
Company's clients of diagnostic imaging equipment administratively managed by
the Company is subject to federal and state regulations relating to
licensing, standards of testing, accreditation of certain personnel, and
compliance with governmental reimbursement programs. The Company believes
that its clients are in compliance with these federal and state requirements.
No-Fault Insurance: GMMS generates significant revenue from patients
covered by no-fault insurance carriers and the no-fault insurance payment
pool. In the event that changes in the no-fault insurance law create greater
or lesser demand for physician services or impose additional or different
administrative requirements, the Company could be required to modify its
business practices and its administrative services in ways that could be more
costly or more burdensome to the Company or in ways that limit or otherwise
decrease the revenues which the Company receives from its present and
potential future clients for its services.
42
<PAGE>
Workers' Compensation: GMMS generates significant revenue from patients
covered by the New York Workers' Compensation Program. In the event that
changes in the Workers' Compensation Law create greater or lesser demand for
physician services, cause decreased compensation for physician services,
prolong the physician reimbursement process or impose additional or different
administrative requirements, the Company could be required to modify its
business practices and its administrative services in ways that could be more
costly or more burdensome to the Company or in ways that limit or otherwise
decrease the revenues which the Company receives from its present and
potential future clients for its services. See "Business -- Government
Regulation -- Proposed Health Care Reform Legislation."
Factors Affecting the Ability of Clients to Make Payments to the
Company: In order to comply with applicable federal and state laws, the
Company's management fees (including lease payments for office space and
equipment) are payable to the Company by its clients generally without regard
to (i) the fees which the client charges its patients for its medical
services or (ii) whether the client actually receives payment for such
services. The Company's ability to collect the management fees it earns from
its clients in a timely manner, or at all, is affected by such factors as
whether its client is reimbursed for its medical services, the timing of such
reimbursement and the amount of reimbursement. In this regard, a substantial
portion of the revenues of the Company's clients are derived from payments by
government sponsored or regulated programs (i.e., no-fault insurance and
workers' compensation), private insurers and managed care companies. All of
these third-party payors are engaged in cost reduction programs that may
adversely affect the ability of the Company's clients to meet their
contractual obligations to the Company which, in turn, could cause the
Company to experience significant losses.
Anti-Trust: It is possible as the Company provides network, management and
administrative services to several clients in a particular location, these
medical practices may be deemed competitors subject to a range of antitrust
laws which prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and division of markets. The Company intends to
comply with such federal and state laws, but there is no assurance that a
review of the Company's business by courts or regulatory authorities would
not result in a determination that could adversely affect the operation of
the Company and its clients.
Anti-Fraud: There are also federal and state civil and criminal statutes
imposing substantial penalties, including substantial civil and criminal
fines and imprisonment, on healthcare providers and those who provide
services to such providers (including management businesses such as the
Company) which fraudulently or wrongfully bill governmental or other
third-party payors for healthcare services. The federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in
the name of the United States government for violations of its provisions.
The Company believes that it and its clients are in material compliance with
such laws, but there is no assurance that the Company's (and its clients')
activities will not be challenged or scrutinized by governmental authorities.
Proposed Health Care Reform Legislation: In addition to current laws and
regulations, the federal government and New York State are considering new
laws and regulations that, if enacted, would result in comprehensive changes
affecting the healthcare industry and the payment for, and availability of,
healthcare services. Specifically, New York State has adopted a pilot managed
care workers' compensation program that seeks to more closely regulate
expenditures for workers' compensation cases. Various bills to expand this
managed care pilot program have been proposed recently in the New York State
Legislature. It is not possible at this time to predict if or to what extent
this New York project will be expanded or to assess its full impact on the
Company. Likewise, it is not certain which, if any, reforms will be adopted
by Congress or state legislatures, or when such reforms will be adopted or
implemented. New federal and state healthcare legislation and changes in the
current regulatory environment may require the Company's business strategies,
operations and agreements to be modified and there can be no assurance that
such restructuring will be possible without adversely affecting the Company's
profitability.
LIABILITY INSURANCE
The Company carries insurance providing coverage for general liability,
comprehensive property damage and workers' compensation. While the Company
believes its insurance policies are adequate in amount and coverage for
protection of its assets and operations as currently conducted, there is no
assurance that the coverage limits of such policies will be adequate. A
successful claim against the Company in excess of its insurance cov
43
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erage could have a material adverse effect on the Company and its financial
condition. Claims against the Company, regardless of their merit or outcome,
could also have an adverse effect on the Company's reputation and business.
In addition, there is no assurance that the Company's coverage will, in fact,
be or continue to be available in sufficient amounts and on reasonable terms,
or at all.
COMPETITION
The medical practice management field is highly competitive, although the
Company is not aware of any significant competition in New York State which
focuses on medical practices significantly involved in the evaluation,
diagnosis and treatment of injury-related cases. A number of large hospitals
in New York State and elsewhere have acquired medical practices and this
trend is expected to continue. The Company expects that more competition will
develop, in part as a result of its demonstration that management companies
can operate in the highly regulated New York environment. Potential
competitors include large hospitals and a number of public corporations
operating through a regional or national network of offices that have greater
financial and other resources than the Company. The Company's experience in
providing medical practice management services in the highly regulated New
York State environment is believed to be an important competitive factor. The
Company provides a full range of management and administrative services in a
manner which it believes does not violate the state's laws prohibiting the
corporate practice of medicine and also provides an expertise in
administering receivable processing and collections.
EMPLOYEES
The Company employs ninety-three persons on a full time basis, including
eleven executive officers, thirty four non-medical support persons "on-site"
at clients' offices; four marketing support persons; seven accounting staff
members; twenty-two billing, collection and verification employees and
fifteen record transaction and clerical employees. The Company believes that
employees suitable for its needs are available in its current and expected
areas of activity. None of the Company's employees are represented by a labor
union and the Company is not aware of any activities seeking such
organization. The Company considers its relationships with its employees to
be good.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------ ----- ---------------------------------------------------
<S> <C> <C>
Steven Rabinovici 43 Chairman of the Board and Chief Executive Officer
David Jacaruso 51 Vice Chairman of the Board and President
Senior Executive Vice President and Chief
Arthur L. Goldberg 57 Operating Officer
Dennis Shields 28 Executive Vice President and Director
Vice President, Chief Financial Officer, Treasurer,
Joseph M. Scotti 52 Secretary and Director
Executive Vice President of Practice Development
Dennis W. Simmons 45 and Managed Care
Senior Executive Vice President, Director of
Robert Keating 54 Operations -- Medical Legal Services
Jack Schwartzberg 60 Vice President and Director
Richard DeMaio 38 Vice President and Director
Claire Cardone 49 Vice President
Kenneth Theobalds 36 Vice President -- Workers' Compensation
Steven Cohn 46 Director
</TABLE>
44
<PAGE>
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Directors, other
than officers or employees of the Company or holders of 10% or more of its
shares, receive an option upon taking office to purchase 20,000 Common Shares
exercisable at the fair market value on the date of grant. Officers are
elected to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
Steven Rabinovici has been Chairman of the Board and Chief Executive
Officer of the Company since December 28, 1995. From December 31, 1992
through December 27, 1995 he was the President, Chief Executive Officer and a
director of MMI. He is a founder of the Company and also provided certain
consulting services to the Company during 1994 and 1995. From July 1990
through December 31, 1992, he was an independent healthcare and business
consultant. On July 21, 1992, MEBE Enterprises, Inc., the owner and operator
of a single Roy Rogers fast food restaurant, filed for protection under
Chapter 11 of the Bankruptcy Code. Messrs. Rabinovici and Jacaruso were
founders and principals of MEBE Enterprises, Inc. Earlier in his career, Mr.
Rabinovici had more than 10 years experience in hospital administration,
including approximately two years as associate administrator of Brookdale
Hospital Medical Center, a 1,000 bed teaching hospital, and two years as the
administrator of the Division of Psychiatry, Cornell University New York
Hospital.
David Jacaruso has been Vice Chairman of the Board of the Company since
December 28, 1995, as well as President, a founder and a director of the
Company since April 1993. From April 1993 through December 27, 1995 he was
Chairman of the Board of the Company. From July 1990 to April 1993 he was an
independent healthcare and business consultant. On July 21, 1992, MEBE
Enterprises, Inc., the owner and operator of a single Roy Rogers fast food
restaurant, filed for protection under Chapter 11 of the Bankruptcy Code.
Messrs. Rabinovici and Jacaruso were founders and principals of MEBE
Enterprises, Inc. Earlier in his career, Mr. Jacaruso was associated with
Brookdale Hospital for ten years and with Mt. Sinai Medical Center, holding
various administrative positions including Senior Associate Administrator for
Operations.
Arthur L. Goldberg has been Senior Executive Vice President and Chief
Operating Officer of the Company since April 2, 1996. From August 1993
through March 1996 he was an independent management consultant. Prior thereto
he was the Chief Financial Officer of Elek-Tek, Inc., a reseller of computer
and related equipment since December 1990.
Dennis Shields has been Executive Vice President and Director of the
Company since December 28, 1995. Prior thereto he was Vice President, Chief
Operating Officer and a Director of MMI since 1992. He is a founder of CMI.
His father, Dr. Lawrence Shields, a founder of MMI and CMI, is the 95% owner
of GMMS, the largest client of the Company.
Joseph M. Scotti has been Vice President, Chief Financial Officer,
Treasurer, Secretary and Director of the Company since December 28, 1995.
Prior thereto he held similar positions with MMI since January 1993. From
February 1992 to January 1993, Mr. Scotti was a consultant to Burke & Burke,
a food store chain and from November 1986 to February 1992 he was controller
of Rols Capital Co., a mortgage lender.
Dennis Simmons has been Executive Vice President of Practice Development
and Managed Care of the Company since April 2, 1996. Mr. Simmons has over
twenty years of healthcare experience. From November 1992 to March 1996 he
was the Senior Vice President for Coastal Physician Group, Inc. Prior thereto
he worked for Medical Care Development, Inc. as a consultant to the Saudi
Arabian government and United Healthcare Corp. in Central Texas since October
1986. Mr. Simmons also developed the Emergency Medical Services Program and
STAR Flight medical helicopter service in Austin, Texas.
Robert Keating has been Senior Executive Vice President, Director of
Operations -- Medical Legal Services of the Company since April 8, 1996. From
January 1995 to April 7, 1996, Mr. Keating was the Administrative Judge,
Second Judicial District, Supreme Court, State of New York responsible for
the day to day management of the Supreme Court district that encompasses
Brooklyn and Staten Island, New York and has general jurisdiction over both
civil litigation and criminal matters. Prior thereto he was the
Administrative Judge, Criminal Court of the City of New York since April
1985.
Jack Schwartzberg has been a Vice President and head of CMI's Workers'
Compensation Division since June 1993. For more than five years prior
thereto, Mr. Schwartzberg was engaged in the magazine publishing business as
a principal and president of Madison Avenue Magazine Publishing Co. and
Runway New York Publishing Company. Mr. Schwartzberg is the father-in-law of
Dennis Shields.
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<PAGE>
Richard DeMaio has been Vice President of Operations and Director of the
Company since March 1994. From March 1989 through February 1994, he was
assistant administrator at the Long Island Jewish Medical Center with
administrative responsibilities for various clinical and support services.
Mr. DeMaio is a member of the American College of Healthcare Executives and
has also served on the Executive Committee of the Metropolitan Health
Administrators Association.
Claire A. Cardone has been Vice President of Operations for diagnostic
imaging of the Company since December 28, 1995. Prior thereto she was the
Vice President of Operations of MMI since 1993. From 1985 until 1993, Ms.
Cardone was Senior Associate Administrator at St. John's Episcopal Hospital,
a 300 bed community teaching hospital in Queens, New York.
Kenneth Theobalds has been Vice President of Workers' Compensation of CMI
since July 1995. Prior thereto Mr. Theobalds was Executive Director of The
State Insurance Fund of New York State since September 1992. From 1989 to
September 1992 he served as an Assistant Secretary for Human Resources to New
York State Governor Mario M. Cuomo.
Steven Cohn has been a member of the law firm of Goldberg and Cohn, which
has its offices in Brooklyn, New York, and a State Committeeman for the 50th
Assembly District for more than five years.
Steven Rabinovici, David Jacaruso, Marie Graziosi, Dennis Shields and Dr.
Lawrence Shields, founders of the Company, are parties to a shareholders'
agreement (the "Shareholders' Agreement") pursuant to which they have agreed
to vote (and subsequently voted) all of their shares of the Company, for a
period of 10 years, in favor of election to the Board of Directors of the
Company and for such other or additional nominees as may be designated from
time to time and approved by the Board and to vote on all other matters in
accordance with the recommendations of the Board. Mr. Rabinovici is the
Chairman of the Board and Chief Executive Officer of the Company, Mr.
Jacaruso is the Vice Chairman of the Board and President of the Company and
Dennis Shields, the son of Dr. Shields, is the Executive Vice President and a
Director of the Company. Marie Graziosi is the wife of David Jacaruso. Dr.
Shields is a founder of CMI and MMI, the Company's largest shareholder and
the founder and a 95% shareholder of GMMS, a client which accounted for
approximately 95% of the Company's pro forma combined revenues in 1995. In
addition, Messrs. Rabinovici, Jacaruso, Dennis Shields, Marie Graziosi and
Dr. Lawrence Shields beneficially own approximately 41.60% of the Company's
outstanding Common Shares and, accordingly, as long as they vote as required
by the Shareholders' Agreement, may be in a position to elect all of the
persons nominated by the Board of Directors.
The Company's Board of Directors has established Compensation and Audit
Committees, whose sole present member is Steven Cohn. The Company intends to
appoint two new independent directors, not yet identified, to the Board and
these committees after the consummation of this Offering. The Compensation
Committee reviews and recommends to the Board of Directors the compensation
and benefits of all officers of the Company, reviews general policy matters
relating to compensation and benefits of employees of the Company and
administers the issuance of stock options to the Company's officers,
employees, directors and consultants. The Audit Committee meets with
management and the Company's independent auditors to determine the adequacy
of internal controls and other financial reporting matters. It is the
intention of the Company to appoint only independent directors to the Audit
and Compensation Committees.
46
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning the
aggregate total annual salary and bonus paid or accrued by the Company for
services rendered in 1995 to its chief executive officer and to the other
executive officers named below who received annual conpensation in excess of
$100,000. None of the below named executive officers were granted options by
the Company in 1995.
<TABLE>
<CAPTION>
Annual compensation
-------------------------------------------------------------------------------
All other
Salary Bonus compensation
Name and principal position Year ($) ($) ($)
- --------------------------- ------ ------------ ------- --------------
<S> <C> <C> <C> <C>
Steve Rabinovici
Chairman & CEO .......... 1995 109,842(1) -- 21,124
David Jacaruso
Vice Chairman, President . 1995 165,063(2) -- 6,334
Dennis Shields
Executive Vice President . 1995 136,920(3) -- 19,870
Joseph M. Scotti
Vice President & CFO .... 1995 117,225 -- 10,004
Jack Schwartzberg
Vice President .......... 1995 149,573 -- 15,289
</TABLE>
- ------
(1) Consists of fees of $30,650 from CMI for consultation and advice to
senior management and salary from MMI of $79,192.
(2) Includes consulting fees of $63,075 paid by CMI to Marie Graziosi, Mr.
Jacaruso's wife.
(3) Consists of fees of $57,728 from CMI for consultation and advice to
senior management and salary from MMI of $79,192.
EMPLOYMENT CONTRACTS
In October 1995, the Company entered into an agreement with Steven
Rabinovici which became effective on January 3, 1996, providing for his
employment as Chairman of the Board and Chief Executive Officer for an
initial term expiring on December 31, 1999. On December 31 of each year, the
term is automatically extended for an additional year unless on or before
such date either party elects to terminate the agreement at the expiration of
the term. The Agreement provides for an annual base salary of $250,000 and
for participation in all executive benefit plans. The agreement also
provides, among other things, that, if Mr. Rabinovici's employment is
terminated without cause (as defined in the agreement), the Company will pay
to him an amount equal to the salary which would have been payable to him
over the unexpired term of his employment agreement.
In October 1995, the Company entered into an agreement with David Jacaruso
which became effective on January 3, 1996, providing for his employment as
Vice Chairman of the Board and President, for an initial term expiring on
December 31, 1999. On December 31 of each year, the term is automatically
extended for an additional year unless on or before such date either party
elects to terminate the agreement at the expiration of the term. The
Agreement provides for an annual base salary of $250,000 and for
participation in all executive benefit plans. The agreement also provides,
among other things, that, if Mr. Jacaruso's employment is terminated without
cause (as defined in the agreement), the Company will pay to him an amount
equal to the salary which would have been payable to him over the unexpired
term of his employment agreement.
In October 1995, the Company entered into an agreement with Dennis Shields
which became effective on January 3, 1996, providing for his employment as
Executive Vice President, for an initial term expiring on December 31, 1999.
On December 31 of each year, the term is automatically extended for an
additional year unless on or before such date either party elects to
terminate the agreement at the expiration of the term. The Agreement provides
for an annual base salary of $250,000 and for participation in all executive
benefit plans. The agreement also provides, among other things, that, if Mr.
Shields' employment is terminated without cause (as defined in the
agreement), the Company will pay to Mr. Shields an amount equal to the salary
which would have been payable to him over the unexpired term of his
employment agreement. Prior to the closing of the IPO, Mr. Shields was Vice
President, Chief Operating Officer and a director of MMI.
47
<PAGE>
In January 1996, the Company entered into an agreement with Joseph M.
Scotti, providing for his employment as Vice President and Chief Financial
Officer for an initial term expiring on December 31, 1999. The Agreement
provides for an annual base salary of $175,000 and for participation in all
executive benefit plans. The agreement also provides, among other things,
that, if Mr. Scotti's employment is terminated without cause (as defined in
the agreement), the Company will pay to him an amount equal to the salary
which would have been payable to him over the unexpired term of his
employment agreement. Prior to the closing of the IPO, Mr. Scotti was Vice
President and Chief Financial Officer and a director of MMI. In December
1995, an option to purchase 50,001 shares exercisable at $9.00 per share
during a ten year period was granted to Mr. Scotti. The options are
exercisable for one-third of the shares covered thereby as of the date of the
grant and for an additional one-third of the shares covered thereby the two
years thereafter.
In March 1996, the Company entered into an agreement with Arthur L.
Goldberg providing for his employment as Senior Executive Vice President and
Chief Operating Officer which expires on March 10, 1999. The Agreement
provides for an annual base salary of $175,000 and for participation in all
executive benefit plans. The agreement also provides, among other things,
that, if Mr. Goldberg's employment is terminated without cause at anytime
prior to September 10, 1996, the Company shall pay to him the sum of $30,000
and shall grant him non-qualified stock options to purchase 20,000 shares of
Common Stock equal to the greater of the average trading price of a share of
Common Stock for the twenty day period ending on the date of such termination
or $9.00 per share. In addition, in April 1996 Mr. Goldberg was granted an
option for 100,000 shares exercisable for a ten year period. The option will
be exercisable for 50,000 shares beginning April 1997 and 50,000 shares in
April 1998.
In March 1996, the Company entered into an agreement with Dennis W.
Simmons providing for his employment as Executive Vice President of Practice
Development and Managed Care which expires on March 10, 1999. The Agreement
provides for an annual base salary of $175,000 and for participation in all
executive benefit plans and for the grant of an option for 100,000 shares
exercisable for a ten year period. The option will be exercisable for 50,000
shares beginning April 1997 and 50,000 shares in April 1998.
In March 1996, the Company entered into an agreement with Robert Keating
commencing on April 8, 1996, providing for his employment as Senior Executive
Vice President, Director of Operations -- Medical Legal Services. The
agreement expires on December 31, 1999, but may be automatically extended for
two years on mutually agreeable terms. The agreement provides for an annual
base salary of $185,000 with escalations to a base salary of $199,800 and
$215,784 on March 7, 1997 and March 7, 1998, respectively. The agreement also
provides for participation in all executive benefit plans and for the grant
of an option for 150,000 shares exercisable for a three year period. Up to
50,000 options vest at the end of each year of employment: 47,500 options in
each of the next three years will vest based upon a performance formula (as
defined in the agreement) and 2,500 options in each of the next three years
will vest without regard to the formula.
STOCK OPTIONS
In May 1995, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1995 Stock Option Plan (the
"Option Plan") covering up to 700,000 of its Common Shares, pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-incentive stock options.
The Option Plan, which expires in May 2005, will be administered by the Board
of Directors or a committee designated by the Board of Directors. The
selection of participants, allotment of shares, determination of price and
other conditions relating to the purchase of options will be determined by
the Board of Directors, or a committee thereof, in its sole discretion.
Incentive stock options granted under the Option Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the
Option Plan to a shareholder owning more than 10% of the outstanding Common
Stock may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Stock on the date of the grant.
As of May 24, 1996, options for an aggregate of 750,000 shares, exercisable
at a price of $8.375 per share during five to ten-year periods had been
granted to 8 officers, 2 outside directors and 11 other employees of the
Company, and were outstanding under the Option Plan, 50,000 of which were
subject to shareholder approval. Options are generally exercisable
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for one-third of the shares covered thereby as of the date of the grant and
for an additional one-third of the shares covered thereby each year
thereafter, except that options granted to outside directors are exercisable
for 50% of the shares covered immediately upon grant and for the remainder of
the shares following one year's service and certain options have different
vesting schedules pursuant to employment agreements or other arrangements. In
addition, options for an aggregate of 175,000 shares exercisable at a price
of $8.375 per share had been granted to 4 consultants to the Company.
CERTAIN TRANSACTIONS
All of CMI's net revenue in 1994 and 1995 and approximately 93% of the
Company's pro forma combined net revenue in 1995 were earned under management
contracts with GMMS. On July 1, 1995, the Company and GMMS entered into the
PMSA effective April 1, 1995 which provides for the furnishing by the Company
of comprehensive management services, related financial services and the
inclusion of GMMS in a medical practices network expected to be formed by the
Company. The 95% shareholder of GMMS, Dr. Lawrence Shields, is a founder of
the Company. The agreement is for a term of thirty years, expiring in June
2025, and can be extended in five (5) year intervals. The various practice
management fees set forth in the agreement are subject to upward adjustment
every two (2) years depending on cost of living and other factors.
During 1994 and 1995, the Company retained MADAJ Dezines, Ltd. to provide
design services and to acquire furniture and furnishings. Aggregate payments
of $22,300 and $45,000 were made by the Company in 1994 and 1995,
respectively. MADAJ Dezines, Ltd. is controlled by Marie Graziosi, a founder
and principal shareholder of the Company and the wife of David Jacaruso, Vice
Chairman of the Board and President of the Company. The Company believes that
the services provided by MADAJ Dezines, Ltd. were provided on terms no less
favorable to the Company than those would have obtained from unaffiliated
parties.
Immediately following the closing of the IPO on January 3, 1996, CMI
acquired the assets and business of MMI through its merger into a wholly
owned subsidiary. In the Merger, the MMI shareholders received .778 Common
Shares for each MMI common share which they held. The holders of outstanding
options to purchase MMI common shares received a number of CMI Common Shares
equal to the difference between their aggregate option exercise prices and
the value thereof at $7.00 per share. An aggregate of 2,364,444 and 93,281
CMI Common Shares were issued in the Merger to MMI shareholders and option
holders, respectively.
The Company is the beneficiary of key-man life insurance policies
aggregating $10,000,000 covering the life of Dr. Lawrence Shields, the 95%
shareholder of GMMS, the Company's principal client.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, MMI, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields and Gail Shields ("Ms.
Shields"), the former wife of Dr. Lawrence Shields. Under the terms of the
Settlement Agreement, as revised on December 21, 1995, CMI arranged for the
sale of 117,187 MMI common shares owned by Ms. Shields at a net price to Ms.
Shields of $5.50 per share and obtained Ms. Shields' release as the maker of
a promissory note for a bank loan whose proceeds were used by GMMS (which had
previously been satisfied by GMMS) and as lessee of certain premises occupied
by GMMS, which lease has been assigned to CMI. There was no material impact
on the financial statements of CMI or MMI as a result of the foregoing
settlement.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of May 19, 1996 with
respect to the beneficial ownership of the Company's Common Shares by each
shareholder known by the Company to be the beneficial owner of more than 5%
of its outstanding shares, by each director of the Company, by the executive
officers named in the table below and by the directors and executive officers
as a group.
<TABLE>
<CAPTION>
Common Shares Beneficially Owned
Number of Shares Percentage of Class
---------------- -------------------
Name and Address (1) Actual Actual
------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Steven Rabinovici (2) ................................. 476,813 6.41%
David Jacaruso (3) .................................... 424,640 5.71%
Dennis Shields (4) .................................... 567,837 7.63%
Joseph M. Scotti (7) .................................. 59,190 0.80%
Steven Cohn (7) ....................................... 14,921 0.20%
Jack Schwartzberg (7) ................................. 100,565 1.35%
Richard DeMaio (7) .................................... 19,843 0.27%
Lawrence Shields, M.D. (5) ............................ 1,625,291 21.85%
All officers and directors as a group (11 persons) (6) . 1,630,475 21.92%
</TABLE>
- ------
(1) The addresses of the persons named in this table are as follows: Steven
Rabinovici, David Jacaruso, Dennis Shields, Joseph M. Scotti, Jack
Schwartzberg and Richard DeMaio, c/o Complete Management, Inc., 254 West
31st Street, New York, New York 10001-2813; Steve Cohn c/o Goldberg and
Cohn, 16 Court Street, Suite 2304, Brooklyn, New York 11241 and Lawrence
Shields, M.D., 26 Court Street, Brooklyn, New York 11242.
(2) Mr. Rabinovici's shares are held as custodian for benefit of his minor
son, Jeffrey.
(3) Mr. Jacaruso's shares include shares held by his wife, Marie Graziosi and
shares held as custodian for his minor children, Cara Elizabeth and David
Francis.
(4) Dennis Shields is the son of Dr. Lawrence Shields.
(5) Dr. Lawrence Shields is the father of Dennis Shields.
(6) The officers' and directors' shares include shares subject to stock
options granted under the Option Plan to executive officers.
(7) The shares of Mr. Scotti, Mr. Cohn, Mr. Schwartzberg and Mr. DeMaio
include shares issuable upon the exercise of options granted under the
Company's stock option plan. Such options are exercisable within 60 days
of the date hereof as follows: Joseph M. Scotti, 16,667; Steven Cohn,
10,000; Jack Schwartzberg, 16,667 and Richard DeMaio, 10,000.
All of the Common Shares set forth in the above table are subject to
agreements prohibiting the sale, assignment or transfer until December 27,
1996 without the prior written consent of the IPO Representatives.
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DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture, to be dated as of
- ------, 1996, (the "Indenture"), between CMI, as issuer, and Chemical Bank,
as trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement. The descriptions of the Debentures and the Indenture
in this Prospectus are summaries, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all
provisions of the Indenture. Wherever terms defined in the Indenture are used
in this Prospectus, such defined terms are incorporated herein by reference.
Article and Section references appearing below refer to the Indenture.
The Debentures will be unsecured subordinated obligations of the Company,
will be limited to an aggregate principal amount of $34,500,000 (including
$4,500,000 subject to the Underwriters' over-allotment option and
- ------ subject to the Representative's Warrants), and will mature on ------,
2003. The Debentures will bear interest at the rate per annum stated in their
title from ------, 1996 or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semi-annually on August
15 and February 15 of each year, commencing ------, 1996, to each holder in
whose name a Debenture (or any predecessor Debenture) is registered at the
close of business on the Regular Record Date for such interest payment, which
shall be ------or ------(whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date (unless, with certain exceptions,
such Debentures are converted or redeemed prior to such Interest Payment
Date). Interest on the Debentures will be paid on the basis of a 360-day year
consisting of twelve 30-day months (Sections 202 and 302). Principal of and
interest on the Debentures will be payable at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, City of New
York, and such other office or agency of the Company as may be maintained for
such purpose (initially the corporate trust office of the Trustee in New
York, New York). Debentures may be surrendered for transfer, exchange,
repurchase, redemption or conversion at that agency or office. Payment of
interest may, at the option of the Company, be made by check mailed to the
address of the holder entitled thereto as it appears in the Debenture
Register (See Sections 301, 305, 1002 and 1202).
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof
(Section 302). No service charge will be made for any transfer or exchange of
Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith (Section
305). The Company is not required to transfer or exchange any Debenture (i)
during a period beginning at the opening of business 15 days before the date
of the mailing of a notice of redemption and ending at the close of business
on the date of such mailing or (ii) selected for redemption, in whole or in
part, except the unredeemed portion of Debentures being redeemed in part.
All moneys paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium, if any, and interest on any Debenture
which remain unclaimed for two years after such principal, premium or
interest became due and payable may be repaid to the Company. Thereafter, the
holder of such Debenture may, as an unsecured general creditor, look only to
the Company for payment thereof.
The Indenture does not contain any provisions that would provide
protection to holders of the Debentures against a sudden and dramatic decline
in credit quality of the Company resulting from any takeover,
recapitalization or similar restructuring, except as described under
"Description of Debentures -- Certain Rights to Require Repurchase of
Debentures."
The Indenture contains no financial covenants or covenants restricting the
incurrence of indebtedness by the Company or any Subsidiary. Although certain
of the agreements under which the Senior Indebtedness is outstanding contain,
and agreements in the future may contain, limitations on the incurrence of
indebtedness by the Company or its Subsidiaries, such agreements may be
amended or modified as provided therein, may provide only incidental
protection to holders of Debentures in the event of a Repurchase Event (as
described below), and are not intended for the benefit of the holders of the
Debentures. In addition, agreements under which Senior Indebtedness is
outstanding contain, and future agreements under which future Senior
Indebtedness may be outstanding may contain, provisions which may require
repayment of such Senior Indebtedness prior to repayment of the Debentures
upon, among other things, a Repurchase Event.
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<PAGE>
CONVERSION RIGHTS
The Debentures (or any portion thereof that is an integral multiple of
$1,000) will be convertible into Common Shares at the option of the holders
thereof at any time and from time to time prior to and including the maturity
date unless a Debenture or a portion thereof shall have been called for
redemption, through optional redemption, a sinking fund or otherwise, in
which case it will be convertible if duly surrendered on or before the close
of business on the fifth day preceding the Redemption Date at the conversion
price stated on the cover hereof (subject to adjustment as described below.)
The conversion price shall be subject to adjustment upon certain events
including the following:
(a) The Company shall (i) declare a dividend or make a distribution on the
outstanding Common Shares in Common Shares, (ii) subdivide or reclassify the
outstanding Common Shares into a greater number of shares, or (iii) combine
or reclassify the outstanding Common Shares into a smaller number of shares.
(b) The Company shall issue rights or warrants to all holders of its
Common Shares entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common Shares (or
securities convertible into Common Shares) at a price per share (or having an
initial conversion price per share) less than the Current Market Price of a
Common Share of the Company on such record date.
(c) The Company shall make a distribution to all holders of its Common
Shares (i) of shares of any class other than its Common Shares (ii) of
evidences of indebtedness of the Company or any subsidiary or (iii) of assets
(excluding cash dividends or distributions, and dividends or distributions
referred to in subsection (a) above) or (d) of rights or warrants (excluding
those referred to in subsection (b) above).
(d) The Company shall issue Common Shares, (excluding shares issued (i) in
any of the transactions described in subsection (a) above, (ii) upon
conversion or exchange of securities convertible into or exchangeable for
Common Shares, (iii) to employees or consultants under the Company's 1995
Stock Option Plan as now in effect or hereafter amended, if such shares would
otherwise be included in this Section (d), (iv) to the Company's employees or
consultants under bona fide benefit plans, employment agreements or
consulting agreements adopted by the Company's Board of Directors and
approved by its stock holders or granted at an exercise price of at least
100% of the fair market value of the shares on the date of grant whether or
not approved by stockholders, if such shares would otherwise be included in
this Section (d) (but only to the extent that the aggregate number of shares
excluded by this subdivision (iv), and issued after the date of the Indenture
shall not exceed 30% of the Company's Common Shares outstanding at the time
of any such issuance), (v) upon exercise or rights or warrants issued to the
holders of Common Shares of the Company, (vi) to acquire, or in connection
with the acquisition of, all or any portion of a business as a going concern,
whether such acquisition shall be effected by purchase of assets, exchange of
securities, merger, consolidation or otherwise, (vii) in connection with the
entry into a medical practice or other professional practice management
agreement by the Company for a term of at least 5 years, (viii) upon exercise
of rights or warrants issued in a bona fide public offering pursuant to a
firm commitment underwriting, but only if no adjustment is required pursuant
to these conversion price adjustments (without regard to subsection (i) of
this Section) with respect to the transaction giving rise to such rights or
(ix) pursuant to an offering effected at a discount of less than 5% from the
Current Market Price per share determined as provided in Section 1204(g) of
the Indenture) for a consideration per share less than the Current Market
Price per share on the date the Company fixes the offering price of such
additional shares.
(e) The Company shall issue any securities, other than up to an additional
$3,000,000 face amount of 8% Convertible Subordinated Notes due March 20,
2001, convertible into or exchangeable for its Common Shares (excluding
securities issued in transactions described in sections (b) and (c) above, or
the Securities (as defined in the Indenture entered into by the Company)) for
a consideration per Common Share of the Company initially deliverable upon
conversion or exchange of such securities less than the Current Market Price
per share in effect immediately prior to the issuance of such securities.
Upon the termination of the right to convert or exchange such securities,
the conversion price shall forthwith be readjusted to such conversion price
as would have obtained had the adjustments made upon the issuance
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<PAGE>
of such convertible or exchangeable securities been made upon the basis of
the delivery of only the number of Common Shares actually delivered upon
conversion or exchange of such securities and upon the basis of the
consideration actually received by the Company for such securities.
No adjustment in the conversion price need be made unless such adjustment
would require an increase or decrease of at least 25 cents in such price;
provided, however, that any such adjustment which is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
Fractional shares will not be issued upon conversion, but in lieu thereof,
the Company will pay cash equal to the market value of such fractional share
computed with reference to the Closing Price of the Common Shares on the last
business day prior to conversion (Section 1203). Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date to the opening of business on the next succeeding Interest Payment Date
(except Debentures whose maturity is prior to such Interest Payment Date and
Debentures called for redemption on a Redemption Date within such period)
must be accompanied by payment of an amount equal to the interest thereon to
be paid on such Interest Payment Date (provided, however, that if the Company
shall default in payment of such interest, such payment shall be returned to
the payor thereof.) Except for Debentures surrendered for conversion which
must be accompanied by payment as described above, no interest on converted
Debentures will be payable by the Company on any Interest Payment Date
subsequent to the date of conversion (Sections 307 and 1202).
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Shares or any securities convertible into or exchangeable
for Common Shares or for payment of dividends on the Common Shares or any
preferred shares of the Company.
The Company has covenanted under the Indenture to reserve and keep
available at all times out of its authorized but unissued Common Shares, for
the purpose of effecting conversions of Debentures, the full number of Common
Shares deliverable upon the conversion of all outstanding Debentures.
CERTAIN RIGHTS TO REQUIRE PURCHASE OF DEBENTURES
In the event of any Fundamental Change (as described below) affecting the
Company which constitutes a Repurchase Event occurring after the date of
issuance of the Debentures and on or prior to maturity, each holder of
Debentures will have the right, at the holder's option, to require the
Company to repurchase all or any part of the holder's Debentures on the date
(the "Repurchase Date") that is 30 days after the date the Company gives
notice of the Repurchase Event as described below at a price (the "Repurchase
Price") equal to 100% of the principal amount thereof, together with accrued
and unpaid interest to the Repurchase Date. On or prior to the Repurchase
Date, the Company shall deposit with the Trustee or a Paying Agent an amount
of money sufficient to pay the Repurchase Price of the Debentures which are
to be repurchased on or promptly following the Repurchase Date (Section
1403).
In the event the Company becomes obligated to repurchase some or all of
the Debentures, the Company expects that it would seek to finance the
Repurchase Price with its available cash and short-term investments, through
available bank credit facilities (if any), or through a public or private
issuance of debt or equity securities.
Failure by the Company to repurchase the Debentures when required as
described in the second preceding paragraph will result in an Event of
Default under the Indenture whether or not such repurchase is permitted by
the subordination provisions of the Indenture (Section 501).
On or before the 15th day after the occurrence of a Repurchase Event, the
Company shall mail (or at its option cause the Trustee to mail) to all
holders of record of Debentures notice of the occurrence of such Repurchase
Event, setting forth, among other things, the date by which the repurchase
right must be exercised, the Repurchase Price and the procedures which the
holder must follow to exercise this right. No failure of the Company to give
such notice shall limit any holder's right to exercise a repurchase right
(Section 1402). Failure to give notice of the Repurchase Event in accordance
with the terms of the Indenture will result in an Event of Default. To
exercise the repurchase right, the holder of a Debenture must deliver, on or
before the 5th day prior
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<PAGE>
to the Repurchase Date, written notice to the Company (or an agent designated
by the Company for such purpose) of the holder's exercise of such right,
together with the certificates evidencing the Debentures with respect to
which the right is being exercised, duly endorsed for transfer (Section
1402).
Such notice of exercise may be withdrawn by the holder by a written notice
of withdrawal delivered to the Trustee at any time prior to the close of
business on the 5th day prior to the Repurchase Date and thereafter only with
the consent of the Company (Section 1402).
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Shares
shall be exchanged for, converted into, acquired for or constitute the right
to receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation in any NASDAQ system or any similar system of
automated dissemination of quotations of securities prices. For purposes of
the definition of a "Fundamental Change," (i) "substantially all of the
Common Shares" shall mean at least 85% of the Common Shares outstanding
immediately prior to the transaction or event giving rise to a Fundamental
Change and (ii) consideration shall be "substantially all common stock" if at
least 80% of the fair value (as determined in good faith by the Board of
Directors) of the total consideration is attributable to common stock. A
Fundamental Change would not include an acquisition of a majority of the
outstanding Common Shares by any person or group so long as it does not
result in termination of such listing or approval for quotation.
A Repurchase Event is a right to require the Company to repurchase the
Debentures and a Repurchase Event shall have occurred if a Fundamental Change
shall have occurred unless (i) the Current Market Price of the Common Shares
is at least equal to the conversion price of the Debentures in effect
immediately preceding the time of such Fundamental Change or (ii) the
consideration in the transaction or event giving rise to such Fundamental
Change to the holders of Common Shares consists of cash, securities that are,
or immediately upon issuance will be, listed on a national securities
exchange or quoted in the Nasdaq National Market (or in the case of
securities which are Common Shares in any NASDAQ system or any similar system
of automated dissemination of quotations of securities prices), or a
combination of cash and such securities, and the aggregate fair market value
of such consideration (which, in the case of such securities, shall be equal
to the average of the daily Closing Prices of such securities during the 10
consecutive trading days commencing with the sixth trading day following
consummation of such transaction or event) is at least 105% of the conversion
price of the Debentures in effect on the date immediately preceding the
closing date of such transaction or event.
The right to require the Company to repurchase the Debentures as a result
of the occurrence of a Repurchase Event could create an event of default
under Senior Indebtedness, as a result of which any repurchase could, absent
a waiver, be prevented by the subordination provisions of the Debentures.
Failure by the Company to repurchase the Debentures when required will result
in an Event of Default with respect to the Debentures whether or not such
repurchase is permitted by the subordination provisions. The Company's
ability to pay cash to the holders of the Debentures upon a repurchase may be
limited by certain financial covenants contained in the Senior Indebtedness.
In the event a Repurchase Event occurs and the holders exercise their rights
to require the Company to repurchase Debentures, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase.
This right to require repurchase would not necessarily afford holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may impair the rights of holders of Debentures.
The effect of these provisions granting the holders the right to require
the Company to repurchase the Debentures upon the occurrence of a Repurchase
Event may make it more difficult for any person or group to acquire control
of the Company or to effect a business combination with the Company and may
discourage open market purchases of the Common Shares or a non-negotiated
tender or exchange offer for the Common Shares. Accordingly, such provisions
may limit a stockholder's ability to realize a premium over the market price
of the Common Shares in connection with any such transaction.
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SUBORDINATION
The payment of the principal of, and interest on, the Debentures will, to
the extent set forth in the Indenture, be subordinated in right of payment to
the prior payment in full of all Senior Indebtedness. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors, or
marshaling of assets, whether voluntary, involuntary or in receivership,
bankruptcy, insolvency or similar proceedings, the holders of all Senior
Indebtedness will be first entitled to receive payment in full of cash
amounts due or to become due thereon before any payment is made on account of
the principal of and premium, if any, or interest on the indebtedness
evidenced by the Debentures or on account of any other monetary claims,
including such monetary claims as may result from rights of repurchase or
rescission, under or in respect of the Debentures, before any payment is made
to acquire any of the Debentures for cash, property or securities or before
any distribution is made with respect to the Debentures of any cash, property
or securities. No payments on account of principal of, sinking fund
requirements, if any, or premium, if any, or interest on the Debentures shall
be made, and no Debentures shall be redeemed or repurchased, if at the time
thereof: (i) there is a default in the payment of all or any portion of the
obligations under any Senior Indebtedness; or (ii) there shall exist a
default in any covenant with respect to the Senior Indebtedness (other than
as specified in clause (i) of this sentence), and, in such event, such
default shall not have been cured or waived or shall not have ceased to
exist, the Trustee and the Company shall have received written notice from
any holder of such Senior Indebtedness stating that no payment shall be made
with respect to the Debentures and such default would permit the maturity of
such Senior Indebtedness to be accelerated provided that no such default will
prevent any payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been accelerated
(Section 1303).
The holders of the Debentures will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made on Senior
Indebtedness upon any distribution of assets in any such proceedings out of
the distributive share of the Debentures (Section 1302).
By reason of such subordination, in the event of insolvency, creditors of
the Company, who are not holders of Senior Indebtedness or of the Debentures,
may recover less, ratably, than holders of Senior Indebtedness but may
recover more, ratably, than the holders of the Debentures.
Senior Indebtedness is defined in the Indenture as: (a) the principal of
and unpaid interest (whether accruing before or after filing of any petition
in bankruptcy or any similar proceedings by or against the Company and
whether or not allowed as a claim in bankruptcy or any similar proceeding) on
the following, whether heretofore or hereafter created, incurred, assumed or
guaranteed: (i) all indebtedness for borrowed money, created, incurred,
assumed or guaranteed by the Company (other than indebtedness evidenced by
the Debentures and indebtedness which by the terms of the instrument creating
or evidencing the same is specifically stated to be not superior in right of
payment to the Debentures); (ii) bankers' acceptances and reimbursement
obligations under letters of credit; (iii) obligations of the Company under
interest rate and currency swaps, caps, floors, collars or similar agreements
or arrangements intended to protect the Company against fluctuations in
interest or currency rates; (iv) any other indebtedness evidenced by a note
or written instrument; and (v) obligations of the Company under any agreement
to lease, or lease of, any real or personal property, which obligations are
required to be capitalized on the books of the Company in accordance with
generally accepted accounting principles then in effect (other than leases
which by their terms are specifically stated to be not superior in right of
payment to the Debentures), or guarantees by the Company of similar
obligations of others; and (b) all deferrals, modifications, renewals or
extensions of such indebtedness, and any debentures, notes or other evidence
of indebtedness issued in exchange for such indebtedness or to refund the
same (Section 101).
The Debentures are obligations exclusively of the Company. Certain
operations of the Company are currently conducted through its subsidiaries,
principally MMI (the "Subsidiaries"). The Subsidiaries are separate distinct
entities that have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the Debentures. In addition, the payment of dividends,
interest and the repayment of certain loans and advances to the Company by
the Subsidiaries may be subject to certain statutory or contractual
restrictions and are contingent upon the earnings of such Subsidiaries.
The Debentures will be effectively subordinated to all indebtedness and
other liabilities and commitments (including trade payables and lease
obligations) of the Subsidiaries. In addition, the right of the Company and,
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<PAGE>
therefore, the right of creditors of the Company (including holders of
Debentures) to receive assets of any such Subsidiary upon the liquidation or
reorganization of any such Subsidiary or otherwise will be effectively
subordinated to the claims of the Subsidiary's creditors, except to the
extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be
subordinate to any secured claim on the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company.
At March 31, 1996, Senior Indebtedness and indebtedness of the
Subsidiaries aggregated approximately $4,195,000. The Company expects that it
and its Subsidiaries will from time to time incur additional indebtedness,
including Senior Indebtedness. The Indenture does not prohibit or limit the
incurrence, assumption or guarantee by the Company or its Subsidiaries of
additional indebtedness, including Senior Indebtedness.
EVENTS OF DEFAULT
Events of Default under the Indenture are: (i) failure to pay principal of
any Debenture when due, whether at maturity, upon redemption or acceleration,
or otherwise, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (ii) failure to pay any interest on any
Debenture when due or within 30 days thereafter, whether or not such payment
is prohibited by the subordination provisions of the Indenture; (iii) failure
to deposit when due or within 30 days thereafter any sinking fund payment for
the Debentures, whether or not such deposits are prohibited by the
subordination provisions of the Indenture; (iv) failure to pay any Repurchase
Price when due or within 10 days thereafter on any Debenture, whether or not
such payments are prohibited by the subordination provisions of the
Indenture; (v) failure to perform any other covenant of the Company in the
Indenture, which default continues for 60 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders of
not less than 25% in aggregate principal amount of the outstanding
Debentures; (vi) default on any indebtedness of the Company or the
Subsidiaries in excess of $1,000,000 for borrowed money or on any Senior
Indebtedness resulting in such indebtedness being declared due and payable
after the expiration of any applicable grace period or becoming due and
payable and the holders thereof taking any action to collect such
indebtedness; and (vii) certain events in bankruptcy, insolvency or
reorganization of the Company or significant Subsidiaries (Section 501).
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable indemnity (Section
514). Subject to such provisions for the indemnification of the Trustee, the
holders of a majority in principal amount of the outstanding Debentures will
have the right to determine the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee (Section 512).
If an Event of Default (other than those relating to certain events of
bankruptcy, insolvency and reorganization) shall occur and be continuing,
either the Trustee or the holders of at least 25% in aggregate principal
amount of the outstanding Debentures may by written notice to the Company
and, if applicable, to the Trustee, accelerate the maturity of all
Debentures; provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of outstanding Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture (Section 502). If an Event of Default
occurs by reason of certain events in bankruptcy, insolvency and
reorganization, all principal and accrued and unpaid interest due under the
Debentures then outstanding shall automatically become immediately due and
payable.
No holder of any Debenture will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a
continuing Event of Default, the holders of at least 25% in aggregate
principal amount of the outstanding Debentures shall have made written
request and offered reasonable indemnity to the Trustee to institute such
proceeding as trustee, the Trustee shall not have received from the holders
of a majority in principal amount of the outstanding Debentures a direction
inconsistent with such request and the Trustee shall have failed to institute
such proceeding within 60 days after such notice (Section 507). However, such
limitations do not apply to a suit
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instituted by a holder of a Debenture for the enforcement or payment of the
principal or Repurchase Price of, sinking fund payment for, if any, or
interest on such Debenture on or after the respective due dates expressed in
such Debenture or of the right to convert such Debenture in accordance with
the Indenture (Section 508).
The Indenture provides that the Trustee shall, within 90 days after a
Responsible Officer of the Trustee has actual knowledge of the occurrence of
a default (not including any grace period allowed), mail to the holders of
the Debentures, as their names and addresses appear on the Debenture
Register, notice of all uncured defaults known to it; provided, however, that
except in the case of default in the payment of principal or Repurchase Price
of, sinking fund payment for or interest on any of the Debentures, the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of the
holders of the Debentures (Section 602).
The Company will be required to furnish to the Trustee annually a
certificate with respect to its compliance with the terms, provisions and
conditions of the Indenture and as to any default with respect thereto
(Section 1004).
OPTIONAL REDEMPTION
The Debentures are not redeemable prior to ------, 1999. The Debentures
will be redeemable, at the Company's option, in whole or from time to time in
part, upon not less than 45 nor more than 60 days' notice mailed to each
holder of the Debentures at such holder's address appearing in the Debenture
Register, on any date on or after ------, 1999, and prior to maturity, at a
redemption price equal to 100% of the principal amount thereof plus accrued
but unpaid interest to the date fixed for redemption (subject to the right of
holders of record on a relevant record date to receive interest due on an
Interest Payment Date that is on or prior to the date fixed for redemption)
except that the Debentures may not be redeemed prior to maturity unless, for
the 20 consecutive trading days immediately preceding the date of the notice
of redemption, the Closing Price has equaled or exceeded $------, subject to
adjustment in the case of the same events which result in an adjustment of
the conversion price.
For purposes of optional redemption, the "Closing Price" on any trading
day shall mean the last reported sales price of the Common Shares, or, in
case no such reported sale takes place on such day, the closing bid price of
the Common Shares, on the principal national securities exchange on which the
Common Shares are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, on the Nasdaq National Market
or NASDAQ, as the case may be, or, if the Common Shares are not listed or
admitted to trading on any national securities exchange or quoted on the
Nasdaq National Market or NASDAQ, the closing bid price in the
over-the-counter market as furnished by any New York Stock Exchange member
firm that is selected from time to time by the Company for that purpose and
is reasonably acceptable to the Trustee.
If less than all of the Debentures are to be redeemed, the Trustee, in its
discretion, will select those to be redeemed as a whole or in part by such
method as the Trustee shall deem fair and appropriate. Notice of redemption
will be given to holders of the Debentures to be redeemed by first class mail
at their last address appearing on the Debenture Register.
SINKING FUND
If the Company provides for one or more sinking funds for securities
representing indebtedness for money borrowed ranking equal or junior to the
Debentures, and such indebtedness has a maturity or weighted average time to
maturity which is on or prior to ------, 2003, the Company will provide a
sinking fund for the Debentures calculated to retire that amount of
Debentures equal to the lesser of (i) the same percentage of outstanding
Debentures prior to maturity as the percentage of the principal amount of
such other indebtedness to be retired prior to maturity on the same payment
schedule as such other indebtedness or (ii) such amount of Debentures
necessary to result in the Debentures having the same weighted average time
to maturity as other indebtedness. Except as set forth herein with respect to
the credit against mandatory sinking fund payments, the redemption price and
other terms of the sinking fund applicable to the Debentures shall be the
same as those applicable to the relevant indebtedness, except that the
redemption price of the Debentures in connection with the sinking fund shall
be 100% of the principal amount thereof plus accrued and unpaid interest to
the date fixed
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for redemption. The Company may, at its option, receive credit against
mandatory sinking fund payments for the principal amount of (i) Debentures
acquired by the Company and surrendered for cancellation, (ii) Debentures
previously converted into Common Shares and (iii) Debentures redeemed or
called for redemption otherwise than through the operation of the sinking
fund.
LIMITATIONS ON DIVIDENDS AND REDEMPTIONS
The Indenture provides that the Company will not (i) declare or pay any
dividend or make any other distribution on any Junior Securities (as
described below), except dividends or distributions payable in Junior
Securities, or (ii) purchase, redeem or otherwise acquire or retire for value
any Junior Securities, except Junior Securities acquired upon conversion
thereof into other Junior Securities, or (iii) permit a Subsidiary to
purchase, redeem or otherwise acquire or retire for value any Junior
Securities, if, upon giving effect to such dividend, distribution, purchase,
redemption, retirement or other acquisition, a default in the payment of any
principal or Repurchase Price of, sinking fund payment for, if any, premium,
if any, or interest on any Debenture shall have occurred and be continuing.
The term "Junior Securities" means (i) the Common Shares, (ii) shares of
any other class or classes of capital stock of the Company, (iii) any other
non-debt securities of the Company (whether or not such other securities are
convertible into Junior Securities) and (iv) debt securities of the Company
(other than Senior Indebtedness and the Debentures) as to which, in the
instrument creating or evidencing Senior Indebtedness and the same or
pursuant to which the same is outstanding, it is expressly provided that such
debt securities are not Senior Indebtedness with respect to, or do not rank
pari passu with, the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the holders of any of the Debentures,
may consolidate with or merge into any other Person or convey, transfer, sell
or lease its assets substantially as an entirety to any Person, provided
that: (i) either (a) the Company is the continuing corporation or (b) the
corporation or other entity formed by such consolidation or into which the
Company is merged or the Person to which such assets are conveyed,
transferred, sold or leased is organized under the laws of the United States
or any state thereof or the District of Columbia and expressly assumes all
obligations of the Company under the Debentures and the Indenture; (ii)
immediately after and giving effect to such merger, consolidation,
conveyance, transfer, sale or lease no Event of Default, and no event which,
after notice or lapse of time, would become an Event of Default, under the
Indenture shall have occurred and be continuing; (iii) upon consummation of
such consolidation, merger, conveyance, transfer, sale or lease, the
Debentures and the Indenture will be a valid and enforceable obligations of
the Company or such successor Person, corporation or other entity and (iv)
the Company has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer, sale or lease complies with the provisions of the Indenture
(Sections 801 and 802).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority
in aggregate principal amount of the outstanding Debentures; provided,
however, that no such modification or amendment may, without the consent of
the holder of each outstanding Debenture affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of interest on, any
Debenture, (ii) reduce the principal amount of any Debenture or reduce the
rate or extend the time of payment of interest thereon, (iii) change the
place or currency of payment of principal of, or Repurchase Price or interest
on, any Debenture, (iv) impair the right to institute suit for. the
enforcement of any payment on or with respect to any Debenture, (v) adversely
affect the right to convert Debentures, (vi) reduce the percentage of the
aggregate principal amount of outstanding Debentures, the consent of the
holders of which is necessary to modify or amend the Indenture, or (vii)
reduce the percentage of the aggregate principal amount of outstanding
Debentures, the consent of the holders of which is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (viii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the holders of the
Debentures or (ix) modify the provisions of the Indenture with respect to the
right to require the Company to repurchase Debentures in a manner adverse to
the holders of the Debentures (Section 902).
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The holders of a majority in aggregate principal amount of the Outstanding
Debentures may, on behalf of all holders of Debentures, waive any past
default under the Indenture or Event of Default except a default in the
payment of principal or interest on any of the Debentures or in respect of a
provision which under the Indenture cannot be modified without the consent of
the holder of each outstanding Debenture (Section 902).
DISCHARGE
The Indenture provides that the Company may discharge its obligations
under the Indenture while Debentures remaining outstanding if (i) all
outstanding Debentures will become due and payable at their scheduled
maturity within one year or (ii) all outstanding Debentures are scheduled for
redemption within one year, and in either case the Company has deposited with
the Trustee an amount sufficient to pay and discharge all outstanding
Debentures on the date of their scheduled maturity or scheduled redemption
(Section 401).
GOVERNING LAW
The Indenture and the Debentures will be governed and construed in
accordance with the laws of the State of New York without giving effect to
such state's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its Subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee or its affiliates in the ordinary
course of business, and the Trustee and its affiliates may from time to time
in the future provide the Company and its Subsidiaries with banking and
financial services in the ordinary course of their businesses.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary sets forth the principal U.S. federal income tax
consequences of holding and disposing of the Debentures, converting the
Debentures into Common Shares, and holding and disposing of Common Shares
acquired as a result of the conversion of the Debentures. This summary is
based upon laws, regulations, rulings and judicial decisions now in effect,
all of which are subject to change, possibly on a retroactive basis. This
summary is presented for informational purposes only and relates only to the
Debentures or Common Shares into which such Debentures are converted that are
held as "capital assets" (generally, property held for investment within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). The summary discusses certain U.S. federal income tax consequences
to holders of the Debentures or Common Shares into which such Debentures are
converted ("Holders") that are (i) individuals who are citizens or residents
of the United States, (ii) corporations or other entities organized under the
laws of the United States or a political subdivision thereof, or (iii)
estates or trusts, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of source. It does not discuss state,
local or foreign tax consequences, nor does it discuss tax consequences to
categories of Holders that may be subject to special rules, such as tax
exempt organizations, insurance companies, financial institutions and dealers
in stocks and securities. Tax consequences may vary depending on the
particular status of a Holder.
This summary does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to the decision to purchase the
Debentures or to convert the Debentures into Common Shares. Each prospective
investor should consult his or her own tax advisor as to the particular tax
consequences to such person of purchasing, holding and disposing of the
Debentures converting the Debentures into Common Shares, and holding and
disposing of Common Shares acquired as a result of the conversion of the
Debentures, including the applicability and effect of any state, local or
foreign tax laws and any recent proposed changes in applicable tax laws.
STATED INTEREST
A Holder using the accrual method of accounting for tax purposes generally
will be required to include interest in income as such interest accrues with
respect to the Debentures, while a cash basis Holder generally will be
required to include interest in income when interest payments are received by
such Holder with respect to the Debentures, or when the Company makes such
interest payments available for receipt.
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CONVERSION OF THE DEBENTURES
Except as otherwise indicated below, no gain or loss will be recognized
for U.S. federal income tax purposes upon the conversion of the Debentures
into Common Shares. Cash paid in lieu of fractional Common Shares will be
taxed as if the fractional Common Shares were issued and then redeemed for
cash, generally resulting in capital gains or loss from sale or exchange of
such fractional Common Shares. The tax basis of the Common Shares received
upon conversion will be equal to the tax basis of the Debentures converted
reduced by the portion of such tax basis, if any, allocable to any fractional
share interest exchanged for cash. The holding period of the Common Shares
received upon conversion will include the holding period of the Debentures
converted.
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
U.S. federal income tax purposes (e.g., distributions of cash, evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Shares) and, pursuant to the anti-dilution
provisions of the Indenture, the conversion price of the Debentures is
reduced, such reduction will be deemed to be the payment of a stock
distribution to Holders equal to the fair market value of additional Common
Shares that may be acquired at such conversion price, which will be taxable
as a dividend to the extent of the current or accumulated earnings and
profits of the Company. To the extent that such deemed stock distribution
exceeds the Company's current or accumulated earnings and profits, it will be
treated as a tax-free return of capital to the extent of the Holder's tax
basis in the applicable Debentures, and then as capital gain. Similarly, if
the Company voluntarily reduces the conversion price for a period of time,
Holders may, in certain circumstances, have a deemed taxable stock
distribution in an amount equal to the fair market value of the additional
Common Shares that may be acquired at the reduced conversion price. Holders
could, therefore, have taxable income as a result of an event pursuant to
which they received no cash or property that could be used to pay the related
income tax.
DISPOSITION OF THE DEBENTURES OR COMMON SHARES
In general, the Holder of the Debentures or, Common Shares into which such
Debentures are converted will recognize gain or loss upon the sale,
redemption, retirement or other disposition of the Debentures or Common
Shares in an amount equal to the difference between the amount of cash and
the fair market value of property received (except to the extent attributable
to the payment of accrued interest) and the Holder's adjusted tax basis in
the Debentures or Common Shares, as the case may be. The Holder's tax basis
in the Debentures generally will be such Holder's cost, increased by (i) the
amount of accrued market discount a Holder elects to include in income with
respect to the Debentures (discussed below) and (ii) the amount of any deemed
taxable stock distribution arising from a conversion price adjustment, under
the rules described above (see "Conversion of Debentures") and, (iii) the
amount of any accrued interest included in income under the Holder's method
of accounting (see "Stated Interest"), reduced by (i) any principal payments
or payments of stated interest received by such Holder, (ii) the amount of
any amortizable bond premium the Holder elects to amortize with respect to
the Debentures and (iii) the amount of any deemed taxable stock distribution
arising from conversion price adjustment not treated as a dividend or
resulting in capital gain under the rules described above (see "Conversion of
the Debentures"). As discussed above, a Holder's tax basis in the Common
Shares received on conversion will be equal to such Holder's tax basis in the
Debentures converted, reduced by the portion of such tax basis, if any,
allocable to any fractional share interest exchanged for cash. If a Holder
holds the Debentures or Common Shares as a capital asset, gain or loss
arising from sale, exchange, redemption or retirement of such Debenture or
Common Shares will be capital gain or loss except, in the case of Debentures,
to the extent of any accrued market discount (see "Market Discount on
Resale"). and such gain or loss will be long-term capital gain or loss if the
holding period of either Debentures or Common Shares (including the holding
period of Debentures converted into such Common Shares), as the case may be,
is more than one year at such time.
MARKET DISCOUNT ON RESALE
The tax consequences of the sale of the Debentures by a Holder may be
affected by the market discount provisions of the Code. Market discount is
defined as the excess of a debt instrument's stated redemption price at
maturity over the Holder's tax basis in such debt instrument immediately
after its acquisition. If the market discount is less than 1/4 th of 1
percent of the stated redemption price at maturity multiplied by the number
of complete years to maturity (after the Holder acquired the debt
instrument), then the market discount will be considered to be zero.
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If a Holder purchases the Debentures at a market discount and thereafter
recognizes gain on their disposition (or the disposition of the Common Shares
into which such Debentures are converted) such gain is treated as ordinary
interest income to the extent it does not exceed the accrued market discount
on such Debentures. In addition, recognition of gain to the extent of accrued
market discount may be required in the case of some dispositions which would
otherwise be nonrecognition transactions. Unless a Holder elects to use a
constant rate method, accrued market discount equals a Debenture's market
discount multiplied by a fraction, the numerator of which equals the number
of days the Holder holds such Debenture and the denominator of which equals
the total number of days following the date the Holder acquires such
Debenture up to and including the date of its maturity. If a Holder of the
Debentures acquired at a market discount receives a partial principal payment
prior to maturity, that payment is treated as ordinary income to the extent
of the accrued market discount on the Debentures at the time payment is
received. However, when the Holder disposes of the Debentures, the accrued
market discount is reduced by the amount of the partial principal payment
previously included in income. A Holder that acquires the Debentures at a
market discount may be required to defer a portion of any interest expense that
may otherwise be deductible on any indebtedness incurred to purchase such
Debentures until the Holder disposes of such Debentures in a taxable
transaction.
A Holder that acquired the Debentures at a market discount may elect to
include the market discount in income as the discount accrues, either on a
ratable basis, or, if elected, on a constant interest rate basis. Once made,
the current inclusion election applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS"). If a Holder elects to include the market
discount in income as it accrues, the foregoing rules with respect to the
recognition of ordinary income on sales and certain other dispositions and
with respect to the deferral of interest deductions on related indebtedness,
would not apply.
BOND PREMIUM
If, as a result of a purchase at a premium, a Holder's adjusted tax basis
in Debentures exceeds the Debentures' stated redemption price at maturity,
such excess may constitute amortizable bond premium. If the Debentures are a
capital asset in the hands of the Holder, Section 171 of the Code allows the
Holder to elect to amortize any such bond premium under the constant interest
rate method as an offset against interest income earned on the Debentures.
The amount of amortizable bond premium equals the excess of the Holder's
basis (for determining loss on sale or exchange) in the Debentures over the
amount payable at maturity or, if it results in a smaller amortizable bond
premium, an earlier call date. If a Holder is required to amortize bond
premium by reference to such a call date and the Debentures are not in fact
called on such date, the remaining unamortized premium must be amortized to a
succeeding call date or to maturity.
A Holder's tax basis in the Debentures must be reduced by the amount of
amortized bond premium. An election to amortize bond premium applies to all
bonds (other than tax-exempt bonds) held by the Holder at the beginning of
the first taxable year to which the election applies or thereafter acquired
by the Holder and is irrevocable without the consent of the IRS.
BACKUP WITHHOLDING
Under the "backup withholding" provisions of federal income tax law, the
Company, its agent, a broker or any paying agent, as the case may be, will be
required to withhold a tax equal to 31% of any payment of (i) principal,
premium, if any, and interest on the Debentures, (ii) proceeds from the sale
or redemption of the Debentures, (iii) dividends on the Common Shares into
which the Debentures are converted and (iv) proceeds from the sale or
redemption of such Common Shares, unless the Holder (a) is exempt from backup
withholding and, when required, demonstrates this fact to the payor or (b)
provides a taxpayer identification number to the payor, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Certain holders
(including corporations, tax-exempt organizations and individual retirement
accounts are not subject to the backup withholding reporting requirements.
Nonresident aliens and foreign entities must submit a statement, signed under
penalties of perjury, attesting to that individual's exemption from backup
withholding. However, distributions taxable as dividends paid (or deemed
paid) to Holders who are nonresident aliens or foreign entities will also be
subject to 30% U.S. withholding tax unless
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a reduced rate of withholding is provided under an applicable treaty. In
addition, interest paid to a Holder who is a nonresident alien or foreign
entity generally should qualify as "portfolio interest" (assuming the Holder
will not own, directly or indirectly, 10% or more of the Common Shares of the
Company upon conversion of Debentures) and thus should be exempt from this
30% U.S. withholding tax if the Holder properly certifies as to his foreign
status. A Holder of the Debentures or Common Shares that is otherwise
required to but does not provide the Company with a correct taxpayer
identification number may be subject to penalties imposed by the Code. Any
amounts paid as backup withholding with respect to the Debentures or Common
Shares will be creditable against the income tax liability of the person
receiving the payment from which such amount was withheld. Holders of the
Debentures and Common Shares should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 Common
Shares, par value $.001 per share, of which 7,438,298 shares are outstanding
on the date of this Prospectus, and 2,000,000 Preferred Shares, par value
$.001 per share, issuable in series, none of which are outstanding.
COMMON SHARES
Holders of the Common Shares are entitled to one vote for each share held
of record by them. The Common Shares have no redemption, preemptive, or
sinking fund rights. Holders of the Common Shares are entitled to dividends
as and when declared by the Board of Directors from funds legally available
therefor and, upon liquidation, dissolution or winding up of the Company, to
participate ratably in all assets remaining after payment of all liabilities.
The Common Shares are not redeemable and do not have any conversion rights or
preemptive rights. All Common Shares issued and outstanding are, and those
offered hereby when issued will be, legally issued, fully-paid and
non-assessable. See "Dividend Policy."
Steven Rabinovici, David Jacaruso, Marie Graziosi, Dennis Shields and Dr.
Lawrence Shields, the founders of the Company, have entered into a
Shareholders' Agreement pursuant to which they have agreed to vote all of
their shares, for a period of 10 years, in favor of the election to the Board
of Directors of the Company of the nominees approved by the Board and to vote
on all other matters in accordance with the recommendations of the Board. Mr.
Rabinovici is Chairman of the Board and Chief Executive Officer of the
Company, and Mr. Jacaruso is Vice Chairman of the Board and President of the
Company. Dr. Shields is the Company's largest shareholder and the father of
Dennis Shields who is Executive Vice President and a Director of the Company.
Marie Graziosi is the wife of David Jacaruso. Messrs. Rabinovici, Jacaruso
and Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially own
approximately 41.60% of the Company's outstanding Common Shares and,
accordingly, as long as they vote as required by the Shareholders' Agreement,
will be in a position to elect all of the persons nominated by the Board of
Directors. Further, such control by the founding shareholders could preclude
any unsolicited acquisition of the Company and consequently affect the market
price of the Common Shares.
PREFERRED SHARES
The Company's Certificate of Incorporation provides that the Board of
Directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue up to 2,000,000 Preferred
Shares from time to time in one or more classes or series, to fix the number
of shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or
class, including dividend rights, dividend rates, conversion or exchange
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price and the liquidation preference of such
class or series. The Company does not have any Preferred Shares outstanding
and has no present intention to issue any Preferred Shares. The designations,
rights and preferences of any Preferred Shares would be set forth in a
Certificate of Designation which would be filed with the Secretary of State
of New York.
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IPO REPRESENTATIVES' WARRANTS
In connection with the Company's IPO, it sold to the IPO Representatives,
at a price of $.001 per Warrant, 200,000 IPO Representatives' Warrants,
entitling the holders thereof to purchase up to 200,000 Common Shares at a
purchase price of $10.80 per share for a period of four (4) years commencing
one year from the effective date of the IPO, December 28, 1995.
REPORTS
The Company intends to furnish to its shareholders annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information. In addition, the Company is required to file periodic reports on
Forms 8-K, 10-Q and 10-K with U.S. Securities and Exchange Commission and
make such reports available to its shareholders.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty
to the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through
negligent or grossly negligent conduct, to satisfy their duty of care, which
requires them to exercise informed business judgment. The liability of
directors under the federal securities laws is not affected. A director may
be liable for monetary damages only if a claimant can show a breach of the
individual director's duty of loyalty to the Company, a failure to act in
good faith, intentional misconduct, a knowing violation of the law, an
improper personal benefit or an illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized
by the Business Corporation Law, against all expense, liability and loss
(including attorneys fees, judgments, fines, Employee Retirement Income
Security Act, excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith.
LISTINGS ON AMERICAN STOCK EXCHANGE
CMI Common Shares are listed on the American Stock Exchange (the "AMEX")
under the symbol "CMI." Application has been made for listing of the
Debentures on the AMEX under the symbol "CMI.A."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Continental
Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
the Company and the Underwriters named below (the "Underwriters"), the
Company has agreed to sell to the Underwriters for whom National Securities
Corporation is acting as representative (in such capacity, the
"Representative"), and the Underwriters have severally and not jointly agreed
to purchase the principal amount of Debentures set forth below.
Underwriters Amount of Debentures
- ------------ --------------------
National Securities Corporation
Total $30,000,000
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions. The maturing of the Underwriters'
obligations are such that they are committed to purchase all of the above
Debentures if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the Debentures to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of ------% of the principal amount of
the Debentures. The Underwriters may allow, and such dealers may allow, a
concession not in excess of ------% of the principal amount of the Debentures
to certain other dealers. After this Offering, the public offering price and
concessions and discounts may be changed by the Representative. The Company
has granted to the Underwriters an option exercisable during the 45-day
period commencing on the date of this Prospectus to purchase from the
Company, at the offering price less underwriting discount, up to an aggregate
of $4,500,000 principal amount of Debentures for the sole purpose of covering
over-allotments, if any. To the extent that the Underwriters exercise the
option, each Underwriter will have a firm commitment to purchase
approximately the same percentage thereof that the principal amount of
Debentures shown in the above table bears to the total shown, and the Company
will be obligated, pursuant to the option, to sell such principal amount of
Debentures to the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Representative a non-accountable expense allowance equal
to 2% of the gross proceeds derived from the sale of the Debentures
underwritten, $25,000 of which has been advanced.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants (the "Representative's
Warrants") to purchase up to an estimated 229,885 Common Shares [i.e. that
number of Common Shares as equal 10% of the Common Shares issuable upon
conversion of the $30,000,000 face amount of Debentures offered hereby, at an
assumed initial conversion price of $13.05 per share] at a price equal to
165% of the market price of the Common Shares on the effective date of this
Offering. The Representative's Warrants are exercisable for a period of four
years commencing one year from the date of this Prospectus. The
Representative's Warrants provide for adjustment in the exercise price of the
Representative's Warrants in the event of certain mergers, acquisitions,
stock dividends and capital changes. The Representative's Warrants grant to
the holders thereof certain rights with respect to the registration under the
Securities Act of the securities issuable upon exercise of the
Representative's Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. See "Available
Information."
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the
Debentures. Consequently, the conversion price of the Debentures has been
determined by negotiations between the Company and the Underwriters. Fac
64
<PAGE>
tors considered in determining the conversion price of the Debentures
included the Company's net worth and earnings, the amount of dilution per
Common Share issuable upon conversion of the Debentures to the public
investors, the estimated amount of proceeds believed by management of the
Company to be necessary to accomplish its proposed goals, prospects for the
industry in which the Company operates, the present state of the Company's
activities and the general condition of the securities markets at the time of
this Offering.
LEGAL MATTERS
The validity of the Debentures and the Common Shares issuable upon
conversion thereof will be passed upon for the Company by Morse, Zelnick,
Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022. Members of the
firm beneficially own an aggregate of 116,194 Common Shares. Camhy Karlinsky
& Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315
has acted as counsel to the Underwriters in connection with this Offering.
EXPERTS
The Consolidated Financial Statements of Complete Management, Inc. and
Medical Management, Inc. included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the period indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said report. Reference is made to said report,
which includes an explanatory paragraph with respect to the change in
accounting for certain receivables as discussed in Note (3) to the MMI
financial statements.
The Financial Statements of Medical Management, Inc. as of December 31,
1994 and for the years ended December 31, 1993 and 1994 appearing in this
Prospectus and the Registration Statement of which this Prospectus forms a
part have been audited by Ernst & Young LLP, independent auditors as set
forth in their report thereon which appear elsewhere herein, and are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and, in accordance therewith, files reports
and other information with the SEC. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. and at the following
regional offices of the SEC: New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Chicago Regional Office, 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the public reference section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-l, of which this Prospectus forms a part,
and the exhibits thereto which the Company has filed with the SEC under the
Securities Act, to which reference is hereby made for further information
concerning the Company and the Debentures.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
COMPLETE MANAGEMENT, INC.
Report of Independent Public Accountants ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 ..................................... F-3
Consolidated Statements of Income for the period from April 1, 1993 to December 31, 1993 and for
the years ended December 31, 1994 and 1995 .................................................... F-4
Consolidated Statements of Stockholders' Equity for the period from April 1, 1993 to
December 31, 1993 and for the years ended December 31, 1994 and 1995 .......................... F-5
Consolidated Statements of Cash Flows for the period from April 1, 1993 to December 31, 1993
and for the years ended December 31, 1994 and 1995 ............................................ F-6
Notes to Consolidated Financial Statements ....................................................... F-7
Interim Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) ....... F-18
Interim Consolidated Statements of Income for the three month periods ended March 31, 1995 and 1996
(Unaudited) ................................................................................... F-19
Interim Consolidated Statements of Cash Flows for the three month periods ended March 31, 1995
and 1996 (Unaudited) ......................................................................... F-20
Notes to Interim Consolidated Financial Statements (Unaudited) ................................... F-21
MEDICAL MANAGEMENT, INC.
Report of Independent Public Accountants ......................................................... F-26
Report of Independent Auditors ................................................................... F-27
Balance Sheets as of December 31, 1994 and 1995 .................................................. F-28
Statements of Income for the years ended December 31, 1993, 1994 and 1995 ........................ F-29
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 .......... F-30
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 .................... F-31
Notes to Financial Statements .................................................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Complete Management, Inc.:
We have audited the accompanying consolidated balance sheets of Complete
Management, Inc. (a New York corporation) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. 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 Complete
Management, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1996
F-2
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
Historical Proforma
1994 1995 1995
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash ................................................. $ -- $ -- $16,160,038
Accounts receivable, net of unamortized discount of $971,064
and $1,307,034 .................................... 4,074,764 5,325,147 5,325,147
Prepaid expenses and other current assets ............ 1,664 356,097 356,097
------------ ------------- -------------
Total current assets ................................ 4,076,428 5,681,244 21,841,282
Long-term portion of accounts receivable, net of
unamortized discount of $508,537 and $603,758 ........ 3,604,571 9,559,424 9,559,424
Property and equipment, less accumulated depreciation and
amortization of $71,708 and $173,483 ................. 303,774 400,170 400,170
Deferred registration costs ............................ -- 1,985,446 --
Other assets ........................................... 24,172 233,777 233,777
------------ ------------- -------------
Total assets ....................................... $8,008,945 $17,860,061 $32,034,653
============ ============= =============
Liabilities and stockholders' equity
Current liabilities:
Notes payable ........................................ $ -- $ 1,000,000 $ 1,000,000
Accounts payable and accrued expenses ................ 742,252 2,815,718 2,595,756
Income taxes payable ................................. 39,971 39,371 39,371
Deferred income taxes -- current ..................... 1,679,052 1,799,523 1,799,523
Current portion of long-term debt .................... -- 89,369 89,369
------------ ------------- -------------
Total current liabilities ........................... 2,461,275 5,743,981 5,524,019
Deferred income taxes -- non-current ................... 1,694,148 4,435,776 4,435,776
Long-term debt ......................................... -- 228,534 228,534
Deferred rent .......................................... -- 121,595 121,595
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized, 2,000,000 shares
Issued and outstanding, none ...................... -- -- --
Common stock, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 2,952,795 shares at
December 31, 1994 and 2,980,573 shares
at December 31, 1995 ............................ 2,953 2,981 4,981
Paid-in capital ...................................... -- 249,972 14,642,526
Retained earnings .................................... 3,850,569 7,077,222 7,077,222
------------ ------------- -------------
Total stockholders' equity ........................ 3,853,522 7,330,175 21,724,729
------------ ------------- -------------
Total liabilities and stockholders' equity ... $8,008,945 $17,860,061 $32,034,653
============ ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-3
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Period from
April 1, 1993 to Year ended December 31,
December 31, ------------------------------
1993 1994 1995
---------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
From a related party ..................... $5,282,614 $10,654,298 $12,293,830
Interest discount ........................ (864,664) (1,743,900) (2,016,357)
---------------- ------------- -------------
Net revenue ................................ 4,417,950 8,910,398 10,277,473
---------------- ------------- -------------
Cost of revenue ............................ 1,102,900 1,948,755 2,771,256
General and administrative expenses ........ 1,482,653 2,374,695 2,863,806
Fees paid to related parties ............... 204,529 196,627 109,975
---------------- ------------- -------------
2,790,082 4,520,077 5,745,037
---------------- ------------- -------------
Operating income ........................... 1,627,868 4,390,321 4,532,436
Interest discount included in income ....... 206,981 921,977 1,585,171
Interest expense ........................... -- -- (45,502)
Other income ............................... 61,723 54,870 16,048
---------------- ------------- -------------
Income before provision for income taxes ... 1,896,572 5,367,168 6,088,153
Provision for income taxes ................. 890,729 2,522,442 2,861,500
---------------- ------------- -------------
Net income ................................. $1,005,843 $ 2,844,726 $ 3,226,653
================ ============= =============
Net income per share ....................... $ 0.34 $ 0.95 $ 1.08
================ ============= =============
Weighted average number of shares outstanding 2,980,573 2,980,573 2,980,573
================ ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
----------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of 2,952,795 shares of common
stock at $.001 par value ........ $ -- $2,953 $ -- $ -- $ 2,953
Net income from April 1, 1993 to December
31, 1994 ........................ -- -- -- 1,005,843 1,005,843
----------- -------- ------------- ------------ -------------
Balance at December 31, 1993 ..... -- 2,953 -- 1,005,843 1,008,796
Net income for the year ended December
31, 1994 ........................ -- -- -- 2,844,726 2,844,726
----------- -------- ------------- ------------ -------------
Balance at December 31, 1994 ..... -- 2,953 -- 3,850,569 3,853,522
Issuance of 27,778 shares of common
stock at $.001 par value to secured
lenders ......................... -- 28 249,972 -- 250,000
Net income for the year ended December
31, 1995 ........................ -- -- -- 3,226,653 3,226,653
----------- -------- ------------- ------------ -------------
Balance at December 31,1995 ...... $ -- $2,981 $ 249,972 $7,077,222 $ 7,330,175
=========== ======== ============= ============ =============
Pro Forma Adjustments:
Historical balance at December 31, 1995 $ -- $2,981 $ 249,972 $7,077,222 $ 7,330,175
Issuance of 2,000,000 shares of common
stock at $.001 par value, net of
registration costs .............. -- 2,000 14,392,554 -- 14,394,554
----------- -------- ------------- ------------ -------------
Balance at December 31, 1995 ..... $ -- $4,981 $14,642,526 $7,077,222 $21,724,729
=========== ======== ============= ============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COMPLETE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year ended December 31,
---------------- ------------------------------
1993 1994 1995
---------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income ............................................ $ 1,005,843 $ 2,844,726 $ 3,226,653
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 16,914 54,794 101,775
Discount of accounts receivable, net of amortization . 657,683 821,918 431,191
Provision for deferred income taxes ................. 850,100 2,523,100 2,862,099
Amortization of prepaid insurance ................... -- -- 24,306
Amortization of original issue discount ............. -- -- 12,500
Changes in operating assets and liabilities:
Accounts receivable .............................. (2,622,777) (6,536,159) (7,636,427)
Prepaid expenses and other current assets ........ (2,739) 1,075 (266)
Accounts payable and accrued expenses ............ 194,755 402,846 1,945,655
Income taxes payable ............................. 40,629 (658) (600)
Other assets ..................................... (23,092) (1,080) (578)
Deferred rent .................................... -- -- 121,595
---------------- ------------- -------------
Net cash provided by operating activities ............. 117,316 110,562 1,087,903
---------------- ------------- -------------
Investing activities
Purchase of property and equipment .................... (182,516) (192,966) (177,768)
---------------- ------------- -------------
Net cash used in investing activities ................. (182,516) (192,966) (177,768)
---------------- ------------- -------------
Financing activities
Deferred registration costs ........................... -- -- (1,985,446)
Proceeds from issuance of notes payable ............... -- -- 1,000,000
Bank overdraft ........................................ 62,247 82,404 75,311
Issuance of common stock .............................. 2,953 -- --
---------------- ------------- -------------
Net cash provided by (used in) financing activities ... 65,200 82,404 (910,135)
---------------- ------------- -------------
Net increase (decrease) in cash ....................... -- -- --
Cash at the begining of the period .................... -- -- --
---------------- ------------- -------------
Cash at the end of the period ......................... $ -- $ -- $ --
================ ============= =============
Supplemental disclosures of cash flow information
Cash paid during the first year
Interest ............................................ $ -- $ -- 21,233
Taxes ............................................... -- -- --
Non-cash financing activities:
Issuance of common stock ............................. -- -- 250,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COMPLETE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1993 TO DECEMBER 31, 1993
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS
Complete Management, Inc. (the "Company"), a New York corporation, was
incorporated on December 30, 1992, and commenced operations on April 1, 1993.
The Company had no operations from the time of its incorporation through March
31, 1993. The Company provides comprehensive management services primarily to
high volume medical practices in New York State. The Company's services
include development, administration and leasing of medical offices and
equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies.
In April 1993, the Company commenced servicing its initial client,
Greater Metropolitan Medical Services', a multi-site medical practice in the
New York metropolitan area (the "PC" or "GMMS"). The PC, at December 31, 1994,
was wholly owned by a physician stockholder (95% owned effective July 1995)
who is a neurologist and also founder and principal stockholder of the
Company. All of the Company's net revenues in 1993, 1994 and 1995, were earned
under a management contract with the PC and a substantial part of that growth
in the Company's business is a direct result of comparable growth of the PC.
While the Company expects to continue to market to other potential clients, it
expects that its relationship with the PC will be a dominant factor in its
business for the foreseeable future. There is no assurance however, that
future relationships will produce similar results of operations as currently
experienced by the Company under this arrangement with the PC. The continued
vitality of the PC is subject to numerous risks, including its continued
ability to retain its key medical personnel, malpractice claims and regulatory
compliance (see Note 12 for additional related party information).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Preparation of Financial Statements
The consolidated financial statements include the accounts of the Company
and subsidiaries. All significant inter-company balances and transactions have
been eliminated in consolidation.
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
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Fee revenue is recognized based upon a contractual agreement for
management services rendered by the Company. The Company's agreement with the
PC stipulated a fee for services rendered to be a fixed annual amount. This
annual fee was billed ratably over the year. In July 1995, the Company
re-negotiated this contract effective April 1, 1995 and entered into a thirty
year agreement ending in June 2025. The fees are primarily calculated on a
cost-plus basis, including an allocation for Company-wide overhead, as in the
case of personnel, space, supplies, etc., and/or activity based efforts at
pre-determined rates per unit of activity such as consulting and collection.
All fees are re-negotiable at the second anniversary of this agreement and
each year thereafter. This contract may be renewed for additional six-five
year periods at the option of either party (see Note 12).
Due to the long term collection cycle associated with assigned
receivables from the PC (as described in Note 3), these receivables are
discounted using the Company's incremental borrowing rate and management's
estimate of the collection cycle.
GMMS is a multi-specialty medical practice group which provides
evaluations, diagnoses and treatment in the New York metropolitan area.
Currently, the practice's primary medical focus is to treat patients with
injury- related conditions who carry insurance with various insurance carriers
under the workers' compensation and no-fault guidelines.
F-7
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The following "unaudited" tabulation sets forth the operating results of
the GMMS for the years ended December 31, 1993, 1994 and 1995. GMMS is an
entity separate from CMI and the amounts reflected below are not included in
the results of operations of CMI, except for the portion of the management fee
related to CMI.
Year Ended
December 31,
1993
---------------------------------------------
General
Medical Diagnostic Total
Unaudited: Services Imaging GMMS
------------- ------------ -------------
Services rendered . $ 9,414,011 $3,855,618 $13,269,629
Contractural
allowances ....... (1,849,637) (107,000) (1,956,637)
Net medical service
fee .............. 7,564,374 3,748,618 11,312,992
Less expenses:
Medical personnel
payroll ...... 1,205,684 429,793 1,635,477
Other ........... 319,622 40,196 359,818
------------- ------------ -------------
Total expenses . 1,525,306 469,989 1,995,295
------------- ------------ -------------
Owner physicians
payroll and
entity income . 756,454 -- 756,454
Management fee .. $ 5,282,614 $3,278,629 $ 8,561,243
============= ============ =============
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1994 1995
--------------------------------------------- ---------------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Unaudited: Services Imaging GMMS Services Imaging GMMS
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Services rendered . $15,873,681 $6,362,166 $22,235,847 $17,324,953 $6,685,483 $24,010,436
Contractural
allowances ....... (2,243,719) (502,000) (2,745,719) (2,037,223) (302,297) (2,339,520)
Net medical service
fee .............. 13,629,962 5,860,166 19,490,128 15,287,730 6,383,186 21,670,916
Less expenses:
Medical personnel
payroll ...... 1,418,973 665,695 2,084,668 1,969,157 371,148 2,340,305
Other ........... 474,998 1,177 476,175 502,367 22,186 524,553
------------- ------------ ------------- ------------- ------------ -------------
Total expenses . 1,893,971 666,872 2,560,843 2,471,524 393,334 2,864,858
------------- ------------ ------------- ------------- ------------ -------------
Owner physicians
payroll and
entity income . 1,081,693 -- 1,081,693 522,376 -- 522,376
Management fee .. $10,654,298 $5,193,294 $15,847,592 $12,293,830 $5,989,852 $18,283,682
============= ============ ============= ============= ============ =============
</TABLE>
RELATIONSHIP BETWEEN THE COMPANY AND THE GMMS (UNAUDITED)
General
GMMS' operations are limited to the following activities:
1) Rendering services to patients;
2) Payment of compensation to both the owner physician and other medical
personnel; and
3) Payment of miscellaneous expenses incidental to the rendering of the
medical service.
As more fully discussed below, the Company's operations as they relate to
GMMS include the following activities:
1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
2) Billing and collection for all patient medical services rendered; and
3) Any other activity necessary to ensure the proper delivery of medical
services.
Economics
Because the activities of GMMS are limited to the rendering of medical
services, its principal asset is the accounts receivable due from third-party
payors and/or its patients (minimal services are paid for by the patient at
the time service is rendered). Further, substantially all of the non-clinical
activities of GMMS, as defined by the management agreement, are performed by
the Company (whose activities are fully discussed above and elsewhere in this
annual report) and its principle liability is the amount due to the owner
physician and other medical personnel for services and the fee due under the
management agreement.
The above tabulation reflects those dynamics in that revenue generated by
GMMS in the amount of $13,269,629, $22,235,847 and $24,010,436 for the years
ended December 31, 1993, 1994 and 1995, respectively, have been allocated to
the owner physician, medical personnel, other medical expenses or management
fee.
F-8
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Finally, because the management fee is paid through an assignment of the
accounts receivable and the doctors' compensation is paid currently, GMMS'
cash flow is principally a pass through of cash received for the delivery of
services rendered and cost of those services.
Financial Statements of GMMS
Audited financial statements have not been presented because management
believes that audited financial statements of GMMS would not provide any
additional information that would be meaningful in the evaluation of the
Company's financial position, results of operations, and cash flows, because
GMMS' balance sheets are prepared on the accrual basis and include a very
limited amount of accounts receivable, and immaterial liabilities for
miscellaneous costs not paid due to the timing of cash flows. Further, its
statements of operations would reflect three components: revenues,
compensation to owner physician and medical personnel and management fee,
which information is presented in substantially that form in the above
tabulation. Finally, GMMS as an entity is merely a conduit which distributes
all cash for compensation of the medical professionals.
Depreciation and Amortization
Medical equipment, office furniture and computer and telephone equipment
are depreciated on the straight- line basis over the estimated useful lives
of the assets (5 to 7 years). Leasehold improvements are amortized over the
shorter of the term of the lease or the life of the asset.
Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In performing this review the Company estimates the
future cash flows expected to result from the use of the asset and its
eventual disposition.
Income Taxes
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based upon differences between the financial reporting and the tax
basis of assets and liabilities.
Earnings Per Share
Net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the periods, retroactively adjusted to reflect
the stock split (see Note 4), and the issuance of shares in connection with
the Secured Notes (see Note 7). Such shares have been outstanding for all
periods presented.
3. ACCOUNTS RECEIVABLE
The Company takes ownership on a recourse basis of receivables generated
by the PC's medical practice from third-party payors with a net collectible
value equal to the then current management fee owed to the Company. These
third-party payors are billed at negotiated rates and are principally
insurance carriers. Payment from these sources generally have long collection
cycles. To the extent any receivables assigned to the Company are disputed
and/or referred to arbitration proceedings, such receivables are immediately
substituted under the recourse arrangements between the PC and the Company. In
the event that the laws and regulations establishing these third-party payors
are amended, rescinded or overturned with the effect of eliminating this
system of payment reimbursement for injured parties, the ability of the
Company to market its management services could be affected.
F-9
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
3. ACCOUNTS RECEIVABLE - (Continued)
Collection by the Company of its accounts receivable may be impaired by
the uncollectibility of medical fees from third-party payors. The PC is liable
to the Company for payment of its fees regardless of whether payment is
received for medical services. The Company takes ownership on a recourse basis
of client receivables on amounts equal to the net collectible value of the
then current management fee. The Company has historically experienced delays
in collecting from third-party payors. Many third-party payors, particularly
insurance carriers covering automobile no-fault and workers' compensation
claims refuse, as a matter of business practice , to pay claims unless
submitted to arbitration, and then further defer payment until or near the
date of a scheduled arbitration hearing, generally not to exceed three years
after the submission of a fully documented medical claim. As a result of such
delayed payment, the Company requires more capital to finance its receivables
than businesses with a shorter receivable payment cycle. Further, third-party
payors may reject medical claims if, in their judgment, the procedures
performed were not medically necessary or if the charges exceed such payors
allowable fee standards. Finally, the application forms required by
third-party payors for payment of claims are long, detailed and complex and
payments may be delayed or refused unless such forms are properly completed.
Nevertheless, although the Company takes all legally available steps,
including legally prescribed arbitration, to collect the receivables generated
by the PC, there is a risk that some of those receivables may not be
collected, which may impede the ability of the PC to pay in full all amounts
owed by them to the Company. Accordingly, the collection cycle tends to be
long-term in nature. The Company assesses the recoverability of its accounts
receivable at a minimum, but no less than, quarterly, and may, on a calendar
quarter basis, exchange receivables, at its sole discretion, without
limitations or conditions which it deems uncollectible within a period of
time, for newly generated receivables. The PC has receivables substantially in
excess of the amounts owed the Company after giving effect to their
collectibility. The Company has not had to exercise such option with respect
to any receivables assigned to it for periods ended December 31, 1993, 1994
and 1995.
Periodically, the Company reviews all third-party payor receivables prior
to acceptance for payment of its fee in order to determine those amounts that
are potentially impaired as a result of disputes, billing differences and
length of time outstanding. Those amounts deemed to be impaired are subtracted
from the total third-party payor receivables that are available for payment to
the Company. This factor, along with the fact that the PC assigns its
receivables to the Company on a full recourse basis in payment of its fees,
indicates that recognition for bad debts are not required.
Management has determined, based on actual results and industry factors,
that these receivables have a collection cycle of approximately three years,
and accordingly, have been reflected in the accompanying financial statements
on a discounted basis (12% per annum, which is management's estimate of its
incremental borrowing rate for the period of April 1, 1993 through December
31, 1995). Management believes that its experience and that of the Company is
a good indication of the timing of the collection process. Because numerous
factors affect the timing and the manner in which these receivables are
collected (i.e., government regulations, etc.) it is the Company's policy to
periodically assess the collection of its receivables. As a result, the
Company's estimate of its incremental borrowing rate and collection period may
change.
4. STOCKHOLDERS' EQUITY
Recapitalization
In December 1995, the Company increased its authorized common stock from
1,000 shares $.001 par value to 20,000,000 shares in addition to authorizing
2,000,000 shares of preferred stock with a par value of $.001. Prior thereto,
there had been no authorized preferred stock.
On December 21, 1995 the Company declared a 4921.3243 to 1 stock split in
the form of a stock dividend. After the split, all presently outstanding
shares of the Company, other than shares issued to the Secured Lend
F-10
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
4. STOCKHOLDERS' EQUITY - (Continued)
ers, plus shares issuable to the principal stockholders of the Company in
connection with the merger of Medical Management, Inc. ("MMI") into a
wholly-owned subsidiary of CMI (the "Merger") aggregated 4,000,000 shares (See
Note 13). All outstanding shares and per share amounts included in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split.
Stock Option Plan
The Financial Accounting Standards Board has issued Statement of
Accounting Standard 123 "Accounting for Stock-based Compensation" (SFAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The accounting requirements of SFAS
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995, though they may be adopted upon issuance. The
disclosure requirements of SFAS 123 are effective for financial statements for
fiscal years beginning after December 15, 1995. Management believes the
adoption of this statement would have had no material effect on the financial
statements.
In May 1995, the Company adopted the 1995 Stock Option Plan (the "Plan")
covering up to 700,000 shares of the Company's common stock, pursuant to
which, officers, directors and key employees of the Company and consultants to
the Company are eligible to receive incentive and/or non-incentive stock
options. The Plan, which expires on May 14, 2005, will be administered by the
Board of Directors of the Company or a committee designated by it. Incentive
stock options granted under the Plan are exercisable for a period of up to ten
years from the date of the grant, at an exercise price not less than the fair
market value at the date of the grant, except that the term of the incentive
options granted under the Plan to a stockholder owning more than 10% of the
outstanding common stock of the Company may not exceed five years.
The Company has reserved 700,000 shares of its stock for the future grant
or exercise of options. During 1995 the Company granted 400,000 shares under
the plan at an exercise price of $9.00 per share.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Medical equipment ............................ $ 82,091 $ 83,986
Leasehold improvements ....................... 62,165 169,124
Office furniture ............................. 104,220 140,120
Computer and telephone equipment ............. 127,006 157,666
Motor vehicle ................................ -- 22,757
---------- -----------
375,482 573,653
Less: accumulated depreciation and amortization (71,708) (173,483)
---------- -----------
Net property and equipment ................... $303,774 $ 400,170
========== ===========
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995
---------- -----------
<S> <C> <C>
Accounts payable ........................... $401,771 $ 932,862
Accruals and other current liabilities ..... 107,777 1,531,684
Due to affiliate ........................... 88,053 131,210
Bank overdraft ............................. 144,651 219,962
---------- -----------
Total accounts payable and accrued expenses . $742,252 $2,815,718
========== ===========
</TABLE>
F-11
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
7. NOTES PAYABLE
In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets from three lenders (the "Secured Lenders");
$400,000 from InterEquity Capital Partners ("IECP") and $300,000 each from
Astro Communications, Inc. and William Harris & Company Employee Profit
Sharing Trust. The loans were evidenced by secured notes (the "Secured Notes")
which were due on the earlier of the consummation of the Initial Public
Offering ("IPO") or five years following their issuance. The Secured Note to
IECP carried interest at the rate of 12% per annum for the first six months,
thereafter at 14% until maturity. The other Secured Notes carried interest at
14% from issuance. In addition, the Company paid IECP a processing fee of
$12,500 and reimbursed it for costs of approximately $20,000, which were
charged to operations in the period paid. In connection with execution of the
Secured Notes, the Company issued to the Secured Lenders 27,778 common shares
which have an aggregate value of $250,000 (this original issue discount was
charged to operations over the term of the loan; $12,000 in 1995 and the
balance when the loans were paid in full) when valued at the IPO price of
$9.00 per share (See Note 13). The unamortized portion of the discount of
$237,500 at December 31, 1995 is classified as prepaid and other current
assets on the accompanying balance sheet. Each loan was pre-payable at any
time by the Company without fees, except for a prepayment fee in the case of
the loan from IECP, declining from 5% in the first year to 1% in the fifth
year, provided that no prepayment fee was due if the loan was prepaid from the
proceeds of the IPO or upon the exercise of the call. The loan from IECP was
superior to the loans from the other Secured Lenders in right of payment and
security. The loans were paid in full in January 1996 from the proceeds of the
IPO.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
------ ----------
<S> <C> <C>
Note payable to a finance company for a three year liability
insurance policy covering the Company's directors and officers.
The Company is required to remit thirty monthly payments of
$12,379 (including principal and interest) commencing in March
1996, with annual interest at 5.45% ..................... $ -- $297,500
Note payable to a finance company for the purchase of a 1995
motor vehicle. The Company is required to remit forty-eight
monthly payments of $524 (including principal and interest)
commencing in December 1995, with annual interest at 9.75% -- 20,403
------ ----------
317,903
Less: current portion ................................... -- 89,369
------ ----------
Total long-term debt ................................... $ -- $228,534
====== ==========
At December 31, 1995, future payments for long-term debt were
approximately as follows:
Year ended December 31,
1996 ............................................... $ 89,369
1997 ............................................... 124,909
1998 ............................................... 98,133
1999 ............................................... 5,492
---------
$317,903
=========
</TABLE>
F-12
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
9. COST OF REVENUE
Cost of revenue consists of the following:
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year Ended December 31,
----------------------------
1993 1994 1995
---------------- ------------ ------------
<S> <C> <C> <C>
Compensation/temporary held . $ 834,528 $1,396,413 $1,954,208
Equipment ................. 114,167 191,441 147,439
Medical supplies .......... 52,510 111,038 85,123
Transcription fees ........ 60,783 157,970 286,852
Insurance ................. 40,912 91,893 297,634
---------------- ------------ ------------
Total cost of revenue .... $1,102,900 $1,948,755 $2,771,256
================ ============ ============
</TABLE>
10. INCOME TAXES
The provision for income taxes on income for the period from April 1,
1993 to December 31, 1993, and for the years ended December 31, 1994 and 1995,
differs from the amount computed by applying the federal statutory rate due to
the following:
<TABLE>
<CAPTION>
Period from
April 1, 1993 to Year Ended
December 31, December 31,
---------------- ----------------
(in percentages) 1993 1994 1995
- ---------------- ---------------- ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate ........... 34.0 34.0 34.0
State and local taxes, net of federal benefit . 12.9 12.9 12.9
Other ....................................... 0.1 0.1 0.1
---------------- ------ ------
Total ...................................... 47.0 47.0 47.0
================ ====== ======
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year Ended December 31,
---------------- --------------------------------
1993 1994 1995
---------------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal ..... $ 20,500 $ (6,600) $ (69,500)
State and local 20,129 5,942 13,300
---------------- ------------ ------------
40,629 (658) (56,200)
---------------- ------------ ------------
Deferred:
Federal ..... 514,500 1,544,600 1,778,500
State and local 335,600 978,500 1,139,200
---------------- ------------ ------------
850,100 2,523,100 2,917,700
---------------- ------------ ------------
Total ..... $890,729 $2,522,442 $2,861,500
================ ============ ============
</TABLE>
F-13
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
10. INCOME TAXES - (Continued)
Deferred income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities on the accrual basis used for
financial statement reporting purposes and the cash basis used for income tax
reporting. These temporary differences primarily affect accounts receivable
at December 31, 1994 and 1995. The classification of deferred income taxes
has been determined based upon the collection cycle of accounts receivable
(as more fully described in Note 3) estimated to be approximately three
years. Accordingly, deferred income tax liabilities have been accrued at the
effective tax rate of 47.0%. The following sets forth the components of
deferred tax liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Current:
Accounts receivable .......... $2,371,539 $3,117,125
Less: Discount ............... (456,400) (614,306)
Accounts payable ............. (236,087) (641,821)
Original issue discount ...... -- (5,875)
Net operating loss carry forward -- (55,600)
------------ ------------
Non-current:
Accounts receivable .......... 1,933,161 4,776,693
Less: Discount ............... (284,013) (283,766)
Deferred rent ................ -- (57,151)
------------ ------------
Total non-current ........... 1,649,148 4,435,776
------------ ------------
Total ...................... $3,328,200 $6,235,299
============ ============
</TABLE>
The Company currently utilizes the cash basis method of accounting for tax
reporting purposes. This method allows the Company to defer recognition of
income for tax purposes until the actual collection of cash. Beginning with
calendar year 1997, the Company will be required to change to the accrual
method of accounting for tax purposes. As a result of this change the Company
will be unable to defer payment of taxes on reported income earned in 1997
and beyond. The tax relating to untaxed accrual basis income at December 31,
1996 will be payable over a minimum three year period beginning in 1997.
11. COMMITMENTS AND CONTINGENCIES
The Company leases various medical and office equipment ranging in terms
from one to four years, the last to expire in June 1999. Equipment rental
amounted to approximately $104,000, $141,000 and $126,000, respectively, for
the period from April 1, 1993 to December 31, 1993 and for the years ended
December 31, 1994 and 1995.
The Company leases nine offices in the New York metropolitan area with
remaining terms ranging from two months to approximately seven years, the last
to expire in August 2002. The leases generally require the Company to pay for
increases in real estate taxes and operating costs in addition to minimum
rentals. Rent expense recorded on a straight-line basis is over the full terms
of the leases, was approximately $185,000, $356,000 and $603,000,
respectively, for the period from April 1, 1993 to December 31, 1993 and the
years ended December 31, 1994 and 1995.
F-14
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
11. COMMITMENTS AND CONTINGENCIES - (Continued)
Future minimum lease payments under the above leases, excluding real
estate taxes and operating cost escalations, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31:
1996 ...................... $ 571,000
1997 ...................... 471,000
1998 ...................... 392,000
1999 ...................... 157,000
2000 ...................... 154,000
Thereafter ................ 449,000
------------
Total minimum lease payments $2,194,000
============
</TABLE>
Other income included in the statements of income represents sub-rental
income received on a monthly basis which was discontinued during 1994.
During the latter part of 1995 and early 1996 the Company entered into a
series of employment agreements with its Chief Executive Officer and certain
other Officers and key employees. The agreements have a term of approximately
3 years expiring in 1999 with an aggregate annual compensation of
approximately $1,500,000. In addition and in connection with the execution of
these agreements, the Company intends to grant approximately 325,000 options
at the then fair market value, certain of which will be subject to
shareholder approval.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, MMI, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields (the "Interested
Shareholders") and Gail Shields ("Ms. Shields"), the former wife of Dr.
Lawrence Shields. Under the terms of the Settlement Agreement, as revised on
December 21, 1995, CMI arranged for the sale of 117,187 MMI common shares
owned by Ms. Shields at a net price to Ms. Shields of $5.50 per share and
obtained Ms. Shields' release as the maker of a promissory note for a bank
loan whose proceeds were used by GMMS (which has previously been satisfied by
GMMS) and as lessee of certain premises occupied by GMMS, which lease has
been assigned to CMI. There was no material impact on the financial
statements of CMI or MMI as a result of the foregoing settlement.
12. RELATED PARTY TRANSACTIONS
Since the commencement of operations all of the Company's revenue has
been received from the PC, a medical practice which is 95% owned by a
neurologist who is also a founder and principal stockholder in the Company.
The loss of this customer, or the curtailment of its practice as a result of
the death or disability of its principal stockholder, could have a material
adverse effect on the Company's results of operations. The Company is the
beneficiary of key-man life insurance policies aggregating $5,000,000 insuring
the life of the principal stockholder of the PC.
For the years ended December 31, 1994 and 1995, the Company paid an
entity controlled by a principal stockholder of the Company approximately
$22,300 and $45,000, respectively, to provide design services and to acquire
furniture and furnishings for the Company.
Amounts due to an affiliate of approximately $88,000 and $131,000 at
December 31, 1994 and 1995 respectively, reflect primarily cash advances made
by the affiliate to the Company and are included in accounts payable and
accrued expenses as they are due on demand.
F-15
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
12. RELATED PARTY TRANSACTIONS - (Continued)
During 1993, 1994 and 1995 the Company paid, to a related party, all real
estate and other costs for an office occupied by the PC. These costs were
approximately $9,000 per year.
In connection with management services provided to the PC, the Company
has informal arrangements with three stockholders and an unrelated third party
under which they act as general financial advisors on matters pertaining to
the business and operations of the Company. Consulting fees for the period
from April 1, 1993 to December 31, 1993 and for the years ended December 31,
1994 and 1995 amounted to approximately $292,000 ($205,000 to the related
parties), $313,000 ($200,000 to the related parties) and $193,000 ($110,000 to
the related parties), respectively. Such arrangements with the three
stockholders terminated as of the effective date of the Merger, at which time
they became employees of the Company.
13. SUBSEQUENT EVENTS
In January 1996, the Company completed an initial public offering of
2,000,000 common shares at $9.00 per share and received net proceeds of
$13,480,000. Estimated costs incurred with respect to the registration of the
common shares in addition to the underwriter's commission and expenses and
amount to $3,520,000. In addition, the Company sold to the underwriter, or its
designee, at a price of $.001 per Representative's Warrant, up to 200,000
Warrants entitling the holders thereof to purchase 200,000 common shares of
the Company at a purchase price of $10.80 per share for a period of four years
commencing one year from the date of the IPO.
In January 1996, the Company completed the Merger. The terms of the
Merger provided that MMI shareholders received .778 CMI Common Shares for each
MMI Common share which they held based upon an IPO price of $9.00 per share
(see above). The holders of outstanding options to purchase MMI common shares
received 93,281 CMI Common Shares based upon the difference between their
aggregate option exercise prices and the value thereof at $7.00 per share
divided by the IPO price. In January 1996, the Company issued 2,211,953 common
shares to effect the merger including shares to be issued in satisfaction of
outstanding options and warrants to purchase MMI shares. The excess of
purchase price over net assets acquired as a result of the acquisition,
estimated at $8,856,000, will be amortized over a period not to exceed twenty
years.
In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") to accredited investors. The notes bear interest at 8%,
payable quarterly. The entire principal is due five years from the date of
issuance. Holders of the Notes may convert all or any portion into common
shares of the Company at $9.00 per share, subject to adjustment for stock
splits, dividends, recapitalization, etc. Under certain circumstances, such as
a change in control, holders of the Notes may require the company to redeem
the Notes at 125% of the original principal amount. The Notes are subordinate
in right of payment to certain future indebtedness which may be incurred by
the company. The purchasers and/or affiliates have an option for 120 days to
acquire an additional $3,000,000 of Notes from the Company under the same
terms and conditions.
14. GOVERNMENT REGULATION
The health-care industry is highly regulated by numerous laws,
regulations, approvals and licensing requirements at the federal, state and
local levels. Regulatory authorities have very broad discretion to interpret
and enforce these laws and promulgate corresponding regulation. The Company
believes that its operations under agreements pursuant to which it is
currently providing services are in material compliance with these laws and
regulations. However, there can be no assurance that a court or regulatory
authority will not determine that the Company's operations (including
arrangements with new or existing clients) violate applicable laws or
regulations. If the Company's interpretation of the relevant laws and
regulations is inaccurate, the Company's business and its prospects could be
materially and adversely affected. The following are among the laws and
regulations
F-16
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Consolidated Financial Statements - (Continued)
For the period from April 1, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995
14. GOVERNMENT REGULATION - (Continued)
that affect the Company's operations and development activities:
corporate practice of medicine; fee splitting; anti-referral laws;
anti-kickback laws; certificates of need; regulation of diagnostic imaging;
no-fault insurance; worker's compensation; and proposed healthcare reform
legislation.
15. UNAUDITED PRO FORMA INFORMATION
The pro forma balance sheet at December 31, 1995 and the pro forma
adjustments to the statement of stockholders' equity for the year then ended
have been adjusted to reflect the sale of 2,000,000 common shares at $9.00 per
share through the initial public offering discussed above (Note 13).
F-17
<PAGE>
COMPLETE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
-------------- -------------
1995 1996
-------------- -------------
(Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ -- $ 2,539,679
Marketable securities available-for-sale ....................... -- 9,599,316
Notes receivable from a related party .......................... -- 1,985,641
Accounts receivable:
From a related party, less allowances of $-0- and $609,000,
respectively and net of unamortized discount of $1,307,034
and $1,575,454, respectively .............................. 5,325,147 8,952,211
Other ........................................................ -- 424,498
-------------- -------------
5,325,147 9,376,709
Prepaid expenses and other current assets ...................... 356,097 514,049
-------------- -------------
Total current assets ...................................... 5,681,244 24,015,394
Long-term portion of notes receivable from a related party .......... -- 134,492
Long-term portion of accounts receivable from a related party, net of
unamortized discount of $603,758 and $731,998, respectively ....... 9,559,424 16,473,716
Property and equipment, net ......................................... 400,170 4,803,345
Excess of cost over net assets acquired, less accumulated amortization
of $108,000 ....................................................... -- 8,567,088
Deferred registration costs ......................................... 1,985,446 --
Deferred costs, net of amortization of $65,000 ...................... -- 95,959
Other assets ........................................................ 233,777 264,294
-------------- -------------
Total assets .............................................. $17,860,061 $54,354,288
============== =============
Liabilities and shareholders' equity
Current liabilities:
Notes payable .................................................. $ 1,000,000 $ --
Accounts payable and accrued expenses .......................... 2,937,313 2,295,565
Income taxes payable ........................................... 39,371 126,034
Deferred income taxes -- current ............................... 1,799,523 4,214,450
Current portion of long-term debt .............................. 89,369 223,468
Current portion of obligations under capital leases ............ -- 380,569
-------------- -------------
Total current liabilities ................................. 5,865,576 7,240,086
Deferred income taxes -- non-current ................................ 4,435,776 5,902,100
Long-term debt ...................................................... 228,534 2,339,241
Obligations under capital leases .................................... -- 1,251,846
Commitments and contingencies
Shareholders' equity:
Preferred shares, $.001 par value:
Authorized 2,000,000 shares
Issued and outstanding, none ................................. -- --
Common shares, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 2,980,573 and 7,438,298 shares,
respectively ............................................... 2,981 7,438
Paid-in capital ................................................ 249,972 29,426,335
Retained earnings .............................................. 7,077,222 8,187,242
-------------- -------------
Total shareholders' equity ................................... 7,330,175 37,621,015
-------------- -------------
Total liabilities and shareholders' equity ................ $17,860,061 $54,354,288
============== =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-18
<PAGE>
COMPLETE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenue:
From a related party ......................................... $3,000,000 $5,078,008
Other ........................................................ -- 122,325
Interest discount ............................................ (487,196) (515,176)
------------ ------------
Net revenue ....................................................... 2,512,804 4,685,157
Cost of revenue ................................................... 566,904 1,724,845
General and administrative expenses ............................... 652,557 1,312,848
Fees paid to related parties ...................................... 37,250 10,425
------------ ------------
1,256,711 3,048,118
------------ ------------
Operating income .................................................. 1,256,093 1,637,039
Other income (expense):
Interest discount included in income ......................... 302,334 587,076
Interest and dividend income ................................. -- 115,633
Interest expense ............................................. -- (307,670)
Gain on sale of marketable securities ........................ -- 158,442
------------ ------------
Net income before provision for income taxes ...................... 1,558,427 2,190,520
Provision for income taxes ........................................ 732,400 1,080,500
------------ ------------
Net income ........................................................ $ 826,027 $1,110,020
============ ============
Net income per share .............................................. $ 0.28 $ 0.15
============ ============
Weighted average number of common shares and equivalents outstanding 2,980,573 7,438,298
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-19
<PAGE>
COMPLETE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Operating activities
Net income ......................................................... $ 826,027 $ 1,110,020
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................. 72,915 350,490
Provision for deferred income taxes ........................... 726,000 1,077,250
Amortization of discount of accounts receivable, net .......... 184,862 (71,900)
Gain on sale of marketable securities ......................... -- (158,442)
Write-off of original issue discount .......................... -- 237,500
Changes in operating assets and liabilities:
Notes receivable from a related party .................... -- (1,589,550)
Accounts receivable ...................................... (1,828,800) (3,474,496)
Prepaid expenses and other current assets ................ -- (239,034)
Accounts payable and accrued expenses .................... 99,130 (1,161,507)
Other assets ............................................. (1,047) (36,000)
Income taxes payable ..................................... 6,400 409
------------- --------------
Net cash provided by (used in) operating activities ................ 85,487 (3,955,260)
------------- --------------
Investing activities
Purchase of property and equipment ................................. (83,144) (378,973)
Purchase of marketable securities .................................. -- (15,100,094)
Proceeds from sale of marketable securities ........................ -- 5,781,160
------------- --------------
Net cash used in investing activities .............................. (83,144) (9,697,907)
------------- --------------
Financing activities
Proceeds from issuance of common stock, net of underwriter's
commission and expenses .......................................... -- 16,380,000
Payments of registration costs of common stock ..................... -- (1,166,992)
Proceeds from long-term debt ....................................... -- 2,000,000
Bank overdraft ..................................................... (2,343) --
Cash acquired in merger ............................................ -- 103,631
Repayment of notes payable ......................................... -- (1,000,000)
Principal payments on long-term debt ............................... -- (34,911)
Repayment of capital lease obligations ............................. -- (88,882)
------------- --------------
Net cash (used in) provided by financing activities ................ (2,343) 16,192,846
------------- --------------
Net increase in cash and cash equivalents .......................... -- 2,539,679
Cash and cash equivalents, beginning of period ..................... -- --
------------- --------------
Cash and cash equivalents, end of period ........................... $ -- $ 2,539,679
============= ==============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ...................................................... $ -- $ 64,839
Taxes ......................................................... -- 2,842
Non-cash financing activities:
Capital stock issued for acquisition .......................... $ -- $ 15,266,463
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-20
<PAGE>
COMPLETE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying consolidated financial statements are unaudited and in
the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. Operating
results for the three month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the financial statements and footnotes
thereto included in the Complete Management, Inc. ("CMI" or the "Company")
audited financial statements for the year ended December 31, 1995.
The Company's primary client, Greater Metropolitan Medical Services
("GMMS") is a multi-specialty medical practice group which provides
evaluations, diagnosis and treatment in the New York metropolitan area.
Currently, the practice's primary medical focus is to treat patients with
injury-related conditions who carry insurance with various different insurance
carriers under the Workers' Compensation and No-fault guidelines.
The following unaudited tabulation sets forth the operating results of
GMMS for the three months ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1995 March 31, 1996
------------------------------------------- -------------------------------------------
General General
Medical Diagnostic Total Medical Diagnostic Total
Services Imaging GMMS Services Imaging GMMS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ......... $4,529,253 $1,577,028 $6,106,281 $5,044,019 $2,052,998 $7,097,017
Contractual allowances .... (382,723) (68,981) (451,704) (448,856) (176,753) (625,609)
------------ ------------ ------------ ------------ ------------ ------------
Net medical service fees .. 4,146,530 1,508,047 5,654,577 4,595,163 1,876,245 6,471,408
------------ ------------ ------------ ------------ ------------ ------------
Less expenses:
Medical personnel payroll . 369,460 105,711 475,171 688,930 82,802 771,732
Other ................... 101,605 3,774 105,379 342,652 26,498 369,150
------------ ------------ ------------ ------------ ------------ ------------
Total expenses ....... 471,065 109,485 580,550 1,031,582 109,300 1,140,882
------------ ------------ ------------ ------------ ------------ ------------
Owner physician payroll and
entity income ........ 675,465 -- 675,465 252,518 -- 252,518
------------ ------------ ------------ ------------ ------------ ------------
Management fee ............ $3,000,000 $1,398,562 $4,398,562 $3,311,063 $1,766,945 $5,078,008
============ ============ ============ ============ ============ ============
</TABLE>
RELATIONSHIP BETWEEN THE COMPANY AND GMMS (UNAUDITED)
GENERAL
GMMS' operations are limited to the following activities:
(1) Rendering services to patients;
(2) Payment of compensation to both the owner physician and other
medical personnel; and
(3) Payment of miscellaneous expenses incidental to the rendering of
the medical services.
As more fully discussed below, the Company's operations as they relate to
GMMS include the following activities:
1) Patient scheduling, record transcription, non-clinical intake
examination, and insurance verification;
2) Billing and collection for all patient medical services rendered;
and
3) Any other activity necessary to ensure the proper delivery of
medical service.
F-21
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION AND OPERATIONS - (Continued)
ECONOMICS
The activities of GMMS are limited to the rendering of medical services,
and accordingly, its principle asset is the accounts receivable due from the
third-party payors and/or its patients (minimal services are paid for by the
patient at the time service is rendered). Further, substantially all of the
non-clinical activities of GMMS, as defined by the management agreement, are
performed by the Company. GMMS' principal liabilities are the amount due to
the owner physician and other medical personnel for services and the fee due
to the Company under the management agreement.
The tabulation above reflects those dynamics in that revenue generated by
GMMS in the amount of $6,106,281 and $7,097,017 for the three months ended
March 31, 1995 and 1996, respectively, has been allocated to the owner
physician and medical personnel payroll and management fee due to the
Company.
Finally, due to the fact that the management fee is paid by GMMS, through
an assignment of its accounts receivable, and the doctors' compensation is
paid currently, GMMS' cash flows are principally a pass through of cash
received for the delivery of services rendered and cost of those services.
Notes receivable from a related party included in the accompanying
unaudited balance sheet, represents working capital advances made to GMMS
which are due on demand.
EXCESS OF COST OVER NET ASSETS ACQUIRED
For purposes of amortizing the excess of cost over net assets acquired
(goodwill) arising from the acquisition and merger of Medical Management,
Inc. ("MMI") (as described in Note 2) the Company's policy is to record
goodwill resulting from the merger based on appraisals, evaluations and
estimates of the fair value of the assets acquired. Until such time that
these evaluations are completed, the Company is amortizing goodwill on the
straight-line method over a 20-year period. The value of goodwill and the
period of amortization of goodwill may be adjusted in future periods when the
fair value and useful lives of the assets acquired are determined.
ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
Being Disposed Of", which the Company adopted on January 1, 1996. This
statement requires that long-lived assets and identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amounts of the assets may not be recoverable. In evaluating
recoverability, the Company estimates the future cash flows expected to
result from the assets and its eventual disposition. If the sum of future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. No such loss was recognized in the March 31,
1996 financial statements.
STOCK OPTION PLAN
The Financial Accounting Standards Board has issued Statement of
Accounting Standard No. 123 "Accounting for Stock-based Compensation" ("SFAS
123"). This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. The requirements of
SFAS 123 are effective for transactions entered into in fiscal years that
begin after December 15, 1995, though they may be adopted upon issuance. The
disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995. The adoption of this
statement had no material effect on the March 31, 1996 financial statements.
F-22
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
March 31, 1996
2. INITIAL PUBLIC OFFERING AND ACQUISITION OF MEDICAL MANAGEMENT, INC.
On January 3, 1996, the Company completed an Initial Public Offering (the
"IPO") of 2,000,000 common shares at $9.00 per share and received proceeds net
of underwriter's commission and expenses of $16,380,000. Costs incurred with
respect to the registration of the common shares in addition to the
underwriter's commission and expenses amounted to $2,468,000. In addition, the
Company sold to the underwriter, or its designee, at a price of $.001 per
Representative's Warrant, up to 200,000 Warrants entitling the holders thereof
to purchase 200,000 common shares of the Company at a purchase price of $10.80
per share for a period of four years commencing one year from the date of the
IPO.
Simultaneously, upon the completion of the IPO, the Company acquired
Medical Management, Inc., through a merger, as a wholly-owned subsidiary of
CMI. MMI is principally engaged in providing diagnostic imaging equipment and
billing and management services thereto. Currently, MMI operates six
diagnostic imaging units for two clients. MMI has also entered into two
additional agreements for diagnostic imaging units at two metropolitan area
hospitals. GMMS is the primary client of MMI and the sole client of CMI. The
terms of the merger provided that MMI shareholders receive .778 CMI common
shares for each common share which they held based upon the IPO price of $9.00
per share. The holders of outstanding options to purchase MMI common shares
received 93,281 CMI common shares based upon the difference between their
aggregate option exercise prices and the value thereof at $7.00 per share
divided by the IPO price. In January 1996, CMI issued 2,211,953 common shares
to effect the merger including shares to be issued in satisfaction of
outstanding options and warrants to purchase the MMI shares. Upon the closing
of CMI's initial public offering on January 3, 1996, the President and Chief
Executive Officer and Vice President and Chief Operating Officer of MMI became
offi- cers of CMI.
The following table summarizes selected unaudited pro forma financial
data for the three months ended March 31, 1995. The amounts shown have been
prepared to illustrate the effect of the consummation of the acquisition as if
the transaction had taken place on January 1, 1995.
<TABLE>
<CAPTION>
Three months ended
March 31, 1995 Pro forma Pro forma
----------------------------
CMI MMI Total Adjustments Total
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ................................ $3,000,000 $1,738,018 $4,738,018 $ -- $4,738,018
Interest discount ...................... (487,000) -- (487,000) (171,000) (1) (658,000)
------------ ------------ ------------ -------------- ------------
Net revenue ............................ $2,513,000 $1,738,018 $4,251,018 $ (171,000) $4,080,018
============ ============ ============ ============== ============
Income before provision for income taxes . $1,558,427 $ 561,346 $2,119,773 $ (272,444) (2) $1,847,329
Provision for income taxes ............. 732,000 267,000 999,000 (79,800) (3) 919,200
------------ ------------ ------------ -------------- ------------
Net income ............................. $ 826,427 $ 294,346 $1,120,773 $ (192,644) $ 928,129
============ ============ ============ ============== ============
Net income per share ................... $ 0.12
Weighted average number of common shares and
equivalents outstanding ............... 7,438,298
============
Pro forma adjustments:
(1) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over a two-year
period at an interest rate of 12% which is management's estimate of its incremental borrowing rate .. $ (171,000)
============
(2) Adjustments consist of the following:
(a) Reflects an interest discount taken for the presumed collection cycle of MMI revenues over a two
year period at an interest rate of 12%, which is management's estimate of its incremental
borrowing rate .................................................................................... $ (171,000)
(b) Reflects increased costs of employment agreements ................................................ (144,000)
(c) Reflects the amortization on the straight-line method over a 20-year period of the excess of cost
over net assets acquired recorded at approximately $8,676,000 ..................................... (108,444)
(d) Represents interest income earned as a result of the amortization over a two-year period of the
interest discount in (1) above .................................................................... 151,000
------------
Total adjustments .................................................................................... $ (272,444)
============
(3) Assumes an effective tax rate after adjustments of 47% ............................................. $ (79,800)
============
</TABLE>
F-23
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
March 31, 1996
3. ACCOUNTS RECEIVABLE
The Company's accounts receivables are generated from its clients (the
"Clients") under management contracts whereby the Company is entitled to
management fees for practice management services it performed or an
agreed-upon fee for each medical procedure performed.
As collateral for its fee revenue receivable from its primary client,
GMMS, the Company has a security interest in GMMS' trade receivables.
In 1996, as part of the Company's periodic review for potential
impairment of all third-party payor receivables prior to the acceptance for
payment of its fee, the Company determined that based upon its Clients'
historical collection experience and the results of the review, its Clients
had receivables substantially in excess of the amounts owed to the Company
after giving effect to their collectability. Accordingly, this factor along
with the fact that GMMS assigns it receivables to the Company on a full
recourse basis in payment of its fees indicates that recognition of bad debts
is not required.
Management has determined, based on actual results and industry factors,
that CMI's and MMI's receivables have collection cycles of approximately three
years and two years, respectively, and accordingly, have been reflected in the
accompanying financial statements on a discounted basis (8% per annum in 1996
and 12% per annum in 1995). Management believes that its experience and that
of the Company is a good indication of the timing of the collection process.
Because numerous factors affect the timing and the manner in which their
receivables are collected (i.e., government regulations, etc.), it is the
Company's policy to periodically assess the collection of its receivables. As
a result, the Company's estimate of its incremental borrowing rate and
collection period may change.
4. NOTES PAYABLE
In September and October 1995, the Company borrowed an aggregate of
$1,000,000 secured by all assets from three lenders (the "Secured Lenders").
The loans were evidenced by secured notes (the "Secured Notes") which were due
on the earlier of the consummation of the IPO or five years following their
issuance. The Secured Notes carried interest rates of 12% to 14% per annum. In
addition, the Company paid a processing fee of $12,500 and reimbursed them for
costs of approximately $20,000, which were charged to operations in the period
paid. In connection with execution of the Secured Notes, the Company issued to
the Secured Lenders 27,778 common shares which have an aggregate value of
$250,000 (this original issue discount was charged to operations over the term
of the loan; $12,500 in 1995 and $237,500 in January 1996) when valued at the
IPO price of $9.00 per share. The unamortized portion of the discount of
$237,500 at December 31, 1995 was classified as prepaid and other current
assets on the accompanying balance sheet. The Secured Notes were paid in full
in January 1996 from the proceeds of the IPO.
In March 1996, the Company sold $2,000,000 of Convertible Subordinated
Notes (the "Notes") to accredited investors. The notes bear interest at 8%,
payable quarterly. The entire principal is due five years from the date of
issuance. Holders of the Notes may convert all or any portion into common
shares of the Company at $9.00 per share, subject to adjustment for stock
splits, dividends, recapitalization, etc. Under certain circumstances, such as
a change in control, holders of the Notes may require the Company to redeem
the Notes at 125% of the original principal amount. The Notes are subordinate
in right of payment to certain future indebtedness which may be incurred by
the Company. The purchasers and/or affiliates have an option for 120 days to
acquire an additional $3,000,000 of Notes from the Company under the same
terms and conditions.
F-24
<PAGE>
COMPLETE MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
March 31, 1996
5. SUBSEQUENT EVENTS
On April 2, 1996, options for an aggregate of 835,000 shares, exercisable
at $8.375 price during a ten-year period were granted to 8 officers and 12
other employees and consultants of the Company. These options will be
exercisable for one-third of the shares covered thereby as of the date of the
grant and for an additional one- third of the shares covered thereby each year
thereafter. In addition, options for 20,000 shares were granted to each of the
Company's two outside directors. Options granted to outside directors are
exercisable for 50% of the shares covered immediately upon grant and for the
remainder of the shares following one year's service.
On April 24, 1996, the common shares of the Company were approved for
listing on the American Stock Exchange under the symbol "CMI" and began
trading on May 6, 1996.
On May 1, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for $30,000,000 Convertible Subordinated
Debentures (the "Debentures") due 2003 at an interest rate ranging from 7 to 8
1/2 %, payable semi-annually on August 15 and February 15. The debentures are
convertible into common shares, par value $.001 per share, of the Company at
any time prior to maturity, unless previously redeemed, at a conversion price
of 120% to 130% of the closing price of the common shares on the American
Stock Exchange on the effective date of the offering, subject to adjustment in
certain events.
6. NET INCOME PER SHARE
Net income per common share has been computed by dividing net income by
the weighted average number of common shares outstanding during the periods.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Medical Management, Inc.:
We have audited the accompanying balance sheet of Medical Management, Inc. (a
New York Corporation) as of December 31, 1995, and the related statements of
income, stockholders' equity and cash flows for the year then ended. 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 audit. The financial statements of Medical Management, Inc. as of
December 31, 1993 and 1994, were audited by other auditors whose report dated
March 21, 1995, except for paragraph 3 of Note 4 and paragraph 2 of Note 13
as to which the date is April 17, 1995, expressed an unqualified opinion on
those statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Management, Inc. as
of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
As explained in Note 3 to the financial statements, effective January 1,
1995, the Company changed its method of accounting for certain accounts
receivable.
ARTHUR ANDERSEN LLP
New York, New York
April 26, 1996
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Medical Management, Inc.
We have audited the accompanying balance sheet of Medical Management, Inc.
(formerly MRI Management Associates, Inc.) (the "Company") as of December 31,
1994 and the related statements of income, stockholders' equity and cash
flows for the years ended December 31, 1993 and 1994. 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 our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Management, Inc.
(formerly MRI Management Associates, Inc.) at December 31, 1994, and the
results of its operations and its cash flows for the years ended December 31,
1993 and 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 21, 1995, except for paragraph 3
of Note 4 and paragraph 2 of Note 13,
as to which the date is April 17, 1995
F-27
<PAGE>
MEDICAL MANAGEMENT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 92,813 $ 103,631
Marketable securities available-for-sale ........................ 905,157 121,940
Notes receivable from a related party ........................... -- 166,745
Accounts receivable:
From a related party, less allowances of $434,000 and $609,000,
respectively, and net of unamortized discount of $407,300
at 1995 .................................................... 2,461,667 3,478,204
Other, less allowances of $57,000 and $-0-, respectively ..... 363,542 429,875
------------ -------------
2,825,209 3,908,079
Prepaid expenses and other current assets, less allowances of
$9,000 and $8,000, respectively .............................. 240,660 156,418
Amounts due from related parties ................................ 20,386 131,210
------------ -------------
Total current assets ............................................ 4,084,225 4,588,023
Long-term portion of notes receivable from a related party ........ -- 167,841
Long-term portion of accounts receivable:
From a related party, less allowances of $370,000 and $-0-,
respectively, and net of unamortized discount of $-0- and
$61,300, respectively ......................................... 2,097,000 3,511,337
Other, less allowances of $48,000 and $-0- respectively ......... 310,000 --
------------ -------------
2,407,000 3,511,337
Amounts due from related parties .................................. 195,997 195,997
Property and equipment, net ....................................... 2,793,752 4,256,732
Deferred registration costs ....................................... -- 699,240
Deferred costs, net of amortization of $21,040 and $55,000,
respectively .................................................... 195,463 40,020
Deposits .......................................................... 40,900 60,013
------------ -------------
Total assets .................................................... $9,717,337 $13,519,203
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses (including consulting fees
payable to related party of approximately $36,000 and $-0-,
respectively) ................................................. $ 435,934 $ 1,334,958
Income taxes payable ............................................ 81,430 86,255
Deferred income taxes -- current ................................ 1,084,000 1,473,000
Current portion of long-term debt ............................... 326,289 110,084
Current portion of obligations under capital leases ............. 19,105 370,439
------------ -------------
Total current liabilities ....................................... 1,946,758 3,374,736
Deferred income taxes -- non-current .............................. 1,041,000 1,331,000
Long-term debt .................................................... 279,716 169,633
Obligations under capital leases .................................. 94,457 1,350,857
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value:
Authorized, 20,000,000 shares
Issued and outstanding, 3,010,000 shares at 1994 and 3,040,000
shares at 1995 ............................................. 3,010 3,040
Additional paid-in capital ...................................... 4,996,826 5,064,296
Retained earnings ............................................... 1,431,546 2,212,635
Unrealized gain (loss) on marketable securities available-for-sale (75,976) 13,006
------------ -------------
Total stockholders' equity ...................................... 6,355,406 7,292,977
------------ -------------
Total liabilities and stockholders' equity ................... $9,717,337 $13,519,203
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
From a related party ............................ $3,278,629 $5,193,294 $5,989,852
Other ........................................... -- 856,018 1,297,089
Interest discount ............................... -- -- (701,874)
------------ ------------ ------------
3,278,629 6,049,312 6,585,067
Cost of revenue ................................... 760,750 1,220,516 2,791,839
General and administrative expenses ............... 1,170,642 1,852,070 2,382,494
Provision for uncollectible accounts receivable:
From a related party ............................ 107,000 397,000 --
Other ........................................... -- 105,000 --
------------ ------------ ------------
2,038,392 3,574,586 5,174,333
------------ ------------ ------------
Operating income .................................. 1,240,237 2,474,726 1,410,734
Other income (expense):
Interest discount included in income ............ -- -- 650,992
Interest and dividend income .................... 43,033 133,230 119,442
Other income .................................... 29,108 24,879 29,684
Interest expense ................................ (41,291) (133,789) (333,898)
(Loss) gain on sale of marketable securities .... -- (26,512) 14,812
------------ ------------ ------------
Income before provision for income taxes and
cumulative effect of change in accounting
principle ....................................... 1,271,087 2,472,534 1,891,766
Provision for income taxes ........................ 925,000 1,171,000 889,000
------------ ------------ ------------
Income before cumulative effect of change in
accounting principle ............................ 346,087 1,301,534 1,002,766
Cumulative effect of change in accounting principle
net of income tax benefit of $196,000 .......... -- -- 221,677
------------ ------------ ------------
Net income ........................................ $ 346,087 $1,301,534 $ 781,089
============ ============ ============
Income before cumulative effect of change in
accounting principle per share .................. $ 0.33
Cumulative effect of change in accounting principle
net of tax benefit per share .................... (0.07)
------------
Net income per share .............................. $ 0.43 $ 0.26
============ ============
Historical income before provision for income taxes . $1,271,087
Unaudited pro forma information:
Pro forma adjustment for officers compensation .. 126,000
------------
Pro forma income before income taxes ............ 1,145,087
Pro forma provision for income taxes ............ 570,000
------------
Pro forma net income .............................. $ 575,087
============
Pro forma net income per share .................... $ 0.26
============
Pro forma amounts assuming the discounting of certain
accounts receivable is applied retroactively: ...
Pro forma net income .............................. $ 553,902 $1,211,459 $1,002,766
============ ============ ============
Pro forma net income per share .................... $ 0.25 $ 0.40 $ 0.33
============ ============ ============
Weighted average number of common shares and
equivalents outstanding ......................... 2,185,062 3,008,329 3,035,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
gain (loss) on
marketable
Additional securities
Common paid-in available- Retained
stock capital for-sale earnings Total
-------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ............ $2,000 $ -- $ -- $ 1,214,617 $ 1,216,617
Net income for the year ended December 31,
1993 ................................... -- -- -- 346,087 346,087
Distributions to stockholders during the
year ended December 31, 1993 ........... -- -- -- (317,420) (317,420)
Deferred financing charge representing the
estimated fair value ascribed to shares
contributed by stockholders ............ -- 40,000 -- -- 40,000
Proceeds from issuance of 1,000,000 shares
of common stock of $.001 par value in an
initial public offering ................ 1,000 4,999,000 -- -- 5,000,000
Shares issuance expenses ................ -- (1,180,436) -- -- (1,180,436)
Undistributed retained earnings as of
effective date of initial public offering -- 1,113,272 -- (1,113,272) --
Unrealized loss on marketable securities . -- -- (213) -- (213)
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1993 ............ 3,000 4,971,836 (213) 130,012 5,104,635
Net income for the year ended December 31,
1994 ................................... -- -- -- 1,301,534 1,301,534
Unrealized loss on marketable securities . -- -- (75,763) -- (75,763)
Issuance of 10,000 shares of common stock
of $.001 par value ..................... 10 24,990 -- -- 25,000
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1994 ............ 3,010 4,996,826 (75,976) 1,431,546 6,355,406
Net income for the year ended December 31,
1995 ................................... -- -- -- 781,089 781,089
Unrealized gain on marketable securities . -- -- 88,982 -- 88,982
Issuance of 30,000 shares of common stock
of $.001 par value ..................... 30 67,470 -- -- 67,500
-------- ------------- -------------- ------------- -------------
Balance at December 31, 1995 ............ $3,040 $ 5,064,296 $ 13,006 $ 2,212,635 $ 7,292,977
======== ============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income ................................................. $ 346,087 $ 1,301,534 $ 781,089
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................ 9,242 327,462 928,385
Provision for deferred income taxes ...................... 821,000 1,152,000 875,000
Discount of accounts receivable, net of amortization ..... -- -- 50,882
Provision for (recovery of) uncollectible accounts
receivable ............................................. 107,000 502,000 (300,000)
Non cash expense related to issuance of common stock ..... -- 25,000 67,500
Non cash financing charge ................................ 40,000 -- --
Loss (gain) on sale of marketable securities ............. -- 26,512 (14,812)
Cumulative effect on prior year (to December 31, 1994)
of implementing discounting of accounts receivable .... -- -- 221,677
Changes in operating assets and liabilities:
Notes receivable from a related party ................. -- -- (334,586)
Accounts receivable ................................... (726,310) (3,432,969) (2,355,766)
Prepaid expenses and other current assets ............. (44,097) (187,389) 84,242
Amounts due from related parties ...................... (3,694) (212,689) (110,824)
Accounts payable and accrued expenses ................. 54,588 71,255 899,024
Income taxes payable .................................. 96,381 (18,951) 4,825
------------- ------------- -------------
Net cash provided by (used in) operating activities ........ 700,197 (446,235) 796,636
------------- ------------- -------------
Investing activities
Purchase of property and equipment ......................... (1,143,605) (1,380,940) (283,009)
Purchase of marketable securities .......................... (1,642,799) (393,661) (120,902)
Proceeds from maturing of marketable securities ............ -- 100,000 --
Proceeds from sale of marketable securities ................ -- 928,815 1,007,913
Deferred costs ............................................. (57,203) (159,300) (1,791)
Deposits ................................................... (3,700) (11,600) (19,113)
------------- ------------- -------------
Net cash (used in) provided by investing activities ........ (2,847,307) (916,686) 583,098
------------- ------------- -------------
Financing activities
Proceeds from issuance of common stock ..................... 5,000,000 -- --
Share issuance expenses .................................... (1,164,815) -- --
Distributions to stockholders .............................. (317,420) -- --
Deferred registration costs ................................ -- -- (699,240)
Proceeds from long-term debt and other borrowings .......... 230,000 836,129 --
Principal payments on long-term debt and other borrowings .. (646,714) (460,916) (326,289)
Repayment of capital lease obligations ..................... -- -- (343,387)
------------- ------------- -------------
Net cash provided by (used in) financing activities ........ 3,101,051 375,213 (1,368,916)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ....... 953,941 (987,708) 10,818
Cash and cash equivalents, beginning of period ............. 126,580 1,080,521 92,813
------------- ------------- -------------
Cash and cash equivalents, end of period ................... $ 1,080,521 $ 92,813 $ 103,631
============= ============= =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ................................................. $ 456 $ 100,166 $ 333,898
Taxes .................................................... 7,350 39,325 9,175
Non-cash investing activities:
Capital lease obligations ............................... -- -- $ 1,951,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. DESCRIPTION OF BUSINESS
Medical Management, Inc. (the "Company"), a New York corporation, was
incorporated as MRI Management Associates, Inc. on December 24, 1991.
Effective January 3, 1995, the Company's name was changed to Medical
Management, Inc. The Company provides magnetic resonance imaging ("MRI") and
other medical equipment and comprehensive services for the financing,
installation and administrative management of MRI and other facilities on
behalf of physicians.
In April 1992, the Company commenced operations and began servicing its
initial client, Greater Metropolitan Medical Services ("GMMS"), a multi-site
neurological medical practice located in the New York metropolitan area.
Currently, the Company operates six diagnostic imaging units for three
clients. GMMS is the primary client of the Company. Separate MRI units and
other medical equipment are used exclusively for the treatment of patients of
each client. All fee revenue for the period from inception to December 31,
1993, and approximately 86% and 82% of fee revenue for the years ended
December 31, 1994 and 1995, respectively, is from GMMS. The Company's
agreement with GMMS is for a period of twenty-nine years ending in June 2025.
In addition, the Company also has an agreement with a neurology practice
located in the New York metropolitan area. The Company's agreement with the
client is for a period of seven years ending in March 2002.
At December 31, 1995, Dr. Lawrence Shields, the 95% physician stockholder
of GMMS was also a major stockholder of the Company. The loss of GMMS as a
customer or curtailment of its practice as a result of the death or disability
of Dr. Shields could have a material adverse effect on the Company's results
of operations. The Company is the beneficiary of key-man life insurance
policies aggregating $5,000,000 covering the life of Dr. Shields.
On January 3, 1996, Complete Management, Inc. ("CMI") completed an
initial public offering ("IPO") of 2,000,000 of its common shares at $9.00 per
share and a simultaneous acquisition and merger of the Company as a wholly
owned subsidiary of CMI (see Note 18). CMI provides comprehensive management
services primarily to high volume medical practices in New York State. CMI's
services include development, administration and leasing of medical offices
and equipment, staffing and supervision of non-medical personnel, accounting,
billing and collection, and development and implementation of practice growth
and marketing strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF 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
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Fee revenue is recognized when the medical procedure is performed.
DEPRECIATION AND AMORTIZATION
Medical equipment, office furniture and computer and telephone equipment
are depreciated on the straight- line basis over the shorter of the estimated
useful lives of the assets (5 to 7 years) or the term of the capital lease.
Leasehold improvements are amortized over the shorter of the term of the
lease or life of the assets.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
F-32
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
Being Disposed Of," which the Company has adopted on January 1, 1995. This
statement requires that long-lived assets and identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amounts of the assets may not be recoverable. In evaluating
recoverability, the Company estimates the future cash flows expected to
result from the asset and its eventual disposition. If the sum of future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. No such loss was recognized in the December
31, 1995 financial statements.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting For Certain Investments in Debt and Equity Securities".
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax effect, reported as a
separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method
INCOME TAXES
Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based upon differences between the financial reporting and tax
basis of assets and liabilities.
EARNINGS PER SHARE
Net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. All options issued were anti-dilutive and, accordingly, were excluded
from the calculation for weighted average shares.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
3. CHANGE IN ACCOUNTING PRINCIPLE -- DISCOUNTING OF ACCOUNTS RECEIVABLE
Effective January 1, 1995, the Company adopted the policy of discounting
certain of its accounts receivable balances which have historically been
collected in a period in excess of one year. Discounting was not implemented
in prior years as the Company's period of operations was insufficient to
adequately determine the appropriate collection period. In 1995, discounting
of certain accounts receivable was adopted based upon the results of the
Company's periodic reviews of its accounts receivable from GMMS and its
analysis of the related collec
F-33
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
3. CHANGE IN ACCOUNTING PRINCIPLE -- DISCOUNTING OF ACCOUNTS RECEIVABLE
- (Continued)
tion period which indicated that these receivables have a collection
cycle of approximately two years. The applicable accounts receivable have been
discounted utilizing an interest rate of 12% per annum, management's best
estimate of its incremental borrowing rate from April 1992 (commencement of
operations) through December 31, 1995. The impact of this change in accounting
policy considers accounts receivable generated in prior years. The effect of
the change in 1995 was to decrease income before income taxes by approximately
$51,000. The adjustment of $221,677 (after an income tax benefit of $196,000)
is shown as a cumulative effect of change in accounting principle in the
accompanying statements of income.
4. ACCOUNTS RECEIVABLE
The Company is entitled to an agreed-upon fee for each medical procedure
performed. As collateral for its fee revenue receivable from its primary
client, GMMS, the Company has a security interest in GMMS' trade receivables.
The Company's clients (the "Clients") bill at rates negotiated with third
party payors, principally commercial insurance carriers. Reimbursements may
result in amounts received being less than established charges. Many
third-party payors, particularly insurance carriers covering automobile
no-fault and workers' compensation claims refuse, as a matter of business
practice, to pay claims unless submitted to arbitration, and then further
defer payment until or near the date of a scheduled arbitration hearing,
generally not to exceed three years after the submission of a fully documented
medical claim. As a result of such delayed payment, the Company requires more
capital to finance its receivables than businesses with a shorter receivable
payment cycle. Further, third-party payors may reject medical claims if, in
their judgment, the procedures performed were not medically necessary or if
the charges exceed such payors allowable fee standards. Finally, the
application forms required by third-party payors for payment of claims are
long, detailed and complex and payments may be delayed or refused unless such
forms are properly completed. Nevertheless, although the Company takes all
legally available steps, including legally prescribed arbitration to collect
the receivables generated by its clients, there is a risk that some of those
receivables may not be collected which may impede the ability of the Clients
to pay in full all amounts owed by them to the Company. Accordingly, the
collection cycle tends to be long-term in nature. Although Clients are
ultimately liable for payment of its fees to the Company, the Company has
deferred the collection of its receivable from its Clients and allowed the
Clients to pay the Company its fees as collections of the Clients receivable
are made from third-party payors or, if rejected by third-party payors, until
the Clients receivable is collected on a lien in litigation. If the Company
determines that receivables cannot be collected from third party payors,
including liens placed in litigation, it intends to use all appropriate means
including litigation to enforce collection of its fees from the Client. In
July 1995, the Company re-negotiated its agreement with GMMS and entered into
a new agreement which expires in June 2025. Under terms of the new agreement,
the Company takes ownership on a recourse basis of receivables generated by
GMMS' medical practice from third-party payors with a net collectible value
equal to the then current management fee owed to the Company. To the extent
any receivables assigned to the Company are disputed and/or referred to
arbitration proceedings, such receivables are immediately substituted under
the recourse arrangements between GMMS and the Company. In the event that the
laws and regulations establishing these third-party payors are amended,
rescinded or overturned with the effect of eliminating this system of payment
reimbursement for injured parties, the ability of the Company to collect its
fees could be affected. Under the re-negotiated agreement, the Company has not
had to exercise such option with respect to any receivables assigned to it for
the six months ended December 31, 1995.
On April 17, 1995, under the terms of the former GMMS agreement, the
Company agreed to receive a promissory note, effective March 31, 1995 from
GMMS, for $401,384 of GMMS accounts receivable which the Company determined
could be collected and used to pay the Company's fees from GMMS. This note is
payable by GMMS in equal quarterly installments of $33,349, commencing on June
30, 1995 and ending March 31, 1998, but may be prepaid. Interest on this note
is payable monthly at 7.5% per annum commencing in April 1995. The balance of
the note outstanding on December 31, 1995 was $334,586.
F-34
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
4. ACCOUNTS RECEIVABLE - (Continued)
During 1993 and 1994, because of the various factors that influenced the
collection of Clients' accounts receivable due from third-party payors and
liens in litigation, the Company reviewed at a minimum, but no less than
quarterly, the status of Clients' accounts receivable due from third-party
payors which collateralized its receivable from its Clients. As a result, the
Company established an allowance for possible uncollectible accounts
receivable ($407,000 at December 31, 1993 and $909,000 at December 31, 1994).
This periodic review included but was not limited to the review of patient's
files, discussions with third-party payors on individual patient billings and
analysis of past experience. It was also the Company's policy to estimate the
portion of accounts receivable from Clients that will not be collected within
a twelve month period. Such receivables are presented as a long-term asset in
the accompanying balance sheets.
In 1995, as part of the Company's periodic review for potential
impairment of all third-party payor receivables prior to the acceptance for
payment of its fee, the Company determined that based upon its clients'
historical collection experience and the results of the review, its clients
had receivables substantially in excess of the amounts owed to the Company
after giving effect to their collectability. Accordingly, the Company
determined that a portion of its estimated allowance for bad debts was no
longer required. This factor along with the fact that its Client assigns it
receivables to the Company on a full recourse basis in payment of its fees
would preclude further recognition of bad debts.
The Company has determined that $300,000 of the December 31, 1994
accounts receivable allowance related to accounts receivable balances
collected in 1995. Such amounts were credited to general and administrative
expenses on the accompanying December 31, 1995 statement of income.
As more fully described in Note 3, the Company changed its accounting
policy to implement discounting of accounts receivable from a related party.
GMMS Management believes that its experience and that of the Company is a good
indication of the timing of the collection process. Because numerous factors
affect the timing and the manner in which these receivables are collected
(i.e., government regulations, etc.) it is the Company's policy to
periodically assess the collection of its receivables. As a result, the
Company's estimate of its collection period and incremental borrowing rate may
change.
5. MARKETABLE SECURITIES AVAILABLE-FOR-SALE
Marketable securities available-for-sale at December 31, 1994 and 1995
are as follows:
<TABLE>
<CAPTION>
December 31, 1994: Gross unrealized Estimated
----------------------
Cost Gains Losses fair value
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Equity securities .............................. $277,335 $ 3,279 $ -- $280,614
Equity funds ................................... 45,601 -- 1,885 43,716
U.S. Treasury securities and obligations of U.S.
government agencies ........................... 354,702 -- 43,187 311,515
U.S. corporate securities ...................... 303,495 -- 34,183 269,312
---------- --------- --------- ------------
$981,133 $ 3,279 $79,255 $905,157
========== ========= ========= ============
December 31, 1995:
Equity securities .............................. $108,934 $13,006 $ -- $121,940
========== ========= ========= ============
</TABLE>
During the year ended December 31, 1995, the proceeds from the sale of
available-for-sale-securities was $1,007,913. Gross realized gains totaled
$62,937 and gross realized losses totaled $48,125.
F-35
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
6. STOCKHOLDERS' EQUITY
RECAPITALIZATION
In August 1993, the Company increased its authorized common stock from 200
shares at no par value to 20,000,000 shares as $.001 par value. In addition,
the Company declared a 9,999 for 1 stock split in the form of a stock
dividend on the then issued and outstanding common shares. All outstanding
share amounts included in the accompanying financial statements have been
retroactively adjusted to reflect the 9,999 for 1 stock split.
STOCK OPTION PLAN
The Financial Accounting Standards Board has issued Statement of
Accounting Standard 123 "Accounting for Stock-based Compensation" (SFAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The accounting requirements of SFAS
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995, though they may be adopted upon issuance. The
disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995. Management believes the
effect of adopting this statement would have had no material effect on the
financial statements.
In August 1993, the Company adopted the 1993 stock option plan (the
"Plan") covering 150,000 shares of the Company's common stock, pursuant to
which, officers, directors and key employees of the Company and consultants
to the Company are eligible to receive qualified and/or nonqualified stock
options. The Plan, which expires on August 2, 2003, will be administered by
the Board of Directors of the Company or a committee designated by them.
Qualified stock options granted under the plan are exercisable for a period
of ten years from the date of the grant, except that the term of qualified
stock options granted under the Plan to a shareholder owning more than 10%
the outstanding common stock of the Company may not exceed five years. In
August 1993, an option for 45,000 shares was granted to the Company's Chief
Financial Officer. One-third of the shares covered by the option were
exercisable at an exercise price of $4 per share when granted, and an
additional one- third of the shares, at an exercise price of $5 per share,
became exercisable each year thereafter. However, all shares under the option
must be exercised during the ten-year period from the date of the grant. In
addition, options for 15,000 shares exercisable at $4.875 per share were
granted to each of the Company's two outside directors upon their taking
office immediately following the consummation of the offering.
In June 1994, the Company agreed to issue options to purchase 50,000
shares of common stock to a consultant as an inducement for the consultant to
enter a contract to render investor relations services. Options to purchase
30,000 shares of common stock vested immediately and the remaining options
vested in June 1995. The options are exercisable at $4.31 per share (quoted
market value on date of grant).
The Company has reserved 250,000 shares of its common stock for the future
grant or exercise of options and an additional 100,000 shares for the future
exercise of warrants.
COMMON STOCK AND WARRANTS
The Company completed an initial public offering of 1,000,000 common
shares at $5.00 per share on October 26, 1993, and received net proceeds of
$4,400,000. Costs incurred with respect to the registration of the common
shares, inclusive of underwriter commissions, amounted to $1,180,436. In
addition, the Company sold to the underwriter, or its designee, at a price of
$.001 per Underwriter Warrant, up to 100,000 Underwriter's Warrants entitling
the holder's thereof to purchase 100,000 common shares of the Company at a
purchase price of $6.00 per share for a period of four years commencing one
year from the date of the initial public offering.
On March 3, 1994, the Company issued 10,000 shares of common stock to a
consultant for services rendered and to be rendered. Such shares are subject
to certain restrictions under which the consultant is to remain
F-36
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
6. STOCKHOLDERS' EQUITY - (Continued)
available for substantial services during a two-year period. The shares are
subject to forfeiture unless this condition was satisfied. Accordingly, the
shares were valued at a 50% discount from market on the date of the award and
is being amortized over the "risk of forfeiture" period. The Company recorded
a charge of $25,000 for financial reporting purposes.
During the second quarter of 1995, the Company issued 30,000 shares of
common stock to a consultant for services rendered and to be rendered. Such
shares are subject to certain restrictions under which the consultant is to
remain available for substantial services during a two-year period. The
shares are subject to forfeiture unless this condition is satisfied.
Accordingly, the shares were valued at a 50% discount from market on the date
of the award and is being amortized over the "risk of forfeiture" period. The
Company recorded a charge of $28,125 for financial reporting purposes.
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Cost:
Medical equipment ........................ $1,723,797 $1,749,143
Leasehold improvements ................... 1,070,840 1,098,964
Office furniture and equipment ........... 101,385 221,783
Computer and telephone equipment ......... 102,331 184,410
Property and equipment under capital leases 119,129 2,097,313
------------ ------------
3,117,482 5,351,613
Less: accumulated depreciation and
amortization ........................... 323,730 1,094,881
------------ ------------
Net property and equipment ............... $2,793,752 $4,256,732
============ ============
</TABLE>
The construction of the corporate headquarters and operating facility was
completed in February 1994. Construction costs consisted of site preparation
and installation of the medical equipment of the Company's initial fixed site
MRI unit, completion of the medical practice office of the Company's initial
client and the completion of the offices to house the corporate headquarters
of the Company. Final construction costs of $2,308,000 were allocated
$1,237,000 to medical equipment and $1,071,000 to leasehold improvements. For
the years ended December 31, 1993, 1994 and 1995, the Company incurred
interest expense of $160,900, $142,000 and $18,700 respectively, of which,
$159,609 for 1993 and $8,000 for 1994, (relating to interest paid to Pantepec
and Swenvest), were capitalized as medical equipment and leasehold cost in
1993 and 1994, respectively. Interest incurred in 1995 was expensed as period
costs in 1995. In addition, lender participation fees (see Note 8) of $70,000
and $12,000 for the years ended December 31, 1993 and 1994, respectively,
were capitalized. Lender participation fees of $29,900 were expensed as
period costs in 1995.
In 1994 and 1995 the Company entered into capital leases for computer,
office and medical equipment ranging in terms from 36 months to 60 months.
The aggregate accumulated amortization of the computer, office and medical
equipment as of December 31, 1994 and 1995 were $1,700 and $345,000,
respectively.
F-37
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements- (Continued)
December 31, 1993, 1994 and 1995
8. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases consist of the
following:
December 31,
--------------------------------
1994 1995
---------- ------------
Loan payable Pantepec (A) .......... $229,003 $ --
Other loan payable (B) ............. 377,003 279,717
Obligations under capital leases (C) . 113,561 1,721,296
---------- ------------
719,567 2,001,013
Less current portion ............... 345,394 480,523
---------- ------------
$374,173 $1,520,490
========== ============
At December 31, 1995, future, principal payments for long-term debt and
obligations under capital leases were as follows:
Year ended December 31,
-----------------------
1996 .................. $ 480,523
1997 .................. 536,912
1998 .................. 499,980
1999 .................. 454,336
2000 .................. 29,262
------------
$2,001,013
============
(A) The Company entered a loan and security agreement effective June 30,
1992, with Pantepec International, Inc. ("Pantepec") (an unrelated third
party) to borrow up to $700,000 to finance the purchase and installation
of the medical equipment. Borrowings as of December 31, 1993 and December
31, 1994, amounted to $344,354 and $229,003, respectively. The Company,
Pantepec and Swenvest Corporation ("Swenvest") (an unrelated third
party), from whom Pantepec had borrowed $273,000 to fund the loan to the
Company, entered into an agreement dated May 1, 1993, to refinance this
loan and the original loan agreement was terminated. Under the refinance
agreement, the Company had the option to borrow up to $700,000 up to 45
days from acceptance of the Medical Equipment from the manufacturer.
Interest on the borrowing accrues as follows:
Loan year ending June 30, 1993
(including period prior to refinancing) .. -14% per annum
Loan year ending June 30, 1994 ............. -10% per annum
Loan year ending June 30, 1995 ............. -10% per annum
In addition to interest, the lenders are entitled to lender participation
payments of $10 per Scan. Lender participation payments may not be less
than $70,000 for the years ending June 30, 1993 and 1994 and $30,000 for
the loan year ending June 30, 1995. For the years ended December 31, 1993
and 1994 lender participation payments of $70,000 and $12,000,
respectively, were capitalized. Subsequent to the completion of the
installation of the medical equipment in February 1994, lender
participation payments have been expensed as period costs. Interest which
accrued for the loan year ending June 30, 1993 was paid monthly. The
repayment terms were renegotiated after the initial public offering and,
effective July 31, 1993, principal and interest payments were payable in
monthly installments of $15,729 and $3,787, respectively. In February
1994 the Company borrowed $277,000, the balance of the original
commitment and the monthly principal and interest installment was
increased to $26,380 and $11,787, respectively, per month. In July 1995,
all unpaid principal and interest was paid in full.
F-38
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
8. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES - (Continued)
(B) In April 1994, the Company entered into a loan and security agreement to
borrow $440,000 to finance a mobile MRI unit to be used for its second
client. This borrowing bears interest at 13.2% and is repayable in equal
monthly installments of $11,559 (including interest) through April 1998.
(C) At December 31, 1995, future minimum lease payments payable in monthly
installments, including interest ranging from 10% to 12% per annum, were
as follows:
Year ended December 31,
----------------------------
1996 ....................... $ 673,479
1997 ....................... 673,479
1998 ....................... 577,752
1999 ....................... 481,136
2000 ....................... 30,012
------------
2,435,858
Less amount representing
interest ................. 434,845
------------
$2,001,013
============
Substantially all assets of the Company have been pledged as collateral
for the above borrowings.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
----------------------------
1994 1995
---------- ------------
Consulting fees payable ................... $178,272 $ 222,114
Professional fees ......................... 41,000 --
Lender participation fees ................. 29,970 --
Deferred registration costs ............... -- 298,285
Other accounts payable and accrued expenses . 186,692 814,559
---------- ------------
$435,934 $1,334,958
========== ============
10. INCOME TAXES
In December 1992, the Company, upon its incorporation had elected to be
treated as an S Corporation under Subchapter S of the Internal Revenue Code
for federal income tax purposes. In addition, the Company had elected to be
treated for New York State income tax purposes as an S Corporation.
Consequently, the Company was not subject to federal income taxes because the
stockholders include the Company's income in their own personal income tax
returns. For New York State purposes, S Corporations were subject to an income
tax of approximately 2.475%.
The Company was liable for New York City income taxes because New York
City does not allow Subchapter S Status. The New York City income tax rate is
approximately 9%.
Effective October 26, 1993, as a result of the initial public offering,
the Company is no longer treated as an S Corporation. Upon the change in
status of the Company, in the fourth quarter of 1993, the Company had an
additional income tax expense of approximately $680,000 due to federal and
state income taxes being payable on the temporary differences which are
principally due to the cash basis of reporting for income taxes.
F-39
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
10. INCOME TAXES - (Continued)
The provision for income taxes on historical net income for the years
ended December 31, 1993, 1994 and 1995 differs from the amount computed by
applying the federal statutory rate due to the following:
<TABLE>
<CAPTION>
(In Percentages)
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate .................. 34.0 34.0 34.0
State and local taxes, net of federal benefit ...... 13.1 13.2 12.9
Federal income taxes paid or payable related to prior
year S Corporation income ......................... 24.2 -- --
Other .............................................. 1.5 0.2 0.1
------ ------ ------
72.8 47.4 47.0
====== ====== ======
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal ... $ -- $ -- $ --
State ..... 10,000 9,000 8,000
Local ..... 94,000 10,000 6,000
---------- ------------ ----------
104,000 19,000 14,000
---------- ------------ ----------
Deferred:
Federal ... 588,000 657,000 539,948
State ..... 170,000 273,000 159,794
Local ..... 63,000 222,000 175,258
---------- ------------ ----------
821,000 1,152,000 875,000
---------- ------------ ----------
$925,000 $1,171,000 $889,000
========== ============ ==========
</TABLE>
F-40
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
10. INCOME TAXES - (Continued)
Deferred income taxes are the result of temporary differences between the
carrying amounts of assets and liabilities on the accrual basis used for
financial statement reporting purposes and the cash basis used for income tax
reporting. Accordingly, deferred income tax liabilities have been accrued at
the effective tax rate of 47.4% in 1994 and 47.0% in 1995. The classification
of deferred tax liabilities related to accounts receivable has been
determined based upon the collection cycle of certain accounts receivable,
which is estimated to be approximately two years. The following sets forth
the components of deferred tax liabilities:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Current:
Accounts receivable ............ $1,207,849 $1,870,983
Prepaid expenses ............... 66,039 40,000
Accounts payable and accrued
expenses ..................... (189,888) (437,983)
------------ ------------
Total current ................ $1,084,000 $1,473,000
============ ============
Non-current:
Accounts receivable ............ 1,074,017 1,486,520
Depreciation ................... 131,461 87,000
Net operating loss carryforwards . (164,478) (242,520)
------------ ------------
Total non-current ............ 1,041,000 1,331,000
------------ ------------
Total ....................... $2,125,000 $2,804,000
============ ============
</TABLE>
The Company currently utilizes the cash basis method of accounting for tax
reporting purposes. This method allows the Company to defer recognition of
income for tax purposes until actual collection of cash. Beginning with
calendar year 1997, the Company will be required to change to the accrual
method of accounting for tax purposes. As a result of this change the Company
will be unable to defer payment of taxes on reporting income earned in 1997
and beyond. The tax relating to untaxed accrual basis income at December 31,
1996 will be payable over a minimum three year period beginning in 1997. The
Company has cumulative net operating loss carryforwards of $516,000 as of
December 31, 1995 which begin to expire in 2009.
11. OPERATING LEASE OBLIGATIONS
Prior to the completion of the construction of the medical equipment in
February 1994, the Company leased a magnetic resonance imaging scanner under a
month-to-month lease. In addition, the Company paid approximately $42,000 and
$7,000, respectively, as parking fees for the mobile trailer in which the MRI
equipment was located. For the years ended December 31, 1993, 1994 and 1995
equipment rental amounted to $460,000, $70,000 and $125,000, respectively.
In August, 1992, the Company entered into an operating lease for office
space with rent commencing on March 1, 1993. The lease, which expires in 2003,
provides for the Company to pay for increases in real estate taxes and
operating costs in addition to minimum rentals.
With respect to the servicing of one of its clients, the Company entered
into an operating lease for an area of a parking lot to locate and station the
MRI trailer and office space to service the client's patients. The leases
expire in March 1997.
F-41
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
11. OPERATING LEASE OBLIGATIONS - (Continued)
Future minimum lease payments under the above leases, excluding real
estate and operating cost escalations, are as follows:
Year ended December 31,
---------------------------------
1996 ............................ $113,000
1997 ............................ 96,000
1998 ............................ 89,000
1999 ............................ 89,000
2000 ............................ 98,000
Thereafter minimum lease payments . 216,000
----------
$701,000
==========
12. COMMITMENTS AND CONTINGENCIES
In connection with services provided to GMMS, the Company has a
consulting agreement with an unrelated third party. Under the terms of the
agreement which expires in March 2025, the consultant acts as general
financial advisor and consultant on matters pertaining to the business and
operations of the Company. As compensation for these services, the unrelated
third party is paid a consulting fee of 5% of revenue, of which 1% has been
assigned by such unrelated third party to a less than 5% shareholder in the
Company. These fees are payable only on revenues collected. Consulting fees
for the years ended December 31, 1993, 1994 and 1995 amounted to approximately
$167,000 (approximately $33,000 to the less than 5% stockholder) $214,000
(approximately $43,000 to the less than 5% stockholder), and $264,000
(approximately $53,000 to the less than 5% stockholder), respectively. The
consulting agreement can be renewed at the option of the consultant for an
additional five years.
In 1993, the Company entered into a joint marketing agreement with the
New York District of Siemens Medical Systems, a lending manufacture and
supplier of medical imaging equipment, to cooperatively develop the market for
MRI systems in out-patient offices. Under the terms of the agreement, Siemens
will give the Company the "right of first refusal" in situations where they
are asked to recommend an "outside" provider of MRI services. In exchange, the
Company will select Siemens Medical Systems, whenever possible, as the "vendor
of choice" for MRI placements over the next two years. The Company has made a
refundable advance payment in medical practice offices at prices and terms to
be agreed upon. If the Company and Siemens do not agree on the purchase price
or on the terms and conditions, the Company may cancel its order and obtain a
refund of the $20,000 recorded as an other current asset.
As of December 8, 1995 an Omnibus Settlement Agreement (the "Settlement
Agreement") was entered into among CMI, the Company, Steven Rabinovici, David
Jacaruso, Dennis Shields, Dr. Lawrence Shields, (the "Interested
Shareholders") and Gail Shields ("Ms. Shields"), the former wife of Dr.
Lawrence Shields. Under the terms of the Settlement Agreement, as revised on
December 21, 1995, CMI arranged for the sale of 117,187 common shares of the
Company owned by Ms. Shields at a net price to Ms. Shields of $5.50 per share
and obtained Ms. Shields' release as the maker of a promissory note for a bank
loan whose proceeds were used by GMMS (which has previously been satisfied by
GMMS) and as lessee of certain premises occupied by GMMS, which lease has been
assigned to CMI. There was no material impact on the financial statements of
CMI or the Company as a result of the foregoing settlement.
F-42
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
13. OTHER RELATED PARTY TRANSACTIONS
For the years ended December 31, 1993, 1994 and 1995, the Company paid to
an entity controlled by a principal stockholder of the Company or to the
stockholder approximately $75,000, $102,000 and $132,000, respectively, to
provide design services and as reimbursement for acquiring furniture and
furnishings for the Company. Included in these amounts were design fees of
approximately $16,000, $7,000 and $32,000, respectively. In addition, for the
years ended December 31, 1993, 1994 and 1995, the Company paid approximately
$6,000, $16,000 and $30,000, to another stockholder as compensation for
services rendered to the Company.
Amounts due from related parties at December 31, 1994 and 1995, include
$196,000 due from GMMS for expenses paid on its behalf and is payable pursuant
to a note on March 31, 1997 with interest payable quarterly at 7.5% per annum.
In addition, included in due from related parties at December 31, 1995, is a
$131,000 working capital loan to CMI due on demand.
14. GOVERNMENT REGULATION
The health care industry is highly regulated. The ownership, operation
and acquisition of medical equipment is subject to regulations and approvals
that vary from state to state, including licensing regulations, Medicare
regulations and regulations in certain jurisdictions requiring certificates of
need for certain types of "health care facilities" and "major medical
equipment".
15. PRO FORMA INFORMATION (UNAUDITED)
PRO FORMA ADJUSTMENTS
The Company completed an initial public offering of 1,000,000 common
shares at $5.00 per share in October 1993. Effective October 26, 1993, the
date of the initial public offering, the Company no longer was treated as an
S Corporation and, accordingly, is subject to federal and New York State
income taxes. In August 1993, the Company entered into separate employment
contracts with its President and Chief Executive Officer and Vice President
and Chief Operating Officer. These contracts expire on August 31, 1996 and
provided for annual base salaries of $75,000 to each officer commencing from
the date of consummation of the initial public offering. The pro forma
adjustments reflect (i) an adjustment to include officers' compensation
payable under current employment contracts and (ii) a provision for income
taxes based upon pro forma income as if the Company had not been an S
Corporation.
16. NET INCOME PER SHARE
Net income per common share has been computed by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
during the periods. The weighted average number of common shares outstanding
has been computed in accordance with Staff Accounting Bulletin 83 ("SAB 83")
of the Securities and Exchange Commission. SAB 83 requires that common shares
and warrants, issued within a one- year period prior to the initial filing of
a registration statement relating to an initial public offering at amounts
below the public offering price, be considered outstanding for all periods
presented in the Company's Registration Statement. In August 1993, the Company
issued options to purchase 15,000 shares of common stock at $4.00 per share to
its Chief Financial Officer (see Note 6). Such options have been considered
outstanding through June 1993 for purpose of calculating net income per share.
Such shares have been reduced, using the treasury stock method, by the number
of shares which the Company would be able to purchase with the proceeds which
would be received from the exercise of such options. All other options issued
were anti-dilutive and, accordingly, were excluded from the calculation for
weighted average shares.
17. RETAINED EARNINGS
Effective October 26, 1993, the Company was no longer an S Corporation.
Accordingly, in accordance with the provisions of Staff Accounting Bulletin 59
of the Securities and Exchange Commission, undistributed earn
F-43
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements - (Continued)
December 31, 1993, 1994 and 1995
17. RETAINED EARNINGS - (Continued)
ings as of the date of change in status from an S Corporation (October 26, 1993)
amounting to $1,113,272 is considered to be a constructive distribution to the
owners followed by a contribution to the capital of the Company and has been
transferred to additional paid-in capital.
18. SUBSEQUENT EVENT (UNAUDITED)
On January 3, 1996, CMI completed an Initial Public Offering ("IPO") of
2,000,000 of its common shares at $9.00 per share and the simultaneous
acquisition and merger of the Company as a wholly owned subsidiary of CMI. The
terms of the merger provided that the Company's shareholders receive .778 CMI
common shares for each common share which they held based upon the IPO price
of $9.00 per share. The holders of outstanding options to purchase the
Company's common shares received 93,281 of CMI common shares based upon the
difference between their aggregate option exercise prices and the value
thereof at $7.00 per share divided by the IPO price. In January 1996, the
Company issued 2,211,953 common shares to effect the merger including shares
to be issued in satisfaction of outstanding options and warrants to purchase
the Company's shares. Upon the closing of CMI's initial public offering on
January 3, 1996, the President and Chief Executive Officer and Vice President
and Chief Operating Officer of the Company became officers of CMI.
F-44
<PAGE>
=============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any
Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any date subsequent to
the date here. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby to anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to anyone to whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ............................. 3
Investment Considerations ...................... 8
Use of Proceeds ................................ 12
Recent Financing ............................... 13
Price Range for Common Shares .................. 14
Capitalization ................................. 14
Dividend Policy ................................ 15
Pro Forma Consolidated Financial Information ... 15
Selected Financial Data ........................ 17
Management's Discussion and Analysis of Financial
Conditions and Results of Operations .......... 20
Business ....................................... 32
Management ..................................... 44
Principal Shareholders ......................... 50
Description of Debentures ...................... 51
Certain U.S. Federal Income Tax Consequences ... 59
Description of Capital Stock ................... 62
Underwriting ................................... 64
Legal Matters .................................. 65
Experts ........................................ 65
Available Information .......................... 65
Index to Financial Statements .................. F-1
</TABLE>
------
Until June , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
COMPLETE
MANAGEMENT, INC.
$30,000,000
[7% TO 8 1/2 %] CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2003
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
June , 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the
Securities being registered hereunder other than underwriting commissions and
expenses, are estimated below.
SEC registration fee ...................................... 13,318
NASD registration fee ..................................... 3,500
AMEX listing fee .......................................... 35,000
Printing expenses ......................................... 80,000
Accounting fees and expenses .............................. 75,000
Legal fees and expenses ................................... 225,000
State securities law fees and expenses including fees of
counsel ................................................... 20,000
Transfer Agent and Registrar Fees ......................... 15,000
Stock Certificate Expenses ................................ 3,182
Miscellaneous expenses .................................... 30,000
-------
Total ................................................ 500,000
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type
of kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director
or officer did not act, in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, not opposed to, the best interests of the corporation or that he
had reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of any
other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interest of the
II-1
<PAGE>
corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is
settled or otherwise disposed of, or (2) any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court on which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
upon application that, in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered
fines; and action taken or omitted by a person with respect to an employee
benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is
not opposed to the best interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character
described in section 722 shall be entitled to indemnification as authorized
in such section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal counsel
that indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such director
or officer, or
(B) By the shareholders upon a finding that the director or officer has
met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amounts as, and to the extent,
required by paragraph (a) of section 725.
The Company's certificate of incorporation provides as follows:
SIXTH: The personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity is hereby
eliminated except that such personal liability shall not be eliminated if a
judgment or other final adjudication adverse to such director establishes
that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he personally gained in fact
a financial profit or other advantage to which he was not legally entitled or
that his acts violated Section 719 of the Business Corporation Law.
* * *
EIGHTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture,
II-2
<PAGE>
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Business Corporation Law, as the same exists or may hereafter be amended
(but, in case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and
such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, except as
provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Business Corporation Law requires, the payment of such
expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Business Corporation
Law for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in the Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or
loss under the Business Corporation Law.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the
Underwriters and their respective controlling persons, on the other hand,
against certain liabilities in connection with this offering, including
liabilities under the Securities Act of 1933, as amended.
II-3
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company issued the following unregistered
securities:
(a) In December 1992 the Company issued an aggregate of 3,057,515 Common
Shares for nominal amounts to founders, including its President and Chief
Executive Officer, the President and Chief Executive Officer of MMI and the
Vice President and Chief Operating Officer of MMI. All the shares were issued
for investment and without a view to distribution and bear appropriate
restricted security legends.
(b) In September and October 1995 the Company issued $1,000,000 face
amount of Secured Notes and agreed to issue Common Shares with a value of
$250,000 when valued at the initial offering price in the IPO. All of the
securities were issued for investment and without a view to distribution and
bear appropriate restricted security legends.
The transactions described above did not involve a public offering of the
Registrant's securities and were exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof. .
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ------------------------------------------------------------------------------------------ --------
<S> <C> <C>
Form of Underwriting Agreement entered into between Complete Management, Inc. and National Securities
1.1 Corporation.
Revised Agreement and Plan of Merger (incorporated by reference to Exhibit A to the Proxy
2.1 Statement/Prospectus included in Registration Statement on Form S-4, File No 33-98714).
3.1 Certificate of Incorporation of CMI.*
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1, 1995.*
3.3 By-Laws of CMI.*
4.1 Specimen Stock Certificate.*
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.
4.3 Form of Indenture.
4.4 Form of Debenture Certificate.
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurological
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.*
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David Jacaruso
and Dennis Shields.*
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.*
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.*
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.*
10.6 1995 Stock Option Plan of the Company.*
10.13 Lease Agreement between A J S Development Corp. and Shields-Hausknecht, P.C. for 2270 Kimball Street.*
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.*
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.*
10.16 Lease Agreement dated December 12, 1990 between Braun Management Inc. as agent for 225 Broadway
Company and Lawrence W. Shields for 225 Broadway.*
10.17 Lease Agreement dated May 14, 1992 between Twenty Six Realty Associates and Gail Shields for
26 Court Street.*
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc. for
254 West 31st Street.*
II-4
<PAGE>
Exhibit
No. Description Page
----------- ------------------------------------------------------------------------------------------ --------
Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
10.19 59th Street.*
Lease Agreement dated August 31, 1992 between Thirty-One, Co. and MRI Management Associates,
10.20 Inc. for 254 West 31st Street.*
Lease Agreement between Lawrence W. Shields, Irving Friedman and Steven J. Schwartz party of
10.21 the first part and Complete Management, Inc., party of the second part for 736 East Park Avenue.*
Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space at
10.22 254 West 31st Street.**
Assignment of 865 Walton Avenue lease by Physicians Administration Services, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
10.23 P.C.*
Assignment of 118-21 Queens Boulevard Lease by Complete Management of Queens, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
10.24 P.C.*
Assignment of 2270 Kimball Street by Physicians Administration Services, Inc. to Complete Management,
10.25 Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.*
Assignment of 26 Court Street by Physicians Administration Services to Complete Management,
10.26 Inc., which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.*
Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
10.27 Services, P.C.*
Consulting Agreement between MMI and Dr. Lawrence W. Shields, Physician, P.C. (now known as
10.28 Greater Metropolitan Neurology Services, P.C.) dated March 11, 1992.***
10.29 Employment Agreement between the Company and Arthur L. Goldberg.****
10.30 Employment Agreement between the Company and Dennis W. Simmons.****
10.31 Employment Agreement between the Company and Robert Keating.****
10.32 Employment Agreement between the Company and Joseph M. Scotti.****
Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
10.33 Hempstead, NY.****
Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
10.34 Newburgh, NY.****
Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
10.35 as exhibit thereto).*****
Management Services Agreement for Magnetic Resonance Imaging Practice, 1-Phase Agreement by
and Between Greater Metropolitan Neurology Services, P.C. d/b/a Greater Metropolitan Medical
10.36 Services and Medical Management, Inc.*****
12. Statement re Computation of Ratios.
18 Preferability Letter*****
21. Subsidiaries of the Company.*****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Morse, Zelnick, Rose & Lander, LLP, (included in Exhibit 5.1)
24 Power of Attorney (included in signature page).
25 Statement of Eligibility of Trustee.*****
</TABLE>
- ------
* Previously filed as a similarly numbered Exhibit to CMI S-1
Registration Statement No. 33-97894.
** Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
*** Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
**** Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
***** Previously filed.
II-5
<PAGE>
ITEM 17. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement, and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City, County
and State of New York on June 3, 1996.
COMPLETE MANAGEMENT, INC.
/s/ STEVEN M. RABINOVICI
by: -----------------------------
Steven M. Rabinovici,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below on June 3, 1996 by the
following persons in the capacities indicated and each of the undersigned
persons, in any capacity, hereby severally constitutes Steven Rabinovici,
David Jacaruso and Stephen A. Zelnick, and each of them singularly, his true
and lawful attorney with full power to them and each of them to sign for him
and in his name and in the capacity indicated below, this Registration
Statement and any and all amendments thereto.
<TABLE>
<CAPTION>
Signature Title
------------------------------- -------------------------------------------------------
<S> <C>
*
------------------------------
Steven M. Rabinovici Chairman of the Board and Chief Executive Officer
*
------------------------------ Vice President, Chief Financial Officer, Treasurer,
Joseph M. Scotti Secretary and Director
*
------------------------------
David Jacaruso Director
*
------------------------------
Dennis Shields Director
*
------------------------------
Richard DeMaio Director
*
------------------------------
Jack Schwartzberg Director
*
------------------------------
Steve Cohn Director
*By: /s/ STEVEN M. RABINOVICI
---------------------------
Steven M. Rabinovici
Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ------------------------------------------------------------------------------------------ --------
<S> <C>
1.1 Form of Underwriting Agreement entered into between Complete Management, Inc. and National
Securities Corporation.
2.1 Revised Agreement and Plan of Merger (incorporated by reference to Exhibit A to the Proxy
Statement/Prospectus included in Registration Statement on Form S-4, File No 33-98714).
3.1 Certificate of Incorporation of CMI.*
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1, 1995.*
3.3 By-Laws of CMI.*
4.1 Specimen Stock Certificate.*
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.
4.3 Form of Indenture.
4.4 Form of Debenture Certificate.
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurological
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.*
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David Jacaruso
and Dennis Shields.*
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.*
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.*
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.*
10.6 1995 Stock Option Plan of the Company.*
10.13 Lease Agreement between A J S Development Corp. and Shields-Hausknecht, P.C. for 2270 Kimball
Street.*
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.*
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.*
10.16 Lease Agreement dated December 12, 1990 between Braun Management Inc. as agent for 225 Broadway
Company and Lawrence W. Shields for 225 Broadway.*
10.17 Lease Agreement dated May 14, 1992 between Twenty Six Realty Associates and Gail Shields for
26 Court Street.*
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc. for
254 West 31st Street.*
10.19 Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
59th Street.*
10.20 Lease Agreement dated August 31, 1992 between Thirty-One, Co. and MRI Management Associates,
Inc. for 254 West 31st Street.*
10.21 Lease Agreement between Lawrence W. Shields, Irving Friedman and Steven J. Schwartz party of
the first part and Complete Management, Inc., party of the second part for 736 East Park Avenue.*
10.22 Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space at
254 West 31st Street.**
10.23 Assignment of 865 Walton Avenue lease by Physicians Administration Services, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.*
10.24 Assignment of 118-21 Queens Boulevard Lease by Complete Management of Queens, Inc. to Complete
Management, Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services,
P.C.*
10.25 Assignment of 2270 Kimball Street by Physicians Administration Services, Inc. to Complete Management,
Inc. which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.*
<PAGE>
Exhibit
No. Description Page
----------- ------------------------------------------------------------------------------------------ --------
10.26 Assignment of 26 Court Street by Physicians Administration Services to Complete Management,
Inc., which in turn sublet the Premises to Greater Metropolitan Neurology Services, P.C.*
10.27 Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
Services, P.C.*
10.28 Consulting Agreement between MMI and Dr. Lawrence W. Shields, Physician, P.C. (now known as
Greater Metropolitan Neurology Services, P.C.) dated March 11, 1992.***
10.29 Employment Agreement between the Company and Arthur L. Goldberg.****
10.30 Employment Agreement between the Company and Dennis W. Simmons.****
10.31 Employment Agreement between the Company and Robert Keating.****
10.32 Employment Agreement between the Company and Joseph M. Scotti.****
10.33 Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
Hempstead, NY.****
10.34 Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
Newburgh, NY.****
10.35 Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
as exhibit thereto).*****
10.36 Management Services Agreement for Magnetic Resonance Imaging Practice, 1-Phase Agreement by
and Between Greater Metropolitan Neurology Services, P.C. d/b/a Greater Metropolitan Medical
Services and Medical Management, Inc.*****
12. Statement re Computation of Ratios.
18. Preferability Letter.*****
21. Subsidiaries of the Company.*****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Morse, Zelnick, Rose & Lander, LLP, (included in Exhibit 5.1)
24 Power of Attorney (included in signature page).
25 Statement of Eligibility of Trustee.*****
</TABLE>
*****
- ------
* Previously filed as a similarly numbered Exhibit to CMI S-1
Registration Statement No. 33-97894.
** Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
*** Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
**** Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
***** Previously filed.
<PAGE>
Exhibit 1.1
DRAFT: 5/28/96
[7% to 8 1/2%] Convertible Subordinated Debentures Due 2003
COMPLETE MANAGEMENT, INC.
UNDERWRITING AGREEMENT
New York, New York
May _____, 1996
National Securities Corporation,
As Representative of the Several Underwriters
c/o National Securities Corporation
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Complete Management, Inc., a New York corporation (the
"Company"), hereby agrees with National Securities Corporation ("National"), and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom is acting as representative (in
such capacity, National shall hereinafter be referred to as "you" or the
"Representative") with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of $30,000,000 aggregate
principal amount of the Company's [7 - 8 1/2%] Convertible Subordinated
Debentures Due 2003 (the "Debentures") to be issued pursuant to the provisions
of an Indenture dated as of the date hereof (the "Indenture") between the
Company and Chemical Bank, N.A., as Trustee (the "Trustee"). Such $30,000,000
aggregate principal amount of Debentures are hereinafter referred to as the
"Firm Securities." Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriters, acting
severally and not jointly, up to an additional $4,500,000 principal amount of
Debentures for the purpose of covering over-allotments, if any. Such $4,500,000
principal amount of Debentures are hereinafter referred to as the "Option
Securities." The Firm Securities and the Option Securities are hereinafter
referred to collectively as the "Securities." The shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), issuable upon conversion
of the Securities are hereinafter referred to as the "Underlying Stock." The
Company also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
<PAGE>
"Representative's Warrant Agreement") for the purchase of an additional
____shares of Common Stock. The Option Securities and shares of Common Stock
issuable upon exercise of the Representative's Warrants are hereinafter referred
to as the "Representative's Securities." The Firm Securities, Option Securities,
the Representative's Warrants, the Representative's Securities and the
Underlying Stock are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date and the Option Closing Date, if any, as
follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form S-1 (No. 333-4262), including
any related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Securities, the Representative's Securities and the
Underlying Stock under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the Regulations (as
defined below) of the Commission under the Act. The Company will not file any
other amendment thereto to which the Underwriters shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus or any part
thereof or the qualification of the Trustee, and no proceedings for a stop order
suspending the effectiveness of the Registration Statement, any of the Company's
securities or the qualification of the Trustee have been instituted, or, to the
Company's knowledge, have been instituted or are pending or threatened. Each of
the Preliminary Prospectus, the Registration Statement and the Prospectus at the
time of filing thereof conformed in all material respects with the requirements
of the Act, the Trust Indenture Act and the Regulations, and none of the
Preliminary Prospectus, the Registration Statement or the Prospectus at the time
of filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
-2-
<PAGE>
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date (as defined in
Section 2(c) hereof) and each Option Closing Date (as defined in Section 2(b)
hereof), if any, and during such longer period as the Prospectus may be required
to be delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act, the Trust Indenture Act and the Regulations, and will
conform in all material respects to the requirements of the Act, the Trust
Indenture Act and the Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will 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, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto.
(d) The Company and Medical Management, Inc. ("MMI")
have been duly organized and are validly existing as corporations in good
standing under the laws of the respective states of their incorporation. The
Company does not own or control, directly or indirectly, any corporation,
partnership, trust, joint venture or other business entity other than the
subsidiaries listed in Exhibit 21 of the Registration Statement. Each of the
Company and MMI is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations require such qualification or
licensing. Each of the Company and MMI has all requisite power and authority
(corporate and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters), to
own or lease its properties and conduct its business as described in the
Prospectus; the Company and MMI are and have been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations; and neither the Company nor MMI has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the business affairs, operations, properties, or
results of operations of the Company and MMI, taken as a whole. The disclosures
in the Registration Statement concerning the effects of federal, state, local,
and foreign laws, rules and regulations on the Company's and MMI's businesses as
currently conducted and as contemplated are correct in all material respects and
-3-
<PAGE>
do not omit to state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Debentures" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement,
including, but not limited to, any voting trust agreement, stockholders
agreement or other agreement or instrument, affecting the securities or rights
or obligations of securityholders of the Company or MMI or providing for either
of them to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Indenture, the Representative's
Warrant Agreement and as described in the Prospectus. The Securities, the
Representative's Warrants, the Representative's Securities and the Underlying
Stock and all other securities issued or issuable by the Company or MMI conform
or, when issued and paid for, will conform, in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding shares of capital stock of each of the
Company and MMI have been duly authorized and validly issued and are fully paid
and nonassessable. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company and the related notes thereto included
in the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements and
the options or other rights granted and exercised thereunder as set forth in the
Prospectus conforms in all material respects with the requirements of the Act.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable, and the holders
thereof have no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company.
(f) The Debentures will be issued pursuant to the terms
and conditions of the Indenture, and the Indenture will conform to the
description thereof contained in the Prospectus. The Debentures have been duly
authorized and, when validly authenticated, issued, delivered and paid for in
the manner contemplated by the Indenture, will be duly authorized, validly
issued and outstanding obligations of the Company entitled to the benefits of
the Indenture. The shares of Common Stock issuable upon conversion of the
Debentures will, upon such issuance, be duly authorized, validly issued, fully
paid and non-assessable, and the Company has duly authorized and reserved for
issuance upon conversion of the Debentures the shares of Common Stock issuable
upon such conversion. The Securities, the Representative's Warrants, the
Representative's Securities and the Underlying Stock are not and will not be
subject to any preemptive or other similar rights of any securityholder of the
Company or MMI; the holders thereof will not be subject to any liability solely
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as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Representative's Warrants,
the Representative's Securities and the Underlying Stock has been duly and
validly taken; and the certificates representing the Securities, the
Representative's Warrants, the Representative's Securities and the Underlying
Stock will be in due and proper form. Upon the issuance and delivery pursuant to
the terms of this Agreement, the Indenture and the Representative's Warrant
Agreement of the Securities, the Representative's Warrants and the
Representative's Securities to be sold by the Company hereunder and thereunder,
the Underwriters or the Representative; as the case may be, will acquire good
and marketable title thereto free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
interest of any kind whatsoever.
(g) The financial statements of the Company and MMI,
together with the related notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, changes in stockholders' equity and the results
of operations of the Company and MMI at the respective dates and for the
respective periods to which they apply and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Regulations, consistently applied throughout the periods involved. There has
been no material adverse change or development involving a material prospective
change in the condition, financial or otherwise, or in the business, affairs,
operations, properties, or results of operation of the Company and MMI taken as
a whole whether or not arising in the ordinary course of business since the date
of the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and intangible,
and the business of the Company and MMI taken as a whole conform in all respects
to the descriptions thereof contained in the Registration Statement and the
Prospectus. Financial information set forth in the Prospectus under the headings
"Prospectus Summary -- Summary Financial Information," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) Each of the Company and MMI have (i) paid all
federal, state, local, franchise, and foreign taxes for which it is liable,
including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and have furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters or the Representative in connection
with (i) the issuance by the Company of the Securities, the Representative's
Warrants, the Representative's Securities and the Underlying Stock, (ii) the
purchase by the Underwriters of the Securities from the Company and the purchase
by the Representative of the Representative's Warrants or the Representative's
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Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, the Indenture or the Representative's Warrant
Agreement, or (iv) resales of the Securities in connection with the distribution
contemplated hereby.
(j) Each of the Company and MMI maintains insurance
policies, including, but not limited to, general liability, property and product
liability insurance and surety bonds which insures the Company and MMI and their
respective professional staffs against such losses and risks generally insured
against by comparable businesses. Neither the Company nor MMI (a) have failed to
give notice or present any insurance claim with respect to any matter,
including, but not limited to, the Company's or MMI's businesses, property or
professional staff, under any insurance policy or surety bond in a due and
timely manner, (B) have any disputes or claims against any underwriter of such
insurance policies or surety bonds or have failed to pay any premiums due and
payable thereunder, or (C) have failed to comply with all conditions contained
in such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company or any of
the Subsidiaries.
(k) There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
businesses of, the Company and MMI which (i) questions the validity of the
capital stock of the Company and MMI, this Agreement, the Indenture, or the
Representative's Warrant Agreement, or of any action taken or to be taken by the
Company and MMI pursuant to or in connection with this Agreement, or the
Indenture, or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the business, affairs,
position, stockholders' equity, operation, properties, or results of operations
of the Company and MMI taken as a whole.
(l) The Company has the full legal right, corporate
power and authority to authorize, issue, deliver, and sell the Securities, the
Representative's Warrants, the Representative's Securities and the Underlying
Stock and to enter into this Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for in such agreements;
and this Agreement, the Indenture and the Representative's Warrant Agreement
have each been duly and properly authorized, executed, and delivered by the
Company. Each of this Agreement, the Indenture and the Representative's Warrant
Agreement constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
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Company's issue and sale of the Securities, the Representative's Warrants, the
Representative's Securities and the Underlying Stock execution, delivery or
performance of this Agreement, the Indenture and the Representative's Warrant
Agreement, their consummation of the transactions contemplated herein and
therein, or the conduct by their and MMI of their businesses as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company or MMI pursuant to the terms of (i) the
certificate of incorporation or by-laws of the Company or MMI, as amended and
restated, (ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company and MMI is a party or by
which it is or may be bound or to which their properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company or MMI of
any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(m) No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Indenture, the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, or the
Representative's Warrants, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Securities and the
Representative's purchase of the Representative's Warrants.
(n) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company or MMI is a party
or by which it may be bound or to which its assets, properties or businesses may
be subject have been duly and validly authorized, executed and delivered by the
Company or MMI, as the case may be, and constitute the legal, valid and binding
agreements of the Company or MMI, as the case may be, enforceable against the
Company or MMI, as the case may be, in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). The descriptions in
the Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
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be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(o) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as described
in or specifically contemplated by the Prospectus, neither the Company nor MMI
(i) has incurred any material liabilities or obligations, indirect, direct or
contingent, or entered into any material verbal or written agreement or other
transaction which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company or MMI;
(ii) has not sustained any material loss or interference with its business or
properties from fire, flood, wind-storm, accident or other calamity, whether or
not covered by insurance; (iii) has paid or declared any dividends or other
distributions with respect to its capital stock, and neither the Company or MMI
is in default in the payment of principal or interest on any outstanding debt
obligations; (iv) has had any change in its capital stock (other than upon the
sale of the Firm Securities, the Option Securities and the Representative's Firm
Securities hereunder and upon the exercise of options and warrants described in
the Registration Statement) of, or indebtedness material to, the Company or MMI
(other than in the ordinary course of business); (v) has issued any securities
or incurred any liability or obligation, primary or contingent, for borrowed
money; or (vi) has experienced any material adverse change in the condition
(financial or otherwise) of their respective businesses, properties, results of
operations, or prospects.
(p) Except as disclosed in or specifically contemplated
by the Prospectus, (i) the Company and MMI had sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct its business as now conducted; (ii) the expiration of
any trademarks, trade names, patent rights, copyrights, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company or MMI; (iii) the Company has no knowledge of any infringement by
it or its subsidiaries of trademark, trade name rights, patent rights,
copyrights, licenses, trade secret or other similar rights of others; and (iv)
there is no claim being made against the Company or MMI regarding trademark,
trade name, patent, copyright, license, trade secret or other infringement which
could have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(q) Neither the Company nor MMI is or with the giving
of notice or lapse of time or both, will be, in violation of or in default under
its charter or By-laws, and no default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement, or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company or MMI
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are parties or by which the Company or MMI may be bound or to which the property
or assets (tangible or intangible) of the Company or MMI are subject or
affected.
(r) To the Company's knowledge, there are no pending
investigations involving the Company or MMI by the U.S. Department of Labor, or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company or MMI pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to its knowledge threatened against or involving the Company or MMI.
No representation question exists respecting the employees of the Company or
MMI. No collective bargaining agreement, or modification thereof is currently
being negotiated by the Company or MMI. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements of the
Company or MMI. No labor dispute with the employees of the Company or MMI exists
or is imminent.
(s) Except as described in the Prospectus, neither the
Company nor MMI do not maintain, sponsor or contribute to any program or
arrangement that is an "employee pension benefit plan, " an "employee welfare
benefit plan," or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor MMI
maintains or contributes to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or MMI to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Neither the Company nor MMI have never completely or partially withdrawn from a
"multi-employer plan."
(t) None of the Company, nor MMI, nor any of their
employees, directors, stockholders, or affiliates (within the meaning of the
Regulations) of any of the foregoing has taken or will take directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities or
the Underlying Stock.
(u) Each of the Company and MMI has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
or other restrictions or equities of any kind whatsoever other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
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(v) Arthur Andersen LLP ("Arthur Andersen"), whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the
Regulations.
(w) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, MMI, or any of their respective officers, directors,
stockholders, employees or affiliates that may affect the Underwriters'
compensation as determined by the Commission and the National Association of
Securities Dealers, Inc. (the "NASD").
(x) The Securities and the Common Stock have been
approved for quotation on the American Stock Exchange, subject only to official
notice of insurance.
(y) Each of the Company and MMI maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) Neither the Company, MMI, nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or MMI has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company or MMI (or assist the Company or MMI in connection with any actual
or proposed transaction) which might subject the Company, MMI, or any other such
person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). Each of the Company's and MMI's
internal accounting controls are sufficient to cause the Company and MMI to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, MMI, or any "affiliate" or "associate"
(as these terms are defined in Rule 405 promulgated under the Regulations) of
any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or MMI, or (B) purchases from or sells or furnishes to
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the Company or MMI any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or MMI is a party or by which the
Company or MMI may be bound or affected. Except as set forth in the Prospectus
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, MMI, and any officer, director, principal shareholder (as
such term is used in the Prospectus) of the Company, or any affiliate or
associate of any of the foregoing persons or entities.
(ab) Neither the Company nor MMI intends to conduct
their respective businesses in a manner in which it would become an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "1940 Act").
(ac) Any certificate signed by any officer of the
Company and delivered to the Underwriters or to the Underwriters' Counsel (as
defined in Section 4(d) herein) shall be deemed a representation and warranty by
the Company to the Underwriters as to the matters covered thereby.
(ad) The minute books of each of the Company and MMI
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors and stockholders of each of the
Company and MMI, since the time of their respective incorporation, and reflect
all transactions referred to in such minutes accurately in all material
respects.
(ae) Neither the Company nor MMI has distributed nor
will distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Debentures in this offering other than the
Prospectus, the Registration Statement and the other materials permitted by the
Act. Except as described in the Prospectus, no holders of any securities of the
Company or MMI or of any options, warrants or other convertible or exchangeable
securities of the Company or MMI have the right to include any securities issued
by the Company or MMI as part of the Registration Statement or to require the
Company or MMI to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company or MMI.
(af) Each of the Company and MMI maintains insurance by
insurers of recognized financial responsibility of the types and in the amounts
as are prudent, customary and adequate for the business in which it is engaged,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and MMI against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. Neither the Company nor MMI has any
reason to believe that they will not be able to renew existing insurance
coverage with respect to their respective businesses as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue their respective businesses, in either case, at a cost that would
not have a material adverse effect on their respective financial conditions,
operations, businesses, assets or properties. Neither the Company nor MMI has
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failed to file any claims, has any material disputes with their insurance
company regarding any claims submitted under their insurance policies, or has
failed to comply with all material provisions contained in its insurance
policies.
(ag) The Company confirms as of the date hereof that it
is in compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
2. Purchase, Sale and Delivery of the Securities and
Representative's Warrants.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly agrees to purchase from the Company
that aggregate principal amount of Firm Securities set forth opposite the name
of such Underwriter in Schedule A hereto at a price equal to 92% of the
principal amount thereof, plus accrued interest, if any, from _________________,
1996 to the Closing Date, subject to such adjustment as the Representative in
its discretion shall make to eliminate any fractional sales or purchases, plus
any additional amount of Firm Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional $4,500,000 aggregate principal amount of Debentures at a price equal
to 92% of the principal amount thereof. The option granted hereby will expire 45
days after (i) the date the Registration Statement becomes effective, if the
Company has elected not to rely on Rule 430A under the Regulations, or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the aggregate principal amount of
Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing Date") shall
be determined by the Representative, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
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Underwriters to exercise the over-allotment option described above. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for the Firm
Securities shall be made at the offices of National, 1001 Fourth Avenue, Suite
2200, Seattle, Washington, or at such other place as shall be agreed upon by the
Representative and the Company. Such delivery and payment shall be made at 12:30
p.m. (New York time) on or at such other time and date as shall be agreed upon
by the Representative and the Company, but no more than three (3) business days
after the date hereof (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above mentioned office of National or at such other place as shall
be agreed upon by the Representative and the Company on each Option Closing Date
as specified in the notice from the Representative to the Company. Delivery of
the certificates for the Firm Securities and the Option Securities, if any,
shall be made to the Underwriters against payment by the Underwriters, of the
purchase price for the Firm Securities and the Option Securities, if any, to the
order of the Company. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Securities then being purchased which the number
of Firm Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each case
to such adjustments as the Representative in their discretion shall make to
eliminate any sales or purchases of fractional shares. Certificates for the Firm
Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least three (3) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and
sell to the Representative Representative's Warrants at a purchase price of [$ ]
per warrant, which warrants shall entitle the holders thereof to purchase the
Representative's Securities. The Representative's Warrants shall expire five (5)
years after the effective date of the Registration Statement and shall be
exercisable for a period of five (5) years commencing one (1) year from the
effective date of the Registration Statement the exercise prices described in
the first paragraph hereof. The Representative's Warrant Agreement and form of
Warrant Certificate shall be substantially in the form filed as Exhibit 4.2 to
the Registration Statement. Payment for the Representative's Warrants shall be
made on the Closing Date.
3. Public Offering of the Firm Securities. As soon after the
Registration Statement becomes effective as the Representative deem advisable,
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the Underwriters shall make a public offering of the Firm Securities (other than
to residents of or in any jurisdiction in which qualification of the Firm
Securities is required and has not become effective) at the price and upon the
other terms set forth in the Prospectus. The Representative may from time to
time increase or decrease the public offering price after distribution of the
Firm Securities has been completed to such extent as the Representative, in its
sole discretion deem advisable. The Underwriters may enter into one or more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
4. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Firm
Securities by the Underwriters of which the Representative shall not previously
have been advised and furnished with a copy, or to which the Representative
shall have objected or which is not in compliance with the Act, the Exchange Act
or the Regulations.
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Representative and confirm the
notice in writing, (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) in accordance with the
requirements of the Act.
(d) The Company will give the Representative notice of
its intention to file or prepare any amendment to the Registration Statement
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(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Registered Securities
which differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Registered Securities for offering
and sale under the securities laws of such jurisdictions as the Representative
may reasonably designate to permit the continuance of sales and dealings therein
for as long as may be necessary to complete the distribution, and shall make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Registered Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Registered
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Company will notify the Representative promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act, each such amendment or supplement to be satisfactory
to Underwriters' Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
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Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its securityholders (including Debenture holders), in the
manner specified in Rule 158(b) of the Regulations, and to the Representative,
an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Regulations, which statement need not be audited unless required
by the Act, covering a period of at least 12 consecutive months after the
effective date of the Registration Statement.
(h) During a period of five (5) years after the date
hereof, the Company will furnish to its securityholders (including Debenture
holders), as soon as practicable, annual reports (including financial statements
audited by independent public accountants) and will deliver to the
Representative:
(i) concurrently with furnishing such quarterly
reports to its securityholders, statements of income of the
Company for each quarter in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing such annual
reports to its stockholders, a balance sheet of the Company as
at the end of the preceding fiscal year, together with
statements of operations, stockholders' equity, and cash flows
of the Company for such fiscal year, accompanied by a copy of
the certificate thereon of independent certified public
accountants;
(iii) as soon as they are available, copies of
all reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of
all reports and financial statements furnished to or filed
with the Commission, the Nasdaq National Market or any
securities exchange;
(v) every press release and every material news
item or article of interest to the financial community in
respect of the Company or MMI or their respective affairs
which was released or prepared by or on behalf of the Company
and MMI; and
(vi) any additional information of a public
nature concerning the Company and MMI (and any future
subsidiaries) or their respective businesses which the
Representative may reasonably request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
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(i) The Company will maintain a transfer agent (the
"Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a registrar (which may be the same entity as the transfer agent)
for the Common Stock and the Representative's Warrants.
(j) The Company will furnish to the Representative or
on the Represen- tative's order, without charge, at such place as the
Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representative may reasonably request.
(k) The Company shall use its best efforts to cause its
officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the
sale of the Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
(m) The Company shall timely file all such reports,
forms or other documents as may be required (including, but not limited to, a
Form SR as may be required pursuant to Rule 463 under the Act) from time to
time, under the Act, the Exchange Act, the Trust Indenture Act, and the
Regulations, and all such reports, forms and documents filed will comply as to
form and substance with the applicable requirements under the Act, the Exchange
Act, and the Regulations.
(n) The Company shall cause the Securities to be quoted
on the American Stock Exchange and for a period of two (2) years from the date
hereof shall use its best efforts to maintain the quotation of the Debentures
and the Securities and the Common Stock to the extent outstanding.
(o) For a period of two (2) years from the Closing
Date, the Company shall furnish to the Representative, at the Company's sole
expense, daily consolidated transfer sheets relating to the Debentures and the
Common Stock.
(p) For a period of five (5) years after the effective
date of the Registration Statement the Company shall, at the Company's sole
expense, take all necessary and appropriate actions to further qualify the
Company's securities in all jurisdictions of the United States in order to
permit secondary sales of such securities pursuant to the Blue Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
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<PAGE>
(q) The Company (i) prior to the effective date of the
Registration Statement, has filed a Form 8-A with the Commission providing for
the registration of the Debentures and the Common Stock under the Exchange Act
and (ii) as soon as practicable, will use its best efforts to take all necessary
and appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(r) The Company agrees that for a period of nine (9)
months following the effective date of the Registration Statement it will not,
without the prior written consent of National, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose (i) the Option
Securities, (ii) the Representative's Warrants, (iii) shares of Common Stock
issued upon the exercise of currently outstanding warrants or options, (iv)
shares of Common Stock issued in connection with the acquisition of businesses
or entry into medical management agreements for terms of at least 5 years, (v)
options for shares of Common Stock granted, or shares issued upon the exercise
thereof, under any stock option plan in effect on the Closing Date, (vi) (A)
options for shares of Common Stock granted, or shares issued upon the exercise
thereof, pursuant to a stock option plan approved by the stockholders within
such nine month period or (B) other options for shares of Common Stock, or
shares issued on the exercise thereof, provided, however, that options for
shares of Common Stock granted or shares issued upon the exercise thereof
pursuant to this subsection (vi) shall not exceed 10% of the shares of Common
Stock outstanding as of the date hereof and that such number of shares of Common
Stock outstanding shall not include shares held in the treasury of the Company.
(s) Until the completion of the distribution of the
Registered Securities, neither the Company nor MMI shall, without the prior
written consent of National or Underwriters' Counsel, issue, directly or
indirectly issue any press release or other communication or hold any press
conference with respect to the Company, MMI, their respective activities or the
offering contemplated hereby, other than trade releases issued in the ordinary
course of the Company's business consistent with past practices with respect to
the Company's operations.
(t) For a period equal to the lesser of (i) five (5)
years from the date hereof, and (ii) the sale to the public of the
Representative's Firm Securities, the Company will not take any action or
actions which may prevent or disqualify the Company's use of Form S-1 (or other
appropriate form) for the registration under the Act of the Representative's
Securities and the Underlying Representative Stock, and for such period as any
of the Debentures are outstanding, the Company will not take any action or
actions which may cause the exemption from registration provided by Section
3(a)(9) of the Act (or any successor provision) to be unavailable for the
conversion of the Debentures into Common Stock.
(u) The Company agrees that any and all future
transactions between the Company or MMI and their respective officers,
directors, principal stockholders and the affiliates of the foregoing persons
will be on terms no less favorable to the Company or MMI than could reasonably
be obtained in arm's length transactions with independent third parties, and
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<PAGE>
that any such transactions also be approved by a majority of the Company's or
MMI's, as the case may be, outside independent directors disinterested in the
transaction.
(v) The Company shall prepare and deliver, at the
Company's sole expense, to National within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may be, one bound volume containing
all correspondence with regulatory officials, agreements, documents and all
other materials in connection with the offering as requested by the
Underwriters' Counsel.
(w) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and each Option Closing Date (to the extent not previously paid)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, filing, delivery and mailing (including
the payment of postage with respect thereto) of the Registration Statement and
the Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Powers of Attorney, and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters and
such dealers as the Underwriters may request, in quantities as hereinabove
stated, (iii) the printing, engraving, issuance and delivery of the certificates
representing the Securities and the Representative's Warrants, (iv) the
qualification of the Securities, the Representative's Securities and the
Underlying Stock under state or foreign securities or Blue Sky laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to the
costs and expenses incurred by the Company in connection with the "road show"
(but not including costs and expenses incurred by the Representatives in
connection with the "road show"), information meetings and presentations, bound
volumes and prospectus memorabilia and "tombstone" advertisement expenses, (vi)
fees and expenses of the transfer agent and registrar, (vii) the fees payable to
the Commission, the NASD and the American Stock Exchange and (ix) the fees and
expenses incurred in connection with the listing of the Securities, the
Representative's Securities and the Underlying Stock on the American Stock
Exchange and any other market or exchange.
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<PAGE>
(b) If this Agreement is terminated by the Underwriters
in accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Representative for all of its actual
out-of-pocket expenses in an amount not to exceed $50,000, including the fees
and disbursements of Underwriters' Counsel and all Blue Sky counsel fees and
Blue Sky filing fees, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check or,
at the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $35,000 of which has been paid to date. In the event the
Representative elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representative on the
Option Closing Date (by certified or bank cashier's check or, at the
Representative's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to two percent (2%) of the gross
proceeds received by the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date or each Option Closing Date,
as the case may be; the accuracy on and as of the Closing Date or Option Closing
Date, if any, of the statements of officers of the Company made pursuant to the
provisions hereof; and the performance by the Company on and as of the Closing
Date and each Option Closing Date, if any, of its covenants and obligations
hereunder and to the following further conditions:
(a) The Registration Statement (including the Statement
of Eligibility and Qualification of the Trustee on Form T-1 (the "Form T-1"))
shall have become effective not later than 5:00 p.m., New York City time, on the
date prior to the date of this Agreement or such later date and time as shall be
consented to in writing by the Representative, and, at Closing Date and each
Option Closing Date, if any, no stop order suspending the effectiveness of the
Registration Statement (including the Form T-1) shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Regulations, the price of the Firm Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Representative of such timely filing,
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<PAGE>
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Regulations.
(b) The Representative shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's reasonable opinion, is
material, or omits to state a fact which, in the Representative's reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) On or prior to the Closing Date, the Underwriters
shall have received from Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Representative's Warrants, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received from the Company such papers and information as they request
to enable them to pass upon such matters.
(d) At Closing Date, the Underwriters shall have
received the favorable opinion of Zelnick, Morse, Rose & Lander, LLP, counsel to
the Company, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) each of the Company and MMI (A) has been
duly organized and is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and
in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires
such qualification or licensing, and (C) to the best of
such counsel's knowledge after due inquiry, has all
requisite corporate power and authority and has
obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory
officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct
its business as described in the Prospectus;
(ii) the Company owns one hundred percent (100%)
of the outstanding capital stock of MMI free and clear
of any liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or
equities of any kind whatsoever;
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(iii) except as described in the Prospectus, and
to the best of such counsel's knowledge after due
inquiry, neither the Company nor MMI owns an interest
in any corporation, limited liability company,
partnership, joint venture, trust or other business
entity;
(iv) the Company has a duly authorized, issued
and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto,
under "Capitalization" and "Description of Debentures,"
and to the best of such counsel's knowledge after due
inquiry, neither the Company nor MMI is a party to or
bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and
as described in the Prospectus; the Securities, the
Indenture, the Representative's Warrants, the
Representative's Securities, the Underlying Stock, and
all other securities issued or issuable by the Company
or MMI conform in all material respects to the
statements with respect thereto contained in the
Registration Statement and the Prospectus; all issued
and outstanding securities of the Company or MMI have
been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof are not
subject to personal liability by reason of being such
holders; and none of such securities were issued in
violation of the preemptive rights of any holders of
any security of the Company or MMI, to the best of such
counsel's knowledge after due inquiry, similar
contractual rights granted by the Company or MMI or
applicable securities laws; the Debentures have been
duly authorized and, when validly authenticated,
issued, delivered and paid for in the manner
contemplated by the Indenture, will be duly authorized,
validly issued and outstanding obligations of the
Company entitled to the benefits of the Indenture; the
shares of Common Stock issuable upon conversion of the
Debentures will, upon such issuance, be duly
authorized, validly issued, fully paid and
non-assessable; the Company has duly authorized and
reserved for issuance upon conversion of the Debentures
the shares of Common Stock issuable upon such
conversion; the Securities, the Representative's
Warrants, the Representative's Securities and the
Underlying Stock to be sold by the Company hereunder,
under the Indenture and under the Representative's
Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any
securityholder of the Company or MMI; the holders
thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken
for the authorization, issue and sale of the
Securities, the Representative's Warrants, the
Representative's Securities and the Underlying Stock
has been duly and validly taken; the certificates
representing the Securities and the Representative's
Warrants are in due and proper form; the
Representative's Warrants constitute valid and binding
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obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby
(except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application
relating to or affecting enforcement of creditors'
rights and the application of equitable principles in
any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable
law); upon the issuance and delivery pursuant to this
Agreement, the Indenture and the Representative's
Warrant Agreement of the Securities, the
Representative's Warrants and the Representative's
Securities to be sold by the Company hereunder and
thereunder, the Company will convey against payment
therefore as provided herein, to the Underwriters or
the Representative, as the case may be, good and
marketable title thereto free and clear of all liens
and other encumbrances;
(v) the Registration Statement (including the
Form T-1) is effective under the Act and the Indenture
has been duly qualified under the Trust Indenture Act;
if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule
430A, and no stop order suspending the use of the
Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement or the
qualification of the Trustee has been issued and no
proceedings for that purpose have been instituted or
are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act or
the Trust Indenture Act;
(vi) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and the
Indenture and any amendments or supplements thereto
(other than the financial statements and other
financial and statistical data included therein as to
which no opinion need be rendered) comply as to form in
all material respects with the requirements of the Act,
the Trust Indenture Act and the Regulations;
(vii) to the best of such counsel's knowledge
after due inquiry, (A) there are no agreements,
contracts or other documents required by the Act or the
Trust Indenture Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to
the Registration Statement other than those described
in the Registration Statement and the Prospectus and
filed as exhibits thereto; (B) the descriptions in the
Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other
documents to which the Company or MMI is a party or by
which either or them is bound are accurate in all
material respects and fairly represent the information
required to be shown by Form S-1; (C) there is not
pending or threatened against the Company or MMI any
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action, arbitration, suit, proceeding, litigation,
governmental or other proceeding (including, without
limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign,
against the Company or MMI which (x) is required to be
disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in
all material respects), (y) questions the validity of
the capital stock of the Company or MMI or this
Agreement, the Indenture or the Representative's
Warrant Agreement, or of any action taken or to be
taken by the Company or MMI pursuant to or in
connection with any of the foregoing; and (D) there is
no action, suit or proceeding pending or threatened
against the Company or MMI before any court or
arbitrator or governmental body, agency or official in
which there is a reasonable possibility of an adverse
decision which may result in a material adverse change
in the financial condition, business, affairs,
stockholders' equity, operations, properties, business
or results of operations of the Company or MMI, which
could adversely affect the present or prospective
ability of the Company to perform its obligations under
this Agreement, the Indenture or the Representative's
Warrant Agreement or which in any manner draws into
question the validity or enforceability of this
Agreement, the Indenture or the Representative's
Warrant Agreement;
(viii) the Company has the corporate power and
authority to enter into each of this Agreement, the
Indenture and the Representative's Warrant Agreement
and to consummate the transactions provided for herein
and therein; and each of this Agreement, the Indenture
and the Representative's Warrant Agreement has been
duly authorized, executed and delivered by the Company;
each of this Agreement, the Indenture and the
Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the
Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting
enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may
be limited by applicable law), and none of the
Company's execution, delivery or performance of this
Agreement, the Indenture and the Representative's
Warrant Agreement, its consummation of the transactions
contemplated herein or therein, or the conduct of its
business as described in the Registration Statement,
the Prospectus, and any amendments or supplements
thereto conflicts with or result in any breach or
violation of any of the terms or provisions of, or
constitutes a default under, or will result in the
creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any
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property or assets (tangible or intangible) of the
Company or MMI pursuant to the terms of (A) the
articles of incorporation or by-laws of the Company or
MMI, as amended, (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument known to such
counsel to which the Company or MMI is a party or by
which either of them is bound, or (C) any federal,
state or local statute, rule or regulation applicable
to the Company or MMI or any judgment, decree or order
known to such counsel of any arbitrator, court,
regulatory body or administrative agency or other
governmental agency or body (including, without
limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or MMI or any of
their activities or properties;
(ix) no consent, approval, authorization or
order, and no filing with, any court, regulatory body,
government agency or other body (other than such as may
be required under federal securities or Blue Sky laws,
as to which no opinion need be rendered) is required in
connection with the issuance of the Securities,
Representative's Warrants, the Representative's
Securities or the Underlying Stock as contemplated by
the Prospectus and the Registration Statement, the
performance of the Agreement, the Indenture and the
Representative's Warrant Agreement and the transactions
contemplated hereby and thereby;
(x) to the best of such counsel's knowledge
after due inquiry, the properties and businesses of the
Company and MMI conform in all material respects to the
description thereof contained in the Registration
Statement and the Prospectus;
(xi) to the best knowledge of such counsel, and
except as disclosed in the Registration Statement and
the Prospectus, neither the Company nor MMI is in
breach of, or in default under, any term or provision
of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money,
or any other agreement or instrument to which the
Company or MMI is a party or by which the Company or
MMI is bound or to which the property or assets
(tangible or intangible) of the Company or MMI is
subject; and neither the Company nor MMI is in
violation of any term or provision of its articles of
incorporation or by-laws, as amended, and to the best
of such counsel's knowledge after due inquiry, in
violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
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(xii) the statements in the Prospectus under
"Dividend Policy" and "Description of Debentures," have
been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xiii) the Securities and the Common Stock have
been approved for listing on the American Stock
Exchange, subject only to official notice of issuance;
(xiv) to the best of such counsel's knowledge
and based upon a review of the outstanding securities
and the contracts furnished to such counsel by the
Company, no person, corporation, trust, partnership,
association or other entity has the right to include
and/or register any securities of the Company in the
Registration Statement, require the Company to file any
registration statement or, if filed, to include any
security in such registration statement; and
(xv) the Company is not an "investment company"
or "promoter" or "principal underwriter" for or, to
such counsel's knowledge, an "affiliated person" of, an
"investment company" as such terms are defined in the
1940 Act.
(e) The Representative shall have received on the
Closing Date or the Option Closing Date, as the case may be, the opinion of
Ruskin, Moscou, Evans & Faltishek, P.C., special counsel for the Company, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The business and professional activities
described in the Prospectus as being engaged in, or as
proposed to be engaged in by the Company, MMI and GMMS
(the "Regulated Business") can be undertaken in
compliance in all material respects with all laws,
rules and regulations applicable to healthcare
providers, as such, or to practice support activities
undertaken on behalf of healthcare providers
(collectively, the "Healthcare Rules").
(ii) Except as disclosed in the Prospectus, such
counsel is not aware that any legislative or
administrative body has under consideration any
proposed Healthcare Rule the enactment of which, as
currently proposed, would require the Company to make a
material change in its operations or business strategy,
each as described in the Prospectus.
(iii) The statements under the captions "Risk
Factors -- Government Regulation" and "Business --
Government Regulation" in the Prospectus, insofar as
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such statements constitute a summary of documents
referred to therein or matters or law, fairly summarize
in all material respects the information called for
with respect to such documents or matters.
In rendering such opinion, each such counsel may rely as to
matters governed by the laws of states other than New York or Federal laws on
local counsel in such jurisdictions, provided that in each case such counsel
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, (x)
the opinion of Morse, Zelnick, Rose & Lander shall also include a statement to
the effect that nothing has come to the attention of such counsel which leads
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein); and (y) the opinion
of Ruskin, Moscou, Evans & Faltishek, P.C. shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that the Company, MMI or GMMS is not operating in compliance in all
material respects with all applicable Healthcare Rules. With respect to such
statements, Morse, Zelnick, Rose & Lander and Messrs. Ruskin, Moscou, Evans &
Faltishek, P.C. as the case may be, may state that their belief is based upon
the procedures set forth therein (which procedures shall be reasonably
acceptable to the Representatives and counsel for the Underwriters) but is
otherwise without independent check and verification.
(f) On or prior to each of the Closing Date and the
Option Closing Date, if any, Underwriters' Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(g) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company or MMI, whether or not in the ordinary course of business, from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company or MMI, from the latest
date as of which the financial condition of the Company and MMI is set forth in
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the Registration Statement and Prospectus which is adverse to the Company and
MMI taken as a whole; (iii) neither the Company nor MMI shall be in default
under any provision of any instrument relating to any outstanding indebtedness
which default has not been waived; (iv) neither the Company nor MMI shall have
issued any securities (other than the Securities and the Representative's
Warrants) or declared or paid any dividend or made any distribution in respect
of its capital stock of any class and there has not been any change in the
capital stock, or any material increase in the debt (long or short term) or
liabilities or obligations of the Company or MMI (contingent or otherwise); (v)
no material amount of the assets of the Company or MMI shall have been pledged
or mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened (or circumstances developed giving rise to same) against the
Company or MMI, or affecting any of their respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company or MMI, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing
Date, if any, the Underwriters shall have received a certificate of the Company
signed on behalf of the Company by the principal executive officer of the
Company, dated the Closing Date or Option Closing Date, as the case may be, to
the effect that such executive has carefully examined the Registration
Statement, the Prospectus, this Agreement, the Indenture and the
Representative's Warrant Agreement, and that:
(i) The representations and warranties of the
Company in this Agreement, the Indenture and the
Representative's Warrant Agreement are true and
correct, as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the
Company has complied with all agreements and covenants
and satisfied all conditions contained in this
Agreement, the Indenture and the Representative's
Warrant Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement or any part thereof or
the qualification of the Trustee has been issued, and
no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge after due inquiry, are contemplated or
threatened under the Act or the Trust Indenture Act;
(iii) The Registration Statement and the
Prospectus and, if any, each amendment and each
supplement thereto, contain all statements and
information required by the Act to be included therein,
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and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any
supplement, as of their respective dates, thereto
included any untrue statement of a material fact or
omitted to state any material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which they
were made, not misleading; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration
Statement and the Prospectus, (a) neither the Company
nor MMI has incurred up to and including the Closing
Date or the Option Closing Date, as the case may be,
other than in the ordinary course of its business, any
material liabilities or obligations, direct or
contingent; (b) neither the Company nor MMI has paid or
declared any dividends or other distributions on its
capital stock; (c) neither the Company nor MMI has
entered into any transactions not in the ordinary
course of business; (d) there has not been any change
in the capital stock or material increase in long-term
debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings
in the ordinary course of business) of the Company or
MMI, (e) neither the Company nor MMI has sustained any
loss or damage to its property or assets, whether or
not insured, (f) there is no litigation which is
pending or threatened (or circumstances giving rise to
same) against the Company or MMI or any affiliated
party of either of the foregoing which is required to
be set forth in an amended or supplemented Prospectus
which has not been set forth, and (g) there has
occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters.
(j) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory in all respects (including the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriters and Underwriters' Counsel, from Arthur
Andersen:
(i) confirming that they are independent
certified public accountants with respect to the
Company within the meaning of the Act and the Exchange
Act and the applicable Regulations;
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(ii) stating that it is their opinion that the
financial statements and supporting schedules of the
Company and MMI included in the Registration Statement
comply as to form in all material respects with the
applicable accounting requirements of the Act and the
Regulations thereunder and that the Representative may
rely upon the opinion of Arthur Andersen with respect
to the financial statements and supporting schedules
included in the Registration Statement;
(iii) stating that, on the basis of a limited
review which included a reading of the latest available
unaudited interim financial statements of the Company
and MMI (with an indication of the date of the latest
available unaudited interim financial statements), a
reading of the latest available minutes of the
stockholders and board of directors and the various
committees of the board of directors of the Company and
MMI, consultations with officers and other employees of
the Company and MMI responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which
would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the
Company and MMI, if any, included in the Registration
Statement, do not comply as to form in all material
respects with the applicable accounting requirements of
the Act and the Regulations or are not fairly presented
in conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements of the
Company and MMI included in the Registration Statement,
or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration
Statement, there has been any change in the capital
stock or material increase in long-term debt of the
Company or MMI, or any material decrease in the
stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in
the [ , 1996], balance sheet included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the
amount of such change or decrease;
(iv) stating that they have compared specific
dollar amounts, numbers of shares, percentages of
revenues and earnings, statements and other financial
information pertaining to the Company and MMI set forth
in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and
information may be derived from the general accounting
records, including work sheets, of the Company and/or
MMI and excluding any questions requiring an
interpretation by legal counsel, with the results
obtained from the application of specified readings,
inquiries and other appropriate procedures (which
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<PAGE>
procedures do not constitute an examination in
accordance with generally accepted auditing standards)
set forth in the letter and found them to be in
agreement; and
(v) statements as to such other material matters
incident to the transaction contemplated hereby as the
Representative may reasonably request.
(k) At the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received from Arthur Andersen a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm that statements made in the letter furnished
pursuant to Subsection (i) of this Section 6, except that the specified date
referred to shall be a date not more than five (5) days prior to Closing Date or
the Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (v) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) On each of Closing Date and Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in
any jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(n) On or before the Closing Date, the Company shall
have executed and delivered to the Representative, (i) the Representative's
Warrant Agreement, substantially in the form filed as Exhibit 4.2, to the
Registration Statement, in final form and substance satisfactory to the
Representative, and (ii) the Representative's Warrants in such denominations and
to such designees as shall have been provided to the Company.
(o) On or before Closing Date, the Securities and the
shares of Common Stock shall have been duly approved for quotation on the
American Stock Exchange.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Representative may terminate
this Agreement or, if the Representative so elects, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
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7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each of the Underwriters (for purposes of this Section 7, "Underwriters" shall
include the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Registered Securities under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, The American Stock Exchange or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company, within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter or the Representative expressly for use in
such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
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relating to the transactions effected by the Underwriters in connection with
this Offering. The Company acknowledges that the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters or the Representative
for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise or which it may
have under this Section 7, except to the extent that it has been prejudiced in
any material respect by such failure). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
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such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities, or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriters are the indemnified party, the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Registered Securities (before deducting
expenses other than underwriting discounts and commissions) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
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contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company, any controlling person of either
the Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Securities to the Underwriters and the
Representative, as the case may be.
9. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the date hereof. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such Securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Representative's reasonable opinion will in the immediate future disrupt the
financial markets; or (ii) any material adverse change in the financial markets
shall have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iv) if the United States shall
have become involved in a war or major hostilities, or if there shall have been
an escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (v) if a banking moratorium
has been declared by a state or federal authority; or (vi) if the Company shall
have sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have been such a material adverse
change in the prospects or conditions of the Company or MMI, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Representative's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the Registered
Securities.
(b) If this Agreement is terminated by the
Representative in accordance with any of the provisions of Section 6, Section
10(a) or Section 12, the Company shall promptly reimburse and indemnify the
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Underwriters pursuant to Section 5(b) hereof. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth. If, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
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<PAGE>
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven Rothstein, with a copy, which
shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th
Floor, New York, New York 10019, Attention: Alan I. Annex, Esq. Notices to the
Company shall be directed to the Company at Complete Management, Inc., 254 West
31st Street, New York, New York 10001, Attention: Steven M. Rabinovici, with a
copy, which shall not constitute notice, to Morse, Zelnick, Rose & Lander, LLP,
450 Park Avenue, Suite 902, New York, New York 10022, Attention: Stephen A.
Zelnick, Esq.
14. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
COMPLETE MANAGEMENT, INC.
By:_____________________________________
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<PAGE>
Name:
Title:
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:__________________________________
Name:
Title:
For themselves and as Representative of the Underwriters named in Schedule A
hereto.
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<PAGE>
SCHEDULE A
Number of
Firm Securities to be
Name of Underwriters Purchased
-------------------- ---------
National Securities Corporation
TOTAL.......................................................
EXH. A-1
<PAGE>
____________________________________
COMPLETE MANAGEMENT, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of May __, 1996
____________________________________
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of May __, 1996,
between COMPLETE MANAGEMENT, INC., a New York corporation (the "Company") and
NATIONAL SECURITIES CORPORATION (hereinafter referred to variously as a "Holder"
or the "Representative").
W I T N E S S E T H :
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Representative and the Company, to act as the representative
of the several underwriters listed therein (the "Underwriters") in connection
with the Company's proposed offering (the "Public Offering") of [7 to 8 1/2%]
Convertible Subordinated Debentures Due 2003 (the "Debentures") of $30,000,000
aggregate principal amount.
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants ("Warrants") to the Representative to purchase up to
an aggregate of ____ shares of Common Stock.
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Underwriters' compensation in connection with, the Representative
acting as the representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate ($_____), the agreements
herein set forth and other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Representative is hereby granted the right to
purchase, at any time from May _____, 1996 until 5:30 p.m., New York time, on
May _____, 2001, at which time the Warrants expire, up to an aggregate _____
shares (subject to adjustment as provided in Section 8 hereof) of common stock,
par value $.001 per share, of the Company ("Common Stock") at an initial
exercise price (subject to adjustment as provided in Section 11 hereof) of $____
(the "Exercise Price").
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Registration of Warrant. The Warrants shall be numbered and
shall be registered on the books of the Company when issued.
4. Exercise of Warrant.
4.1 Method of Exercise. The Warrants initially are
exercisable at the Exercise Price (subject to adjustment as provided in Section
11 hereof) per Warrant set forth in Section 8 hereof payable by certified or
official bank check in New York Clearing House funds. Upon surrender of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price for the shares of Common Stock
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<PAGE>
purchased at the Company's principal offices in New York (presently located at
254 West 31st Street, New York, New York 10001) the registered holder of a
Warrant Certificate (the "Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock underlying the Warrants). In the case of the purchase
of less than all the shares of Common Stock purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
5. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock or other
securities, properties or rights underlying such Warrants shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 7 and 9 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
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<PAGE>
The Warrant Certificates and the certificates representing the
shares of Common Stock or other securities, property or rights issued upon
exercise of the Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the then present President or any Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or any
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
6. Transfer of Warrant. The Warrants shall be transferable
only on the books of the Company maintained at its principal office, where its
principal office may then be located, upon delivery thereof duly endorsed by the
Holder or by its duly authorized attorney or representative accompanied by
proper evidence of succession, assignment or authority to transfer. Upon any
registration transfer, the Company shall execute and deliver new Warrants to the
person entitled thereto.
7. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof, and that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to officers or partners of
the Underwriters.
8. Exercise Price and Number of Securities. Except as
otherwise provided in Section 10 hereof, each Warrant is exercisable to purchase
one share of the Common Stock at an initial exercise price equal to the Exercise
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<PAGE>
Price. The Exercise Price and the number of shares of Common Stock for which the
warrant may be exercised shall be the price and the number of shares of Common
Stock which shall result from time to time from any and all adjustments in
accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Warrant Certificate and each certificate representing the shares of Common Stock
and any of the other securities issuable upon exercise of the Warrants
(collectively, the "Warrant Shares") shall bear the following legend unless (i)
such Warrants or Warrant Shares are distributed to the public or sold to the
underwriters for distribution to the public pursuant to this Section 9 or
otherwise pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Act"), or (ii) the Company has received an opinion of
counsel, in form and substance reasonably satisfactory to counsel for the
Company, that such legend is unnecessary for any such certificate:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS
REPRESENTED BY THE CERTIFICATE IS RESTRICTED
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<PAGE>
IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing
after the effective date of the Registration Statement and expiring five (5)
years thereafter, the Company proposes to register any of its securities under
the Act (other than in connection with a merger or pursuant to Form S-4 or Form
S-8) it will give written notice by registered mail, at least thirty (30) days
prior to the filing of each such registration statement, to the Holders of the
Warrants and/or the Warrant Shares of its intention to do so. If any of the
Holders of the Warrants and/or Warrant Shares notify the Company within twenty
(20) days after mailing of any such notice of its or their desire to include any
such securities in such proposed registration statement, the Company shall
afford such Holders of the Warrants and/or Warrant Shares the opportunity to
have any such Warrant Shares registered under such registration statement. In
the event that the managing underwriter for said offering advises the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without causing a diminution in the offering price or otherwise adversely
affecting the offering, the Company will include in such registration (a) first,
the securities the Company proposes to sell, (b) second, the securities held by
the entities that made the demand for registration, (c) third, the Warrants
and/or Warrant Shares requested to be included in such registration which in the
opinion of such underwriter can be sold, pro rata among the Holders of Warrants
and/or Warrant Shares on the basis of the number of Warrants and/or Warrant
Shares requested to be registered by such Holders, and (d) fourth, other
securities requested to be included in such registration.
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<PAGE>
Notwithstanding the provisions of this Section 9.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 9.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement or to withdraw the same after the
filing but prior to the effective date thereof.
9.3 Demand Registration.
(a) At any time commencing after the effective date
of the Registration Statement and expiring five (5) years thereafter, the
Holders of the Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Warrants and/or Warrant Shares shall have the right
(which right is in addition to the registration rights under Section 9.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale by such Holders and any other Holders
of the Warrants and/or Warrant Shares who notify the Company within fifteen (15)
days after the Company mails notice of such request pursuant to Section 9.3(b)
hereof (collectively, the "Requesting Holders") of their respective Warrant
Shares for the earlier of (i) nine (9) consecutive months or (ii) until the sale
of all of the Warrant Shares requested to be registered by the Requesting
Holders.
-7-
<PAGE>
(b) The Company covenants and agrees to give
written notice of any registration request under this Section 9.3 by any Holder
or Holders representing a Majority of the Warrants and/or Warrant Shares to all
other registered Holders of the Warrants and the Warrant Shares within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under
Section 9.2 and subsection (a) of this Section 9.3, at any time commencing after
the effective date of the Registration Statement and expiring five (5) years
thereafter, the Holders of Warrants and/or Warrant Shares shall have the right
on one occasion, exercisable by written request to the Company, to have the
Company prepare and file with the Commission a registration statement so as to
permit a public offering and sale by such Holders of their respective Warrant
Shares for the earlier of (i) nine (9) consecutive months or (ii) until the sale
of all of the Warrant Shares requested to be registered by such Holders;
provided, however, that the provisions of Section 9.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration statement
for the Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Warrants and/or Warrant Shares, the Company, at its option, may
repurchase (1) any and all Warrant Shares at the higher of the Market Price (as
defined in Section 9.3(e)) per share of Common Stock on (x) the date of the
notice sent pursuant to Section 9.3(a) or (y) the expiration of the period
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<PAGE>
specified in Section 9.4(a) and (ii) any and all Warrants at such Market Price
less the exercise price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 9.4(a) or (ii) the delivery of the
written notice of election specified in this Section 9.3(d).
(e) Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the average
closing sale price as furnished by the NASD through The Nasdaq Stock Market,
Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted on Nasdaq, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
9.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 9.2 or 9.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file
a registration statement within one hundred and twenty (120) days of receipt of
any demand therefor, and to have any registration statements declared effective
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<PAGE>
at the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with the
registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action
which may be required in qualifying or registering the Warrant Shares included
in a registration statement for offering and sale under the securities or blue
sky laws of such states as reasonably are requested by the Holder(s), provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of
the Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
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<PAGE>
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify each of the Underwriters
contained in Section 9 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 9 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of
any securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement (other than a registration statement on Form S-4 or S-8) to be or
remain effective during a ninety (90) day period following the effective date of
a registration statement filed pursuant to Section 9.3 hereof, without the prior
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<PAGE>
written consent of the Holders of the Warrants and Warrant Shares representing a
Majority of such securities or as otherwise required by the terms of any
existing registration rights granted prior to the date of this Agreement by the
Company to the holders of any of the Company's securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' 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.
(i) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
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<PAGE>
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall enter into an underwriting
agreement with the managing underwriters selected for such underwriting by
Holders holding a Majority of the Warrant Shares requested to be included in
such underwriting, which may be any or all of the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each Holder and such
managing underwriters, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale of their
Warrant Shares and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term
"Majority" in reference to the Warrants or Warrant Shares, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Shares that
(i) are not held by the Company, an affiliate, officer, creditor, employee or
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<PAGE>
agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to Section 9
hereof that each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus
relating to the Warrant Shares covered by a registration statement is required
to be delivered under the Act, of the happening of any event with respect to
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities.
The Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants shall be subject to adjustment
from time to time upon the happening of certain events as follows:
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11.1 Dividend, Subdivision and Combination. In case the
Company shall (i) declare a dividend or make a distribution on its outstanding
shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
11.2 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 11,
the number of Warrant Shares issuable upon the exercise at the adjusted Exercise
Price of each Warrant shall be adjusted to the nearest number of whole shares of
Common Stock by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
11.3 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
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<PAGE>
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
11.4 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to each Holder
a supplemental warrant agreement providing that the Holder of each Warrant then
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger to which the Holder would have been entitled if the
Holder had exercised such Warrant immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
11. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
11.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or
the Warrant Shares;
(b) Upon the issuance or sale of Common Stock (or
any other security convertible, exercisable, or exchangeable into shares of
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Common Stock) upon the direct or indirect conversion, exercise, or exchange of
any options, rights, warrants, or other securities or indebtedness of the
Company outstanding as of the date of this Agreement or granted pursuant to any
stock option plan of the Company in existence as of the date of this Agreement,
pursuant to the terms thereof; or
(c) If the amount of said adjustment shall be less
than two cents ($.02) per share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least two cents ($.02) per share.
12. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable, without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
-17-
<PAGE>
13. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
14. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. Every transfer agent ("Transfer
Agent") for the Common Stock and other securities of the Company issuable upon
the exercise of the Warrants will be irrevocably authorized and directed at all
times to reserve such number of authorized shares of Common Stock and other
securities as shall be requisite for such purpose. The Company will keep a copy
of this Agreement on file with every Transfer Agent for the Common Stock and
other securities of the Company issuable upon the exercise of the Warrants. The
Company will supply every such Transfer Agent with duly executed stock and other
certificates, as appropriate, for such purpose. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
-18-
<PAGE>
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq.
15. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed;
-19-
<PAGE>
then in any one or more of said events, the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
16. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mall,
return receipt requested:
(a) if to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in
Section 4 hereof or to such other address as the Company may designate by notice
to the Holders.
17. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
-20-
<PAGE>
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates.
18. Successors. All of the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
19. Survival of Representations and Warranties. All statements
in any schedule, exhibit or certificate or other instrument delivered by or on
behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
20. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
-21-
<PAGE>
made under the laws of the State of Washington and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
21. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
22. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
23. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Shares any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriters and any other Holder(s) of the
Warrant Certificates or Warrant Shares.
24. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
-22-
<PAGE>
IN WITNESS OF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
ATTEST: COMPLETE MANAGEMENT, INC.
By:____________________________________
_____________________________
Secretary Name:
Title:
NATIONAL SECURITIES CORPORATION
By:____________________________________
By:____________________________________
Name:
Title:
-23-
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, MAY , 2001
Warrant No.____
WARRANT CERTIFICATE
This Warrant Certificate certifies that National Securities
Corporation, or registered assigns, is the registered holder of Warrants to
purchase initially, at any time from May __, 1997 until 5:30 p.m., New York time
on May , 2001 (the "Expiration Date"), up to _______shares, of fully-paid and
non-assessable common stock, $.001 par value (the "Common Stock") of Complete
Management, Inc., a New York corporation (the "Company") at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
$_______ per share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of May , 1996 among the Company and National Securities Corporation (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
EXH. A-1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
EXH. A-2
<PAGE>
This Warrant Certificate does not entitle any Warrantholder to
any of the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of May , 1996
ATTEST: COMPLETE MANAGEMENT, INC.
____________________________ By:__________________________________ [SEAL]
Secretary Name:
Title:
EXH. A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.11]
The undersigned hereby irrevocably elects to exercise the
right, represented by Warrant Certificate No.____ , to purchase _______ Shares
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Complete
Management, Inc. (the "Company") in the amount of $____, all in accordance with
the terms of Section 3.1 of the Representative's Warrant Agreement dated as of
May , 1996 between the Company and National Securities Corporation. The
undersigned requests that a certificate for such securities be registered in the
name of _________, whose address is___________________________________________
and that such certificate be delivered to _________________, whose address is
_______________________________________________ , and if said number of shares
shall not be all the shares purchasable hereunder, that a new Warrant
Certificate for the balance of the shares purchasable under the within Warrant
Certificate be registered in the name of the undesigned warrantholder or his
assignee as below indicated and delivered to the address stated below.
Dated: _____________________________
Signature:_________________________________ (Signature
must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
Address: _____________________________________________
_____________________________________________
______________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-4
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________________ here sells, assigns and
transfers unto [NAME OF TRANSFEREE] Warrant Certificate No. _____, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ___________________________ Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: ____________________________
Signature:____________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
Address: _____________________________________________
_____________________________________________
______________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
Signature Guaranteed: _________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-5
<PAGE>
===============================================================================
COMPLETE MANAGEMENT, INC.
$34,500,000
Convertible Subordinated Debentures
Due 2003
INDENTURE
Dated as of May , 1996
CHEMICAL BANK,
TRUSTEE
===============================================================================
<PAGE>
COMPLETE MANAGEMENT, INC., AS ISSUER
Reconciliation and tie between Trust Indenture Act of 1939, as amended
and Indenture dated as of May , 1996
Trust Indenture Indenture
Act Section Section
Section 310 (a)(1)....................................................609
(a)(2)....................................................609
(a)(3).........................................Not Applicable
(a)(4).........................................Not Applicable
(b)..................................................608, 610
Section 311 (a)....................................................613(a)
(b)....................................................613(b)
Section 312 (a).......................................................701
.......................................................702(a)
(b)....................................................702(b)
(c)....................................................702(c)
Section 313 (a)....................................................703(a)
(b)....................................................703(b)
(c)....................................................703(a)
(d)....................................................703(b)
(d) .................................................. 703(c)
Section 314 (a).......................................................704
(a)(4)............................................ 101, 1004
(b)............................................Not Applicable
(c)(1)....................................................103
(c)(2)....................................................103
(c)(3).........................................Not Applicable
(d)............................................Not Applicable
(e).......................................................103
Section 315 (a)....................................................601(a)
(b).......................................................602
....................................................703(a)(6)
(c)....................................................601(b)
(d)....................................................601(c)
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-i-
<PAGE>
Trust Indenture Indenture
Act Section Section
(d)(1)..............................................601(a)(1)
(d)(2)..............................................601(c)(2)
(d)(3)..............................................601(c)(3)
(e).......................................................514
Section 316 (a).......................................................103
(a)(1)(A).................................................502
..........................................................512
(a)(1)(B).................................................513
(a)(2).........................................Not Applicable
(b).......................................................508
(c)....................................................104(c)
Section 317 (a)(1)....................................................503
(a)(2)....................................................504
(b)......................................................1003
Section 318 (a).......................................................107
-ii-
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE
Definitions and Other Provisions
of General Application....................................................... 1
SECTION 101. Rules of Construction and Definitions.................. 1
Act................................................................. 2
Affiliate........................................................... 2
Authenticating Agent................................................ 2
Board of Directors.................................................. 2
Board Resolution.................................................... 2
Business Day........................................................ 2
Common Stock........................................................ 3
Company............................................................. 3
Company Request..................................................... 3
Company Order....................................................... 3
Corporate Trust Office.............................................. 3
Corporation......................................................... 3
Default............................................................. 3
Exchange Act........................................................ 3
Holder.............................................................. 4
Indenture........................................................... 4
Interest Payment Date............................................... 4
Junior Securities................................................... 4
Maturity............................................................ 4
Officer............................................................. 4
Officers' Certificate............................................... 4
Opinion of Counsel.................................................. 4
Outstanding......................................................... 4
Person.............................................................. 5
Predecessor Security................................................ 5
Redemption Date..................................................... 5
Redemption Price.................................................... 5
Regular Record Date................................................. 5
Responsible Officer................................................. 5
Securities.......................................................... 6
Security Register................................................... 6
SEC................................................................. 6
-iii-
<PAGE>
Page
Securityholder...................................................... 6
Senior Indebtedness of the Company.................................. 6
Special Record Date................................................. 6
Stated Maturity..................................................... 6
Subsidiary.......................................................... 7
Tender Offer........................................................ 7
Trust Indenture Act................................................. 7
Trading Day......................................................... 7
Trustee............................................................. 7
Vice President...................................................... 7
Voting Stock........................................................ 7
Whole Subsidiary.................................................... 7
SECTION 102. Compliance Certificates and Opinions.................. 8
SECTION 103. Form of Documents Delivered to Trustee................ 8
SECTION 104. Acts of Holders....................................... 9
SECTION 105. Notices, etc., to Trustee and the Company............. 10
SECTION 106. Notice to Holders; Waiver............................. 10
SECTION 107. Conflict With Trust Indenture Act..................... 11
SECTION 108. Effect of Headings and Table of Contents.............. 11
SECTION 109. Successors and Assigns................................ 11
SECTION 110. Separability Clause................................... 11
SECTION 111. Benefits of Indenture................................. 11
SECTION 112. Governing Law......................................... 11
SECTION 113. Legal Holidays........................................ 11
ARTICLE TWO
Form of Securities........................................................... 12
-iv-
<PAGE>
Page
SECTION 201. Form Generally........................................ 12
SECTION 202. Form of Face of Security.............................. 12
SECTION 203. Form of Reverse of Security........................... 14
SECTION 204. Form of Trustee's Certificate of Authentication....... 17
SECTION 205. Form of Election to Convert........................... 17
ARTICLE THREE
The Securities............................................................... 18
SECTION 301. Title and Terms........................................ 18
SECTION 302. Denominations......................................... 19
SECTION 303. Execution, Authentication, Delivery and Dating........ 19
SECTION 304. Temporary Securities.................................. 19
SECTION 305. Registration, Registration of Transfer and Exchange.
................................................................... 20
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...... 21
SECTION 307. Payment of Interest; Interest Rights Preserved. ...... 22
SECTION 308. Persons Deemed Owners. ............................... 23
SECTION 309. Cancellation. ........................................ 23
SECTION 310. CUSIP Numbers......................................... 24
SECTION 311. Computation of Interest............................... 24
ARTICLE FOUR
Satisfaction and Discharge................................................... 24
SECTION 401. Satisfaction and Discharge of Indenture............... 24
-v-
<PAGE>
Page
SECTION 402. Application of Trust Money............................ 25
SECTION 403. Reinstatement......................................... 25
ARTICLE FIVE
Remedies..................................................................... 26
SECTION 501. Events of Default..................................... 26
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
................................................................... 28
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee.......................................................... 29
SECTION 504. Trustee May File Proofs of Claim...................... 29
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.......................................................... 30
SECTION 506. Application of Money Collected........................ 30
SECTION 507. Limitation on Suits................................... 31
SECTION 508. Unconditional Right of Holders to Receive Principal
and Interest and to Convert......................................... 31
SECTION 509. Restoration of Rights and Remedies.................... 31
SECTION 510. Rights and Remedies Cumulative........................ 32
SECTION 511. Delay or Omission Not Waiver.......................... 32
SECTION 512. Control by Holders.................................... 32
SECTION 513. Waiver of Past Defaults............................... 32
SECTION 514. Undertaking for Costs................................. 33
SECTION 515. Waiver of Stay or Extension Laws...................... 33
-vi-
<PAGE>
Page
ARTICLE SIX
The Trustee.................................................................. 33
SECTION 601. Certain Duties and Responsibilities................... 34
SECTION 602. Notice of Defaults.................................... 35
SECTION 603. Certain Rights of Trustee............................. 35
SECTION 604. Not Responsible for Recitals or Issuance of Securities
................................................................... 36
SECTION 605. May Hold Securities................................... 36
SECTION 606. Money Held in Trust................................... 36
SECTION 607. Compensation and Reimbursement........................ 36
SECTION 608. Disqualification; Conflicting Interests............... 37
SECTION 609. Corporate Trustee Required; Eligibility............... 37
SECTION 610. Resignation and Removal; Appointment of Successor.
................................................................... 38
SECTION 611. Acceptance Of Appointment By Successor................ 39
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business............................................................ 39
SECTION 613. Appointment of Authenticating Agent................... 40
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company............................ 41
SECTION 701. Company To Furnish Trustee Names And Addresses
of Holders.......................................................... 41
SECTION 702. Preservation Of Information; Communications To
Holders............................................................. 42
-vii-
<PAGE>
Page
SECTION 703. Reports By Trustee. .................................. 42
SECTION 704. Reports By Company. .................................. 42
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease ........................ 43
SECTION 801. Company May Consolidate, Etc., Only On Certain
Terms. ............................................................. 43
SECTION 802. Successor Substituted. ............................... 44
SECTION 803. Mergers Into The Company.............................. 44
ARTICLE NINE
Supplemental Indentures...................................................... 44
SECTION 901. Supplemental Indentures Without Consent of Holders.
................................................................... 44
SECTION 902. Supplemental Indentures With Consent of Holders....... 45
SECTION 903. Execution of Supplemental Indentures. ................ 46
SECTION 904. Effect of Supplemental Indentures..................... 46
SECTION 905. Conformity With Trust Indenture Act................... 46
SECTION 906. Reference in Securities to Supplemental Indentures. .. 46
ARTICLE TEN
Covenants.................................................................... 47
SECTION 1001. Payment of Principal and Interest.................... 47
SECTION 1002. Maintenance of Office or Agency...................... 47
SECTION 1003. Money for Security Payments to be Held in Trust...... 47
SECTION 1004. Statement by Officers as to Default.................. 48
-viii-
<PAGE>
Page
SECTION 1005. Limitation on Dividends, Redemptions, Etc............ 48
SECTION 1006. Contingency for Sinking Fund......................... 49
SECTION 1007. Payment of Taxes and Other Claims.................... 49
ARTICLE ELEVEN
Redemption of Securities..................................................... 50
SECTION 1101. Right of Redemption.................................. 50
SECTION 1102. Applicability of Article............................. 50
SECTION 1103. Election to Redeem; Notice to Trustee................ 50
SECTION 1104. Selection by Trustee of Securities to be Redeemed.... 50
SECTION 1105. Notice of Redemption................................. 51
SECTION 1106. Deposit of Redemption Price.......................... 52
SECTION 1107. Securities Payable on Redemption Date................ 52
SECTION 1108. Securities Redeemed in Part.......................... 52
SECTION 1109. Conversion Arrangements on Call for Redemption....... 53
ARTICLE TWELVE
Conversion of Securities..................................................... 54
SECTION 1201. Conversion Privilege and Conversion Price............ 54
SECTION 1202. Exercise of Conversion Privilege..................... 55
SECTION 1203. Fractions of Shares.................................. 55
SECTION 1204. Conversion Price Adjustments......................... 56
SECTION 1205. Notice of Adjustments of Conversion Price............ 63
-ix-
<PAGE>
Page
SECTION 1206. Notice Of Certain Corporate Action. ................. 64
ARTICLE THIRTEEN
Subordination of Securities.................................................. 67
SECTION 1301. Agreements to Subordinate by Company and
Minimum Redemption Price............................................ 67
SECTION 1302. Distribution on Dissolution, Liquidation and
Reorganization; Subrogation......................................... 67
SECTION 1303. No Payment in Event of Default on Senior
Indebtedness........................................................ 69
SECTION 1304. Payments Permitted................................... 69
SECTION 1305. Authorization to Trustee to Effect Subordination..... 70
SECTION 1306. Notices to Trustee................................... 70
SECTION 1307. Trustee as Holder of Senior Indebtedness of the
Company............................................................. 71
SECTION 1308. Modification of Terms of Senior Indebtedness of the
Company............................................................. 71
SECTION 1309. Certain Conversions Not Deemed Payment............... 71
SECTION 1310. Article Applicable to Paying Agents.................. 72
ARTICLE FOURTEEN
Right to Require Repurchase.................................................. 72
SECTION 1401. Right to Require Repurchase.......................... 72
SECTION 1402. Notice; Method of Exercising Repurchase Right........ 72
SECTION 1403. Deposit of Repurchased Price......................... 73
SECTION 1404. Securities Not Repurchased on Repurchase Date........ 73
-x-
<PAGE>
Page
SECTION 1405. Securities Repurchased in Part....................... 74
SECTION 1406. Certain Definitions.................................. 74
-xi-
<PAGE>
INDENTURE, dated as of May____, 1996 between COMPLETE MANAGEMENT, INC.,
a New York corporation (the "Company"), and CHEMICAL BANK, a corporation
organized under the laws of the State of New York (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ____%
Convertible Subordinated Debentures Due 2003 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Rules of Construction and Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles then in effect;
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(4) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
(5) "or" is not exclusive;
(6) "including" means including, without limitation; and
(7) words in the singular include the plural and works in the
plural include the singular.
"Act" when used with respect to any Holder, has the meaning specified
in Section 105.
"Affiliate" of any specified person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate the Securities.
"Board of Directors" means either the Board of Directors of the Company
or any committee thereof duly authorized to act on behalf of such Board of
Directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or Assistant Secretary of the Company to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday or Sunday on which
banking institutions in the City of New York, New York by law, regulation or
executive order are not required or authorized to close.
"Closing Price" on any Trading Day with respect to the per share price
of Common Stock means the last reported sales price regular way or, in case no
such reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices regular way on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
National Market System or the NASDAQ system, as the case may be, or, if the
Common Stock is not listed or admitted to trading on any national securities
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exchange or quoted on the NASDAQ National Market System, or the NASDAQ system,
the closing bid price in the over-the-counter market as furnished by any New
York Stock Exchange member firm that is selected from time to time by the
Company for that purpose.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1211, shares issuable on conversions of Securities shall
include only shares of the class designated as Common Stock of the Company at
the date of this Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, "Company" shall mean
such successor. The foregoing sentence shall likewise apply to any subsequent
such successor or successors.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board of Directors, its
President, a Senior Vice President or a Vice President, and by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to
the Trustee.
"Consolidated Total Assets" means, as of any date of determination, the
consolidated total assets of the Company and its subsidiaries, determined in
accordance with generally accepted accounting principles then in effect
consistently applied.
"Corporate Trust Office" means the office of the Trustee in New York,
New York, at which at any particular time its corporate trust business shall be
principally administered and which at the date of this Indenture is located at
450 West 33rd Street, New York, NY 10001.
"corporation" means a corporation, association, company, joint stock
company or business trust.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
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"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Person in whose name a Security is registered on the
Security Registrar's books.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof, including the provisions of the
Trust Indenture Act that are deemed to be part hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Junior Securities" has the meaning specified in Section 1005.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, upon repurchase or otherwise.
"Officer" means the Chairman of the Board, the President, any Senior
Vice President, any Vice President, the Treasurer, the Secretary, any Assistant
Treasurer or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by the President or
a Vice President, and by the Treasurer, Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money
in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if
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the Company shall act as its own Paying Agent) for the Holders
of such Securities; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory
to the Trustee has been made; and
(iii) Securities which have been paid pursuant to
Section 306 or in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of
which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid
obligations of the Company.
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, limited liability partnership or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means the previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Redemption Date" or "redemption date" shall mean the date specified
for redemption of the Securities by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, mans the price at which it is to be redeemed pursuant to this
Indenture.
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"Regular Record Date" for the interest payable on any Interest Payment
Date means the August 1 or February 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any senior trust officer, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above-designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Securities" has the meaning specified in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"SEC" means the Securities and Exchange Commission as from time to time
constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture, the SEC is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Securityholder" means a person in whose name a security is registered
on the Security Registrar's books.
"Senior Indebtedness of the Company" means (a) the principal of, and
premium, if any, and unpaid interest (whether accruing before or after filing of
any petition in bankruptcy or any similar proceedings by or against the Company
and whether or not allowed as a claim in bankruptcy or any similar proceeding)
on the following, whether heretofore or hereafter created, incurred, assumed or
guaranteed: (i) all indebtedness for borrowed money created, incurred, assumed
or guaranteed by the Company (other than indebtedness evidenced by the
Securities and indebtedness which by the terms of the instrument creating or
evidencing the same is specifically stated to be not superior in right of
payment to the Securities); (ii) bankers' acceptances and reimbursement
obligations under letters of credit; (iii) obligations of the Company under
interest rate and currency swaps, caps, floors, collars or similar agreements or
arrangements intended to protect the Company against fluctuations in interest or
currency rates; (iv) any other indebtedness evidenced by a note or written
instrument; and (v) obligations of the Company under any agreement to lease, or
lease of, any real or personal property, which obligations are required to be
capitalized on the books of the Company in accordance with generally accepted
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accounting principles then in effect (other than leases which by their terms are
specifically stated to be not superior in right of payment to the Securities),
or guarantees by the Company of similar obligations of others; and (b) all
deferrals, modifications, renewals or extensions of such indebtedness, and any
debentures, notes or other evidence of indebtedness issued in exchange for such
indebtedness or to refund the same.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Tender Offer" has the meaning specified in Section 1204.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
effect on the date of this Indenture, provided, however, that in the event the
Trust Indenture Act is amended after such date, "Trust Indenture Act" means, to
the extent required by any such amendment, the Trust Indenture Act as so
amended.
"Trading Day" means a day during which trading in securities generally
occurs on the New York Stock Exchange or, if the Common Stock is not listed on
the New York Stock Exchange, on the principal other national or regional
securities exchanges on which the Common Stock is then listed, or, if the Common
Stock is not listed on a national or regional securities exchange, on the NASDAQ
Stock Market or the principal other market on which the Common Stock is then
traded.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor. The foregoing sentence shall likewise apply to any subsequent such
successor or successors.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
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"Voting Stock" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Whole Subsidiary" or "Whole Subsidiaries" means a Subsidiary or
Subsidiaries which are wholly owned directly or indirectly by the Company.
SECTION 102. Compliance Certificates and Opinions.
Upon any applications or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(1) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(2) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(3) a statement as to whether, in the opinion of each such
individual, such conditions or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in
person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where
it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 601) conclusive in
favor of the Trustee and the Company, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other
officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to
him the execution thereof. Where such execution is by a signer acting
in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority. The
fact and date of the execution of any such instrument or writing, or
the authority of the Person executing the same, may also be proved in
any other manner which the Trustee or the Company, as the case may be,
deems sufficient.
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(c) The ownership of Securities shall be proved by the
Security Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument,
attention:_________,or at any other address previously furnished in
writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
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In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness of the Company and the Holders of
Securities, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
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SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Repurchase Date or Stated Maturity of any Security or the last date on which a
Holder has the right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or conversion of the Securities need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date
or Repurchase Date, or at the Stated Maturity or on such last day for
conversion, provided, that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date, Repurchase Date or Stated
Maturity, as the case may be.
ARTICLE TWO
Form of Securities
SECTION 201. Form Generally.
The Securities and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution thereof.
The definitive Securities shall be typewritten or printed, lithographed
or engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Securities may be listed, all as determined by
the officers executing such Securities, as evidenced by their execution of such
Securities.
SECTION 202. Form of Face of Security.
COMPLETE MANAGEMENT, INC.
% Convertible Subordinated Debenture Due 2003
No. $
Complete Management, Inc., a New York corporation (herein called the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
___________________________________, or registered assigns, the principal sum
of _____________________Dollars on ______________, 2003, and to pay interest
thereon from , 1996 or from the most recent Interest Payment Date to which
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interest has been paid or duly provided for, semi-annually on August 15 and
February 15 in each year, commencing August 15, 1996 at the rate of ____% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the August 1 or February 1 (whether or not a Business Day), as the case may be,
next preceding each Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Payment of the principal of and interest on this Security will be
made at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, City of New York or at any other office or agency
maintained by the Company for such purpose, in such coin or currency of the
United States of America at the time of payment is legal tender for payment of
public and private debts; provided, however, that, at the option of the Company,
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: COMPLETE MANAGEMENT, INC.
By:
------------------------------
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Name:
Title:
Attest:
- -----------------------------
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its ____ % Convertible Subordinated Debentures Due 2003
(herein called the "Securities"), limited in aggregate principal amount to
$34,500,000.00 issued and to be issued under an Indenture, dated as of May ,
1996, (herein called the "Indenture"), between the Company and Chemical Bank, as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness of the Company, and the Holders of the Securities
and the terms upon which the Securities are, and are to be, authenticated and
delivered.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his irrevocable option, at any time
and from time to time, on or before the close of business on _________________ ,
2003, or in case this Security or a portion hereof is called for redemption,
through optional redemption by the Company, a sinking fund or otherwise, then in
respect of this Security or such portion hereof until and including, but (unless
the Company defaults in making the payment due upon redemption) not after, the
close of business on the fifth (5th) day preceding the Redemption Date, to
convert this Security (or any portion of the principal amount hereof which is
$1,000 or an integral multiple thereof), at the principal amount hereof, or of
such portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock of the Company at a
conversion price equal to $ ___________ aggregate principal amount of Securities
for each share of Common Stock (or at the current adjusted conversion price if
an adjustment has been made as provided in the Indenture) by surrender of this
Security, duly endorsed or assigned to the Company or in blank, to the Company
at its office or agency in the Borough of Manhattan, The City of New York or at
any other office or agency maintained by the Company for such purpose,
accompanied by written notice to the Company that the Holder hereof elects to
convert this Security, or if less than the entire principal amount hereof is to
be converted, the portion hereof to be converted, and, in case such surrender
shall be made during the period from the close of business on any regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (unless this Security or the portion thereof being
converted matures prior to such Interest Payment Date or has been called for
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redemption on a Redemption Date within such period), also accompanied by payment
in New York Clearing House or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted. Subject to the aforesaid
requirements for payment and, in the case of a conversion after the Regular
Record Date next preceding any Interest Payment Date and on or before such
Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made on conversion for interest accrued hereon or
for dividends on the Common Stock issued on conversion. No fractions of shares
or scrip representing fractions of shares will be issued on conversion, but
instead of any fractional interest the Company shall pay a cash adjustment as
provided in the Indenture. The conversion price is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party or the
transfer of substantially all of the assets of the Company, the Indenture shall
be amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger or transfer by a holder of the number of shares of Common Stock into
which this Security might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Common Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a plurality of non-electing shares).
The Securities are redeemable, at the Company's option, as a whole or
from time to time in part, upon not less than 45 nor more than 60 days' notice
mailed to each Holder of Securities to be redeemed at his address appearing in
the Security Register, on any date on or after_________________________ , 1999
and prior to maturity, at a Redemption Price equal to 100% of the principal
amount together in the case of any such redemption, with accrued but unpaid
interest to the Redemption Date, except that the Securities may not be
redeemed prior to Maturity unless for a period of 20 consecutive Trading Days
ending on the date immediately preceding the date on which notice of the
Redemption Date is given, the Closing Price of the Common Stock has equaled or
exceeded $___________ , subject to adjustment in the case of the same events
which would result in an adjustment of the conversion price as provided in
Section 1204 of the Indenture with any adjustments to the Closing Price to be
effected in the same manner and to the same extent as provided in Section 1204
with respect to adjustments to the conversion price. Interest installments
whose Stated Maturity is on or prior to such Redemption Date will be payable
to the Holders of such Securities (or one or more Predecessor Securities) of
record at the close of business on the relevant Record Dates referred to on
the face hereof, all as provided in the Indenture.
In the event of redemption or conversion of this Security in part only,
a new Security or Securities for the unredeemed or unconverted portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
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The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness of the Company, and this Security is
issued subject to the provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed or to convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York or at any other office or agency maintained by the Company for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
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No service charge shall be made for any such registration or transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent for the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
CHEMICAL BANK,
as Trustee
By:
-----------------------------------
Authorized Officer
SECTION 205. Form of Election to Convert.
To Complete Management, Inc.:
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into shares of
Common Stock of Complete Management, Inc. in accordance with the terms of the
Indenture referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned registered
Holder hereof, unless a different name has been indicated in the assignment
below. If shares are to be issued in the name of a person other than the
undersigned, the undesigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated:
Portion of Security to be
converted ($1,000 or an
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integral multiple thereof):
$
---------------------------------------
Signature (for conversion only)
If shares of Common Stock are to be
issued and registered otherwise than to
the registered Holder named above, please
print or typewrite the name and address,
including zip code, and social security
or other taxpayer identification number.
---------------------------------------
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ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is limited to the sum of (a) $30,000,000.00
and (b) such aggregate principal amount (which may not exceed $4,500,000.00
principal amount) of Securities, if any, as shall be purchased by the
Underwriters pursuant to an over-allotment option in accordance with the terms
and provisions of the Underwriting Agreement dated May __ , 1996 between the
Company and National Securities Corporation on behalf of the underwriters named
therein.
The Securities shall be known and designated as the " _______________ %
Convertible Subordinated Debentures Due 2003" of the Company. Their Stated
Maturity shall be May , 2003, and they shall bear interest at the rate of
_______________ % per annum, from _______________ , 1996 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, as
the case may be, payable semi-annually on August 15 and February 15, commencing
August 15, 1996 until the principal thereof is paid or made available for
payment.
The principal of and interest on the Securities shall be payable at the
office or agency of the Company in the United States maintained for such purpose
and at any other office or agency maintained by the Company for such purpose in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
at the option of the Company payment of interest may be made by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register.
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The Securities shall be redeemable as provided in Article Eleven
hereof.
The Securities shall be convertible as provided in Article Twelve
hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article Thirteen hereof.
The Securities shall be subject to repurchase by the Company, at the
option of the Holders, as provided in Article Fourteen hereof.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1000 and integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
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SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office or in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
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All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Sections 304, 906, 1108, 1202 or 1402 not involving any
transfer.
The Company shall not be required (i) in the case of a partial
redemption of the Securities, to issue, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Securities selected for
redemption under Section 1104 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security upon compliance with the
foregoing conditions.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date notwithstanding the fact that such Holder was a
Holder on such Regular Record Date, and such Defaulted Interest may be paid by
the Company, at its election, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
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(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to interest to accrue, which were carried by such other
Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date and
Securities called for redemption on a Redemption Date within such period),
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security that is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
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SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of in accordance with its
customary procedures and a certificate of disposition delivered to the Company,
unless by Company Order, the Company directs that canceled certificates be
returned to it as directed by a Company Order.
SECTION 310. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
SECTION 311. Computation of Interest.
Interest on the Securities shall be computed on the basis of a year of
twelve 30-day months. Except as provided in the following sentence, the amount
of interest payable for any period shorter than a full monthly period for which
interest in computed, will be computed on the basis of the actual number of days
elapsed in such a 30-day month.
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ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
either
(1)
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of Securities
which have become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
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SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request. Moneys held pursuant to this Section shall not
be subject to the claims of the holders of Senior Indebtedness of the Company
pursuant to Article Thirteen.
SECTION 403. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 402 by reason of any order or judgment or any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 401 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 402: provided,
however, that if the Company makes any payment of principal of or interest on
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
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(1) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of any Security
when due whether at Maturity, upon redemption, by declaration or
otherwise (except a default referred to in paragraph (4) below); or
(3) default in the deposit or payment of any sinking fund
obligation when such obligation become due or payable, and continuance
of such default for a period of 30 days; or
(4) default in the payment of the Repurchase Price (as defined
in Section 1401) in respect of any Security on the Repurchase Date (as
defined in Section 1401) therefor in accordance with the provisions of
Article Fourteen and the continuance of such default, as allowed under
Section 317(a) of the Trust Indenture Act, for a period of 10 days; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(6) a default under any mortgage, indenture or instrument
under which there may be issued, or by which there may be secured or
evidenced, any indebtedness of the Company or any Subsidiary in excess
of $1,000,000 either for borrowed money or representing any Senior
Indebtedness of the Company, which results in such indebtedness: (i)
being declared due and payable prior to the date on which it would
otherwise become due and payable after the expiration of any applicable
grace period or (ii) becoming due and payable prior to the date on
which it would otherwise become due and payable and the holders of such
indebtedness take any action to collect such indebtedness; provided,
however, that if such default under such mortgage, indenture or
instrument shall be remedied or cured by the Company, or waived by the
holders of such indebtedness, then the Event of Default hereunder by
reason thereof shall be deemed likewise to have been thereupon
remedied, cured or waived without further action upon the part of
either the Trustee or any of the Holders of the Securities; and
provided, further, that the Trustee (subject to Sections 601 and 602)
shall not have any rights, duties, liabilities or responsibilities with
respect to such default unless and until the Trustee shall have
received written notice thereof at the Corporate Trust Office from the
Company, the trustee under any such mortgage, indenture or instrument
of indebtedness or the agent of any such holder or holders or the
Holder or Holders of any Outstanding Securities and provided, further,
that any such default by a Subsidiary shall not constitute an Event of
Default unless such Subsidiary or its property also constitutes more
than 15% of the Company's Consolidated Total Assets; or
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(7) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Subsidiary thereof a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any such Subsidiary under any applicable
Federal or State law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the
Company or any such Subsidiary or of any substantive part of their
respective property, or ordering the winding up or liquidation of their
respective affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; provided, however, that notwithstanding
anything in this clause to the contrary, any action by or against a
Subsidiary of the Company or its property shall not constitute an Event
of Default unless such Subsidiary or its property constitutes 15% or
more of the Company's Consolidated Total Assets; or
(8) the commencement by the Company or any Subsidiary thereof
of a voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Subsidiary to the entry of a
decree or order for relief in respect of itself in or an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy or insolvency case or proceeding against the Company
or any such Subsidiary, or the filing by the Company or any such
Subsidiary of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by the
Company or any such Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any such Subsidiary or of any substantial part of the
property of the Company or any such Subsidiary, or the making by the
Company or any such Subsidiary of an assignment for the benefit of
creditors, or the admission by the Company or any such Subsidiary in
writing of their inability to pay their debts generally as they become
due, or the taking of corporate action by the Company or any such
Subsidiary in furtherance of any such action; provided, however, that
notwithstanding anything in this clause to the contrary, any action by
or against a Subsidiary of the Company or its property shall not
constitute an Event of Default unless such Subsidiary or its property
constitutes 15% or more of the Company's Consolidated Total Assets.
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The Trustee shall not be charged with knowledge of the
identity of any Subsidiary of the Company unless and until the Trustee
shall have received written notice thereof at its Corporate Trust
Office from the Company or the Holder or Holders of any Outstanding
Securities.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities and any
other amounts payable hereunder to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal and all accrued interest shall become
immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article hereinafter, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a
sum sufficient to pay
(i) all overdue interest on all Securities,
(ii) the principal of any Securities which have
become due otherwise than by such declaration of
acceleration and interest thereon at the rate
borne by the Securities,
(iii) to the extent that payment of such interest is
lawful, interest upon overdue interest at the
rate borne by the Securities, and
(iv) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation,
expenses, disbursements and advances of the
Trustee, its agents and counsel,
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
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No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of any
Security at Maturity thereof (except for a default referred to in
clause (4)), or
(3) default is made in the deposit of any sinking fund payment
when due hereunder, or
(4) default is made in the payments of the Repurchase Price in
respect of any Security on the Repurchase Date therefor in accordance
with the provisions of Article Fourteen and such default continues for
a period of 10 days,
the Company will, upon demand of the Trustee, pay to it, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal and interest and, to the extent that payment
thereof shall be legally enforceable, interest on any overdue principal and on
any overdue interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company of another obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
and
SECOND: Subject to Article Thirteen, to the payment of the amounts then
due and unpaid for principal of and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal and interest, respectively.
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SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Section 307) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date) and to convert such Security in accordance with Article Twelve
and to institute suit for the enforcement of any such payment and right to
convert, and such rights shall not be impaired without the consent of such
Holder.
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SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture;
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
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(3) subject to the provisions of Section 601, the Trustee
shall have the right to decline to follow any such direction if the
Trustee in good faith shall, by a Responsible Officer or Officers of
the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability.
SECTION 513. Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than a majority
in principal amount of the Outstanding Securities may on behalf of the Holders
of all the Securities waive any past default hereunder and its consequences,
except a default
(1) in the payment of the principal of or interest on any
Security (unless such default has been cured and a sum sufficient to
pay all matured installments of interest and principal due otherwise
than by acceleration has been deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in principal
amount of the Outstanding Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of or interest on any
Security on or after the respective Stated Maturities expressed in such Security
(or, in the case of redemption or repurchase, on or after the Redemption Date or
Repurchase Date) or for the enforcement of the right to convert any Security in
accordance with Article Twelve.
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SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own wilful misconduct, except that
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(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Securities relating to the
time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Security Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived, provided, however,
that, except in the case of a default in the payment of the principal of or
interest on any Security or in the payment of any sinking fund installment, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
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(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to reasonable
examination of the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of the Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledge of Securities and, subject to Section
608 and Section 311 of the Trust Indenture Act, may otherwise deal with the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar, or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time
agree in writing for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
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As security for the performance of the obligations of the
Company under this Section the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee
as such, except funds held in trust for the payment of the principal of
or interest on particular Securities.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws or exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by Federal or
State authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section or Section 310(a)(5) of the Trust Indenture Act, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee under Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company
(d) If at any time:
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(1) the Trustee shall fail to comply with Section 608
after written request therefor by the Company or by any Holder
who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request
therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been
a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to
all Holders in the manner provided in Section 107. Each notice shall
include the name of the successor Trustee and the address of its
Corporate Trust Office.
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SECTION 611. Acceptance Of Appointment By Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; provided, that on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments required to more fully and
certainly vest in and confirm to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Appointment of Authenticating Agent.
The Trustee may upon receipt of a Company Request appoint an
Authenticating Agent or Agents which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon exchange, registration of
transfer, partial conversion, partial repurchase or partial redemption or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually pursuant
to law or to the requirements of said supervising or examining authority, then
for the purpose of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
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Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion or consolidation to which such Authenticating Agent shall
be a party, or any corporation succeeding to the corporate agency or corporate
trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Company or the Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company or the Trustee, as the
case may be. Upon receiving such a notice of resignation or upon such a
termination, or in the case at any time such Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all rights, powers and duties of
its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustees's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Securities referred to in the within-mentioned
Indenture.
CHEMICAL BANK,
as Trustee
By:
-----------------------------------
As Authenticating Agent
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By:
-----------------------------------
As Authenticating Agent
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company To Furnish Trustee Names And Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) quarterly, not later than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation Of Information; Communications To Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in
the most recent list furnished to the Trustee as provided in Section
701 and the names and addresses of Holders received by the Trustee in
its capacity as Security Registrar. The Trustee may destroy any list
furnished to it as provided in Section 701 upon receipt of a new list
so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and duties of the Trustee,
shall be as provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company
nor the Trustee nor any agent of either of them shall be held
accountable by reason of any disclosure of information as to names and
addresses of Holders made pursuant to the Trust Indenture Act.
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SECTION 703. Reports By Trustee.
(a) Within 60 days after [May 15] of each year, commencing
with the year 1997, the Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock
exchange upon which the Securities are listed or if not listed on any
exchange with the appropriate NASDAQ system, with the SEC and with the
Company. The Company will notify the Trustee when the Securities are
listed on any stock exchange or any NASDAQ system.
SECTION 704. Reports By Company.
The Company shall:
(a) File with the Trustee, within 15 days after the Company is
required to file the same with the SEC, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may from time to time by
rules and regulations prescribe) which the Company may be required to
file with the SEC pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of said Sections, then it shall
file with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such of the
supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange or on
any national automated quotation system as may be prescribed from time
to time in such rules and regulations;
(b) File with the Trustee and the SEC, in accordance with
rules and regulations prescribed from time to time by the SEC, such
additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(c) Transmit by mail to all Holders, as their names and
addresses appear in the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (a) and (b) of this Section as may be required by rules and
regulations prescribed from time to time by the SEC.
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ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only On Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) the Person formed by such consolidation or into which the
Company is merged or the Person which acquired by conveyance, transfer
or sale, or which leases the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or
trust, organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed
and delivered by the successor corporation to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of and interest on all the Securities and the performance of
every covenant of this Indenture on the part of the Company to be
performed or observed and shall have provided for conversion rights in
accordance with Section 1211;
(2) immediately after giving effect to such merger,
consolidation, conveyance, transfer, sale or lease, no Event of
Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be
continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, sale or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
For purposes of this Section and Section 802, a conveyance, transfer,
sale or lease of the properties and assets of the Company "substantially as an
entirety" shall mean a conveyance, transfer or lease of properties and assets of
the Company representing 80% or more of the fair value (as determined in good
faith by the Board of Directors) of all of the Company's properties and assets
on the date of such conveyance, transfer, sale or lease.
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SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of the Company in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
SECTION 803. Mergers Into The Company.
The Company shall not permit any other corporation to merge into the
Company, unless, after giving effect to such merger, the conditions precedent
contained in Clauses (2) and (3) of Section 801 mutatis mutandis, have been
complied with.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights
of Holders pursuant to the requirements of Section 1211; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture; provided, that such action
pursuant to this clause (4) shall not adversely affect the interests of
the Holders of the Securities; or
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(6) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act.
SECTION 902. Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof, or reduce the rate of interest thereon, or change the
place of payment where, or the coin or currency in which, any Security
or interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date
or, in the case of a repurchase pursuant to Article Fourteen, on or, as
allowed by Section 317(a) of the Trust Indenture Act, after 10 days
following the Repurchase Date), or adversely affect the right to
convert any Security as provided in Article Twelve (except as permitted
by Section 901(4)), or modify the provisions of this Indenture with
respect to the subordination of the Securities in a manner adverse to
the Holders,
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver of certain defaults hereunder and their
consequences provided for in this Indenture; or
(3) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected
thereby; or
(4) modify or affect, in any manner adverse to the Holders,
the terms and conditions of the obligations of the Company under
Article Fourteen to repurchase the Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest
on the Securities in accordance with the terms of the Securities and this
Indenture.
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SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, City of New
York, an office or agency where Securities may be presented or surrendered for
payment or conversion, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company
initially appoints the Corporate Trust Office of the Trustee as its agency for
the foregoing purposes. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (within or outside the Borough of Manhattan) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and/or interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to each due date of the principal of and/or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
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The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of any such Security shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company, cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, one of the signatories to which shall be the Company's principal
executive officer, principal financial officer or principal accounting officer,
stating whether or not to the best knowledge of the signers thereof the Company
is in default in the performance and observance of any of the terms, covenants,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. Limitation on Dividends, Redemptions, Etc.
The Company or any Subsidiary of the Company may not (i) declare or pay
any dividends or make any other distribution on any Junior Securities (other
than dividends or distribution payable in Junior Securities), or (ii) purchase,
redeem or otherwise acquire or retire for value any Junior Securities, except
Junior Securities acquired upon conversion thereof into other Junior Securities,
or (iii) permit a Subsidiary of the Company to purchase, redeem or otherwise
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acquire or retire for value any Junior Securities if, upon giving effect to such
dividend, distribution, purchase, redemption or other acquisition, a default in
the payment of any interest upon any Security when it becomes due and payable or
a default in the payment of the principal of (or Repurchase Price or sinking
fund payment for, if any) any Security at its Maturity shall have occurred and
be continuing.
The term "Junior Securities" means (i) shares of the Common Stock, (ii)
shares of any other class or classes of capital stock of the Company, (iii) any
other non-debt securities of the Company (whether or not such other securities
are convertible into Junior Securities), or (iv) debt securities of the Company
(other than Senior Indebtedness of the Company and the Securities) as to which,
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is expressly provided that such debt securities are not
Senior Indebtedness of the Company with respect to, or do not rank pari passu
with, the Securities.
SECTION 1006. Contingency for Sinking Fund.
If the Company provides for one or more sinking funds for securities or
other similar obligations representing indebtedness for money borrowed ranking
equal to or junior to the Securities, and such securities have a maturity or
weighted average time to maturity which is on or prior to the Stated Maturity of
the Securities, the Company will provide a sinking fund for the Securities
calculated to retire that amount of Securities equal to the lesser of (i) the
same percentage of outstanding Securities prior to maturity as the percentage of
the principal amount of such other indebtedness to be retired prior to maturity
on the same payment schedule as such other indebtedness or (ii) such amount of
Securities necessary to result in the Securities having the same weighted
average time to maturity as such securities or other similar indebtedness. Upon
the issuance of such securities, the company will deliver to the Trustee an
Officers' Certificate setting forth the sinking fund schedule for the
Securities, demonstrating that such schedule has been calculated in accordance
with this Section and stating that such schedule complies with the provisions of
this Section. Except as set forth herein with respect to the credit against
mandatory sinking fund payments and the redemption price, the terms of the
sinking fund applicable to the Securities shall, to the extent administratively
acceptable to the Trustee, be the same as those applicable to the relevant
indebtedness. The redemption price of the Securities in connection with any
sinking fund shall be 100% of the principal amount thereof plus accrued and
unpaid interest to the date fixed for redemption. The Company may, at its
option, receive credit against mandatory sinking fund payments for the principal
amount of (i) Securities acquired by the Company and surrendered for
cancellation, (ii) Securities previously converted into Common Stock or
converted into Common Stock upon the call of such Securities for redemption
pursuant to the sinking fund and (iii) Securities redeemed or called for
redemption otherwise than through the operation of the sinking fund. If the
Company wishes to exercise such option, it shall, not less than 60 days prior to
each sinking fund payment date for the Securities, deliver to the Trustee (i) an
Officers' Certificate specifying the portion of the sinking fund payment which
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is to be satisfied by surrendering and crediting Securities, stating the basis
of such credit and certifying that the Securities being used as a credit have
not previously been so credited and (ii) any Securities to be so surrendered.
Not more than 60 days before each sinking fund payment date the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 1104 and cause notice of the redemption thereof to
be given in the name of and at the expense of the company in the manner provided
in Section 1105. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1106, 1107 and 1108. All monies deposited to fund the sinking fund which are not
required by the Trustee for redemption of Securities through operation of the
sinking fund shall be promptly refunded to the Company.
SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all taxes, assessments and governmental
charges levied or imposed upon it or upon its income, profits or property;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and further provided that no failure to comply with the
terms of this Section shall constitute a default hereunder until such time as a
final non-appealable judgment shall have been rendered against the Company for
any such taxes, assessments or governmental charges.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time on or after , 1999, at the
Redemption Price specified in the form of Security hereinbefore set forth for
redemptions, together with accrued interest to the Redemption Date except that
the Securities may not be redeemed prior to maturity unless for a period of 20
consecutive Trading Days immediately preceding the date on which notice of the
Redemption Date is given, the Closing Price has equaled or exceeded $ , (the
"Minimum Redemption Price") subject to adjustment in the case of the same events
which would result in an adjustment of the conversion price as provided in
Section 1204 of this Indenture with any adjustments to the Redemption Price to
be effected in the same matter and to the same extent as provided in Section
1204 with respect to adjustments to the conversion price. Prior to the mailing
of any notice of the foregoing redemption pursuant to Section 1105, the Company
shall deliver to the Trustee an Officers' Certificate evidencing compliance with
the foregoing restriction.
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SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as permitted
by any provision of this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days and no more than 90
days prior to the Redemption Date fixed by the Company (unless a shorter
redemption price shall be satisfactory to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of Securities to be redeemed
and provide a copy of the notice of redemption to be given to Holders of
Securities to be redeemed pursuant to Section 1105.
SECTION 1104. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
the Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption as aforesaid and,
in case of any Securities selected for partial redemption as aforesaid, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
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SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 45 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (including, if relevant, CUSIP number and,
in the case of partial redemption, the principal amounts) of the
particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date,
(5) the conversion price, the date on which the right to
convert the principal of the Securities to be redeemed will terminate
and the place or places where such Securities may be surrendered for
conversion,
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(7) that the redemption is for the sinking fund, if such is
the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, upon Company Request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date other than any Securities called for
redemption on that date which have been converted prior to the date of such
deposit.
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If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 307) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to the
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee, duly executed by the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 1109. Conversion Arrangements on Call for Redemption.
Notwithstanding anything to the contrary contained in this Indenture,
in connection with any redemption of Securities, the Company, by an agreement
with one or more investment bankers or other purchasers, may arrange for such
purchasers to purchase all Securities called for redemption (the "Called
Securities") which are either (i) surrendered for redemption or (ii) not duly
surrendered for redemption or conversion prior to the close of business on fifth
day prior to the Redemption Date, and to convert the same into shares of Common
Stock, by the purchasers' depositing with the Trustee (acting as Paying Agent
with respect to the deposit of such amount and as conversion agent with respect
to the conversion of such Called Securities), in trust for the Holders of the
Called Securities, on or prior to the Redemption Date in the manner agreed to by
the Company and such purchasers, an amount sufficient to pay the Redemption
Price, payable by the Company on redemption of such Called Securities. In
connection with any such arrangement for purchase and conversion, the Trustee as
Paying Agent shall pay on or after the Redemption Date such amounts so deposited
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by the purchasers in exchange for Called Securities surrendered for redemption
prior to the close of business on the fifth day prior to the Redemption Date and
for all Called Securities surrendered after such Redemption Date.
Notwithstanding anything to the contrary contained in this Article Eleven, the
obligation of the Company to pay the Redemption Price of such Called Securities
shall be satisfied and discharged to the extent such amount is so paid by such
purchasers, provided, however, that nothing in this Section 1109 shall in any
way relieve the Company of the obligations to pay such Redemption Price on all
Called Securities to the extent such amount is not so paid by said purchasers.
For all purposes of this Indenture, any Called Securities surrendered by the
Holders for redemption, and any Called Securities not duly surrendered for
redemption or conversion prior to the close of business on the fifth day prior
to the Redemption Date, shall be deemed acquired by such purchasers from such
Holders and surrendered by such purchasers for conversion and shall in all
respects be deemed to have been converted, all as of immediately prior to the
close of business on the fifth day prior to the Redemption Date, subject to the
deposit by the purchasers of the above amount as aforesaid. Nothing in this
Section 1109 shall in any way limit the right of any Holder of a Security to
convert his Security pursuant to the terms of this Indenture any time prior to
the close of business on the fifth day preceding the Redemption Date.
ARTICLE TWELVE
Conversion of Securities
SECTION 1201. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on ________________
__ , 2003. In case a Security or portion thereof is called for redemption, such
conversion right in respect of the Security or portion so called shall expire at
the close of business on the fifth day preceding the Redemption Date, unless the
Company defaults in making the payment due upon redemption.
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The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price"') shall be initially $_____ per
share of Common Stock. The conversion price shall be reduced in certain
instances as provided in paragraphs (1), (2), (3), (4), (5), (6) and (7) of
Section 1204 and shall be increased in certain instances as provided in
paragraph (3) of Section 1204.
In case the Company shall by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in paragraph (4) or (5) of Section
1204, the Holder of each Security, upon the conversion thereof pursuant to this
Article subsequent to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution and prior to
the effectiveness of the conversion price adjustment in respect of such
distribution pursuant to paragraphs (4) or (5) of Section 1204, shall also be
entitled to receive for each share of Common Stock into which such Security is
converted, the portion of the evidences of indebtedness, shares of capital
stock, cash and assets so distributed applicable to one share of Common Stock,
provided that, at the election of the Company (such election shall be evidenced
by a Board Resolution) with respect to all Holders so converting, the Company
may, in lieu of distributing to such Holder any portion of such distribution not
consisting of cash or securities of the Company, pay such Holder an amount in
cash equal to the fair market value thereof (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution). If any conversion of a Security described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the Holder of the Security so converted is
entitled to receive in accordance with the immediately preceding sentence, the
Company may elect (such election to be evidenced by a Board Resolution) to
distribute to such Holder a due bill for the evidences of indebtedness, shares
of capital stock, cash or assets to which such Holder is so entitled, provided
that such due bill (i) meets any applicable requirements of the principal
national securities exchange or other market on which the Common Stock is then
traded and (ii) requires payment or delivery of such evidences of indebtedness,
shares of capital stock, cash or assets no later than the date of payment or
delivery thereof to holders of Common Stock receiving such distribution.
SECTION 1202. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency maintained by the
Company pursuant to Section 1002, accompanied by written notice to the Company
(in the term set forth on the reverse of the Securities) at such office or
agency that the Holder elects to convert such Security or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. Securities surrendered for conversion during the period from the
close of business on any Regular Record Date next preceding any Interest Payment
Date to the opening of business on such Interest Payment Date shall (except for
Securities whose Maturity is prior to such Interest Payment Date and Securities
called for redemption on a Redemption Date within such period) be accompanied by
payment in New York Clearing House funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of Securities being surrendered for conversion. Except
as provided in the preceding sentence and subject to the fourth paragraph of
Section 307, no payment or adjustment shall be made upon any conversion on
account of any interest accrued on the Securities surrendered for conversion or
on account of any dividends on the Common Stock issued upon conversion.
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Securities shall be deemed to have been converted immediately prior to
the close of business on the last day prior to day of surrender of such
Securities for conversion in accordance with the foregoing provisions, and at
such time the rights of Holders of such Securities as Holders shall cease, and
the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after the
conversion date, the Company shall issue and shall deliver at such office or
agency a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction of
a share, as provided in Section 1203.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
SECTION 1203. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price per share of the Common Stock at
the close of business on the last day prior to the day of conversion (or, if
such day is not a Trading Day, on the Trading Day immediately preceding such
day).
SECTION 1204. Conversion Price Adjustments.
The conversion price shall be subject to adjustment from time to time
as follows:
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(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock (ii) subdivide or reclassify the outstanding shares of its Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of its Common Stock into a smaller number of shares, the
conversion price in effect at the time of the record date for such dividend or
distribution of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Holder of any
Security surrendered for conversion after such time shall be entitled to receive
the number of shares of Common Stock of the Company which he would have owned or
been entitled to receive had such Security been converted immediately prior to
such time. The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
Any shares of Common Stock of the Company issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the time of the record
date for such dividend for purposes of calculating the number of outstanding
shares of Common Stock of the Company under subsections (b) and(c) below. In the
event that any of the events for which a record date is set do not occur, the
conversion price then in effect shall be readjusted, effective as of the date
when the Board of Directors determines not to effect such event, to the
conversion price which would be then in effect if such record date had not been
fixed. Such adjustments shall be made successively whenever any event specified
above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them (for a
period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of its Common Stock (or securities convertible
into shares of its Common Stock) at a price per share (or having an initial
conversion price per share) less than the Current Market Price (as defined in
subsection (g) below) of a share of Common Stock of the company on such record
date, the conversion price shall be adjusted immediately thereafter so that it
shall equal the price determined by multiplying the conversion price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock of the Company outstanding on such record date
plus the number of shares of Common Stock of the Company which the aggregate
offering price of the number of shares of such Common Stock so offered (or the
aggregate initial conversion price of the convertible securities so offered)
would purchase at the Current Market Price per share, and of which the
denominator shall be the number of shares of Common Stock of the Company
outstanding on such record date plus the number of additional shares of Common
Stock of the Company offered for subscription or purchase (or into which the
convertible securities so offered are initially convertible). Shares of Common
Stock of the Company owned by or held for the account of the Company shall not
be deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed and shall become
effective immediately after such record date. In the event that such rights or
warrants are not so issued, the conversion price then in effect shall be
readjusted, effective as of the date when the Board of Directors determines not
to issue such rights or warrants, to the conversion price which would then be in
effect if such record date had not been fixed.
(c) In case the Company fixes a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class other than its Common Stock (ii)
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of evidences of indebtedness of the Company or any subsidiary or (iii) of assets
(excluding cash dividends or distributions, and dividends or distributions
referred to in subsection (a) above) or (iv) of rights or warrants (excluding
those referred to in subsection (b) above), in each such case the conversion
price shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the conversion price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock of the Company outstanding on such record date multiplied by the
Current Market Price per share on such record date, less the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors certified by
the Secretary or an Assistant Secretary of the Company and filed with the
Trustee) of said shares or evidences of indebtedness of assets or rights or
warrants so distributed, and of which the denominator shall be the number of
shares of Common Stock of the Company outstanding on such record date multiplied
by such Current Market Price per share. Such adjustment shall be made
successively whenever such a record date is fixed and shall become effective
immediately after such record date. In the event that such distribution is not
so made, the conversion price then in effect shall be readjusted, effective as
of the date when the Board of Directors determines not to distribute such
shares, evidences of indebtedness, assets, rights or warrants, as the case may
be, to the conversion price which would then be in effect if such record date
had not been fixed.
(d) In case the company shall issue shares of Common Stock, (excluding
shares issued (i) in any of the transactions described in subsection (a) above,
(ii) upon conversion or exchange of securities convertible into or exchangeable
for Common Stock of the Company, (iii) to employees or consultants under the
company's 1955 Stock Option Plan, as now in effect or hereafter amended, if such
shares would otherwise be included in this Section 1204(d), (iv) to the
Company's employees or consultants under bona fide benefit plans, employment
agreements or consulting agreements adopted by the Company's Board of Directors
and approved by its stock holders or granted at an exercise price of at least
100% of the fair market value of the shares on the date of grant whether or not
approved by stockholders, if such shares would otherwise be included in this
Section 1204(d) (but only to the extent that the aggregate number of shares
excluded by this subdivision (iv), and issued after the date of this Indenture
shall not exceed 30% of the Company's Common Stock outstanding at the time of
any such issuance), (v) upon exercise of rights or warrants issued to the
holders of Common Stock of the Company, (vi) to acquire, or in connection with
the acquisition of, all or any portion of a business as a going concern, whether
such acquisition shall be effected by purchase of assets, exchange of
securities, merger, consolidation or otherwise, (vii) in connection with the
entry into a medical practice or other professional practice management
agreement by the Company for a term of at least 5 years, (viii) upon exercise of
rights or warrants issued in a bona fide public offering pursuant to a firm
commitment underwriting, but only if no adjustment is required pursuant to this
Section 1204 (without regard to subsection (i) of this Section 1204) with
respect to the transaction giving rise to such rights or (ix) pursuant to an
offering effected at a discount of less than 5% from the Current Market Price
per share determined as provided in Section 1204(g) below) for a consideration
per share less than the Current Market Price per share on the date the Company
fixes the offering price
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of such additional shares, the conversion price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
conversion price in effect immediately prior thereto by a fraction, of which the
numerator shall be the total number of shares of Common Stock of the Company
outstanding immediately prior to the issuance of such additional shares plus the
number of shares of Common Stock of the Company which the aggregate
consideration received (determined as provided in subsection (f) below) for the
issuance of such additional shares would purchase at the Current Market Price
per share, and of which the denominator shall be the number of shares of Common
Stock of the Company outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made and shall become effective immediately after such issuance.
(e) In case the Company shall issue any securities, other than up to an
additional $3,000,000 face amount of 8% Convertible Subordinated Notes due March
20, 2001, convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in subsections (b) and (c) above, or
the Securities) for a consideration per share of Common Stock of the Company
initially deliverable upon conversion or exchange of such securities (determined
as provided in subsection (f) below) less than the Current Market Price per
share in effect immediately prior to the issuance of such securities, the
conversion price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the conversion price in effect immediately
prior thereto by a fraction, of which the numerator shall be the number of
shares of Common Stock of the Company outstanding immediately prior to the
issuance of such securities plus the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection (f)
below) for such securities would purchase at the Current Market Price per share,
and of which the denominator shall be number of shares of Common Stock
outstanding immediately prior to such issuance plus the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such an issuance is made and
shall become effective immediately after such issuance.
Upon the termination of the right to convert or exchange such securities, the
conversion price shall forthwith be readjusted to such conversion price as would
have obtained had the adjustments made upon the issuance of such convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered upon conversion or exchange
of such securities and upon the basis of the consideration actually received by
the Company (determined as provided in subsection (f) below) for such
securities.
(f) For purposes of any computation respecting consideration
received pursuant to subsections (d) and (e) above, the
following shall apply:
(i) in the case of the issuance of shares of Common Stock of the
Company for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deductions be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
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(ii) in the case of the issuance of shares of Common Stock of the
Company for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors
(irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Certified
Resolution which shall be filed with the Trustee and each
Conversion Agent; and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock of the Company, the
aggregate consideration received therefor shall be deemed to be
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any to
be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in the
same manner as provided in subparagraphs (i) and (ii) of this
subsection (f).
(g) For the purpose of any computation under subsections (b), (c), (d)
and (e) above the "Current Market Price" per share at any date shall be deemed
to be the average of the daily closing prices for 30 consecutive trading days
commencing 45 trading days before such date. The closing price for each day
shall be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
registered under the Securities Exchange Act of 1934 on which the Common Stock
of the Company is admitted to trading or listed, or if not listed or admitted to
trading on any national securities exchanges, the average of the highest
reported bid and lowest reported asked prices as furnished by the National
Quotation Bureau Incorporated or such other nationally recognized quotation
service selected by the Company for the purpose, if said Bureau is not at the
time furnishing quotations.
(h) In any case in which this Section 1204 shall require that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
Holder of any Security converted after such record date and before the
occurrence of such event the additional shares of Common Stock of the Company
issuable upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock of the Company issuable upon such
conversion before giving effect to such adjustment and (ii) paying to such
Holder any amount in cash in lieu of a fractional share of Common Stock of the
Company pursuant to Section 1105; provided, however, that the Company shall
deliver to such Holder a due bill or other appropriate instrument evidencing
such Holder's right to receive such additional shares of Common Stock of the
Company, and such cash, upon the occurrence of the event requiring such
adjustment.
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(i) No adjustment in the conversion price need be made unless such
adjustment would require an increase or decrease of at least 25 cents in such
price; provided, however, that any such adjustment which is not required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
(j) Whenever the conversion price is adjusted as provided in this
Section 1204, the Company shall promptly file with the Trustee and each
Conversion Agent (i) an Officers' Certificate in the case of an adjustment
pursuant to subsection (a) of this Section 1204, or (ii) both an Officers'
Certificate and a certificate of a firm of independent public accountants, which
shall conform to the provisions of Section 1205, in the case of any other
adjustment, in each case setting forth the conversion price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which Officers' Certificate shall be
conclusive evidence of the correctness of any such adjustment, and promptly
after such filing the Company shall mail or cause to be mailed a notice of such
adjustment to each Securityholder at his last address as the same appears on the
Security register. Neither the Trustee nor any Conversion Agent shall be under
any duty or responsibility with respect to any such certificate except to
exhibit the same to any holder of Securities desiring inspection thereof.
(k) All calculations under this Section 1204 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
SECTION 1205. Notice of Adjustments of Conversion Price and
Minimum Redemption Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1204 and shall prepare a certificate signed by
the Treasurer of the Company setting forth the adjusted conversion
price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed
(with a copy to the Trustee) at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002; and
(b) a notice stating the conversion price and, if applicable,
the Minimum Redemption Price has been adjusted and setting forth the
adjusted conversion price and, if applicable, the Minimum Redemption
Price shall as soon as practicable be mailed by the Company to all
Holders of the Securities at their last addresses as they appear in the
Security Register.
SECTION 1206. Notice Of Certain Corporate Action.
In case:
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(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require a conversion price adjustment pursuant to paragraph (5) of
Section 1204; or
(b) the Company shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights (excluding
rights, warrants, or options issuable in connection with any employee
benefit plan); or
(c) of any reclassification of Common Stock of the Company
(other than a subdivision or combination of the outstanding Common
Stock), or of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company shall
be required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall
commence a Tender Offer (or shall amend any such Tender Offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Security Register, at least 20 days (or 10 days in any case specified in
clause (a), (b) or (e) above) prior to the applicable record, effective or
expiration date hereinafter specified a notice stating (x) the date on which a
record (if any) is to be taken for the purpose of such dividend, distribution or
granting of rights or warrants, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up; or (z) the date on which such Tender
Offer commenced, the date on which such Tender Offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the materials terms of any amendment thereto).
SECTION 1207. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Securities.
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SECTION 1208. Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1209. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
non-assessable and, except as provided in Section 1208, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 1210. Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1211. Provisions in Case of Consolidation, Merger or Sale of Assets.
Subject to any applicable right of each Holder of Securities to cause
the Company to purchase his Securities upon a Repurchase Event pursuant to the
provisions of Article Fourteen of this Indenture, in case of any consolidation
of the Company with, or merger of the Company into, any other Person, any merger
of another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the Company) or any sale or transfer of all or substantially
all of the assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall execute and deliver to the Trustee a supplemental indenture providing that
the Holder of each Security then outstanding shall have the right thereafter,
during the period such Security shall be convertible as specified in Section
1201, to convert such Security only into the kind and amount of securities, cash
and other property receivable, if any, upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company into
which such Security might have been converted immediately prior to such
consolidation, merger, sale or transfer, assuming such holder of Common Stock of
the Company (i) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
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or transfer was made, as the case may be ("constituent Person"), or an Affiliate
of a constituent Person and (ii) failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger, sale
or transfer by other than a constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing share shall be deemed to be the
kind and amount so receivable per share by a plurality of non-electing shares).
Such supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
SECTION 1212. Company to Cause Registration of Common Stock.
The Company covenants that if any shares of Common Stock, required to
be reserved for purposes of conversion of Securities hereunder, require
registration with or approval of any governmental authority under any Federal or
State law, or listing upon any national securities exchange, before such shares
may be issued upon conversion, the Company will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
SECTION 1213. Disclaimer by Trustee of Responsibility for Certain Matters.
Subject to Section 601, the Trustee shall not at any time be under any
duty or responsibility to any Holder of Securities to determine whether any
facts exist which may require any adjustment of the conversion price, or with
respect to the nature or extent of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee shall not be
accountable with respect to the validity, value, kind or amount of any shares of
Common Stock, or of any securities or property, which may at any time be issued
or delivered upon the conversion of any Security, and it makes no representation
with respect thereto. The Trustee shall not be responsible for any failure of
the Company to issue, transfer or deliver any shares of Common Stock or stock
certificates or other securities or property or cash upon the surrender of any
Security for the purpose of conversion or, subject to Section 601, to comply
with any of the covenants of the Company contained in this Article. Each
conversion agent other than the Company shall have the same protection under
this Section as the Trustee.
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ARTICLE THIRTEEN
Subordination of Securities
SECTION 1301. Agreements to Subordinate by Company.
The Company, for itself, its successors and its assigns, covenants and
agrees, and each Holder of Securities, by his acceptance thereof, likewise
covenants and agrees, that payment by the Company of the principal of and
interest on each and all of the Securities is hereby expressly subordinated, to
the extent and in the manner hereinafter set forth, in right of payment to the
prior payment in full of all Senior Indebtedness of the Company.
SECTION 1302. Distribution on Dissolution, Liquidation and Reorganization;
Subrogation.
Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, whether voluntary or
involuntary in bankruptcy, insolvency, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company or otherwise (subject to
the power of a court of competent jurisdiction to make other equitable provision
reflecting the rights conferred in this Indenture upon the Senior Indebtedness
of the Company and the holders thereof, with respect to the Securities and the
holders thereof, by a lawful plan of reorganization under applicable bankruptcy
law),
(a) the holders of all Senior Indebtedness of the Company
shall be entitled to receive payment in full of the principal thereof,
premium, if any, and the interest due thereon before the Holders of the
Securities are entitled to receive any payment upon the principal of or
interest or indebtedness evidenced by the Securities or on account of
any other monetary claims, including such monetary claims as may result
from rights of repurchase or rescission, under or in respect of the
Securities; and
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to
which the Holders of the Securities or the Trustee would be entitled
except for the provisions of this Article Thirteen shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness of the Company or their representative or representatives
or to the trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness of the Company
may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of, premium, if any, and
interest on the Senior Indebtedness of the Company, held or represented
by each, to the extent necessary to make payment in full of all Senior
Indebtedness of the Company remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness of the Company; and
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(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, shall be received
by the Holders of the Securities or by the Trustee before all Senior
Indebtedness of the Company is paid in full, such payment or
distribution shall be paid over to the holders of such Senior
Indebtedness of the Company, or their representative or representatives
or to the trustee or trustees under any indenture under which any
instruments evidencing any such Senior Indebtedness of the Company may
have been issued, ratably as aforesaid, for application to the payment
of all Senior Indebtedness of the Company remaining unpaid until all
such Senior Indebtedness of the Company shall have been paid in full,
after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness of the Company.
Subject to the payment in full of all Senior Indebtedness of the
Company, the Holders of the Securities shall be subrogated to the rights of the
holders of Senior Indebtedness of the Company to receive payments or
distributions of cash, property or securities of the Company applicable to
Senior Indebtedness of the Company until the principal of and interest on the
Securities shall be paid in full and no such payments or distributions to the
Holders of the Securities of cash, property or securities otherwise
distributable to the holders of Senior Indebtedness of the Company shall, as
between the Company, its creditors other than the holders of Senior Indebtedness
of the Company and the Holders of the Securities, be deemed to be a payment by
the Company to or on account of the Securities. It is understood that the
provisions of this Article Thirteen are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of Senior Indebtedness of the Company, on the other hand.
Nothing contained in this Article Thirteen or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness of the Company and the
Holders of the Securities, the obligations of the Company, which are
unconditional and absolute, to pay to the Holders of the Securities the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with their terms, or to affect the relative rights
of the Holders of the Securities and the creditors of the Company other than the
holders of Senior Indebtedness of the Company, nor shall anything herein or in
the Securities prevent the Trustee or the Holder of any Security from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article Thirteen of the
holders of Senior Indebtedness of the Company in respect of cash, property or
securities of the Company received upon the exercise of any such remedy. Upon
any payment or distribution of assets of the Company referred to in this Article
Thirteen, the Trustee, subject to the provisions of Section 601, shall be
entitled to rely upon a certificate of the liquidating trustee or agent or other
Person making any distribution to the Trustee for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of Senior
Indebtedness of the Company and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Thirteen.
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The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness of the Company. The Trustee shall not be
liable to any such holder if it shall pay over or distribute to or on behalf of
Holders of the Securities or the Company monies or assets to which any holder of
Senior Indebtedness of the Company shall be entitled by virtue of this Article
Thirteen.
Nothing in this Article Thirteen shall affect any rights or claims of
the Trustee under Section 607.
If the Trustee or any Holder of Securities does not file a proper claim
or proof of debt in the form required in any proceeding referred to above prior
to thirty (30) days before the expiration of the time to file such claim in such
proceeding, then the holder of any Senior Indebtedness of the Company or any
Trustee, representative or agent therefor is hereby authorized, and has the
right, to file an appropriate claim or claims for or on behalf of such Holders
of Securities.
SECTION 1303. No Payment in Event of Default on Senior Indebtedness.
No payment by the Company on account of principal or interest on the
Securities, and no payment in respect of sinking fund requirements, if any, the
Redemption Price or any Repurchase Price shall be made before amounts then due
for principal, premium, if any, and interest on Senior Indebtedness of the
Company have been made or duly provided for in money or money's worth if (i)
there is an event of default on or under any Senior Indebtedness with respect to
the payment of all or any portion of any Senior Indebtedness; or (ii) there
shall exist a default in any covenant with respect to any Senior Indebtedness
(other than as specified in clause (i) of this sentence) and, in such event,
such default shall not have been cured or waived or shall not have ceased to
exist, the Trustee and the Company shall have received written notice from the
holder of such Senior Indebtedness or if there is more than one holder of such
Senior Indebtedness from the trustee, representative or agent of the holders of
such Senior Indebtedness stating that no payment shall be made with respect to
the Securities and such default would permit the maturity of such Senior
Indebtedness (if not already due and payable) to be accelerated, provided that
no such default will prevent any payment on or in respect of the Securities for
more than 120 days unless the maturity of such Senior Indebtedness has been
accelerated, except for a payment under Article Eleven and Section 1006 if, at
the time of mailing of notice of redemption pursuant to Section 1105 relating to
such payment, there is no event of default on or under Senior Indebtedness of
the Company known to the Trustee.
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SECTION 1304. Payments Permitted.
Nothing contained in this Indenture or in any of the Securities shall
(a) affect the obligations of the Company to make, or prevent the Company from
making, at any time except as provided in Sections 1302 and 1303, payments of
principal of, or interest on the Securities or (b) prevent the application by
the Trustee of any moneys deposited with it hereunder to the payment of or on
account of the principal of, or interest on the Securities, unless the Trustee
shall have received at is Corporate Trust Office written notice of any event
prohibiting the making of such payment except as provided in Section 1303 with
respect to payments under Article Eleven and Section 1006.
SECTION 1305. Authorization to Trustee to Effect Subordination.
Each Holder of Securities by his acceptance thereof authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article Thirteen
and appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1306. Notices to Trustee.
Notwithstanding the provisions of this Article or any provisions of
this Indenture, neither the Trustee nor any Paying Agent (other than the
Company) shall be charged with the knowledge of the existence of any Senior
Indebtedness of the Company or of any event which would prohibit the making of
any payment of monies to or by the Trustee or such Paying Agent, unless and
until the Trustee or such Paying Agent shall have received (in the case of the
Trustee, at its Corporate Trust Office) written notice thereof from the Company
or from the holder of any Senior Indebtedness of the Company or from the
trustee, representative or agent for any such holder, together with proof
satisfactory to the Trustee for any such holding of Senior Indebtedness of the
Company or of the authority of such trustee, representative or agent; provided,
however, that if at least two Business Days prior to the date upon which by the
terms hereof any such monies may become payable for any purpose (including,
without limitation, the payment of either the principal of, or interest on any
Security) the Trustee shall not have received with respect to any such monies
the notice provided for in this Section 1306, then, anything herein to the
contrary notwithstanding, the Trustee shall have the full power and authority to
receive such monies and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such two Business Days prior to such date. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the Company
(or a trustee, representative or agent on behalf of such holder) to establish
that such a notice has been given by a holder of Senior Indebtedness of the
Company or a trustee, representative or agent on behalf of any such holder. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness of the Company to participate in any payment or distribution
pursuant to this Article Thirteen, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness of the Company held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article Thirteen
and, if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment.
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SECTION 1307. Trustee as Holder of Senior Indebtedness of the Company.
The Trustee shall be entitled to all the rights set forth in this
Article Thirteen with respect to any Senior Indebtedness of the Company at any
time held by it to the same extent as any other holder of Senior Indebtedness of
the Company and nothing in Section 311 of the Trust Indenture Act or in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 1308. Modification of Terms of Senior Indebtedness of the Company.
Any renewal or extension of the time of payment of any Senior
Indebtedness of the Company or the exercise by the holders of Senior
Indebtedness of the Company of any of their rights under any instrument creating
or evidencing Senior Indebtedness of the Company, including, without limitation,
the waiver of default thereunder, may be made or done all without notice to or
assent from the Holders of the Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal
or other change of, or waiver, consent or other action (collectively an
"Action") in respect of, any liability or obligation under or in respect of, or
of any of the terms, covenants or conditions of any indenture or other
instrument under which any Senior Indebtedness of the Company is outstanding or
of such Senior Indebtedness of the Company, whether or not the Action is in
accordance with the provisions of any applicable document, shall in any way
alter or affect any of the provisions of this Article Thirteen or of the
Securities relating to the subordination thereof.
SECTION 1309. Certain Conversions Not Deemed Payment.
For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article
Twelve shall not be deemed to constitute a payment or distribution on account of
the principal of or interest on Securities or on account of the purchase of
other acquisition of Securities unless (i) such conversion would result in a
change of control for purposes of Section 382 of the Internal Revenue Code and
the rules and regulations promulgated thereunder, and (ii) such change in
control would result in the loss of, or a limitation on, the annual availability
of net operating losses to the Company for tax purposes, and (2) the payment,
issuance or delivery of cash, property or securities (other than junior
securities) upon conversion of a Security shall be deemed to constitute payment
on account of the principal of such Security. For the purposes of this Section,
the term "junior securities" means (a) shares of any stock of any class of the
Company and (b) securities of the Company which are subordinated in right of
payment to all Senior Indebtedness which may be outstanding at the time of
issuance or delivery of such securities to the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in this Article.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the Holders of the Securities, the
right, which is absolute and unconditional, of the Holder of any Security, to
convert such Security in accordance with Article Thirteen.
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SECTION 1310. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article Thirteen shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1307 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE FOURTEEN
Right to Require Repurchase
SECTION 1401. Right to Require Repurchase.
In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1303, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Repurchase Event as
contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest
to the Repurchase Date. Such right to require the repurchase of Securities shall
not continue after a discharge of the Company from its obligations with respect
to the Securities in accordance with Article Four.
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SECTION 1402. Notice; Method of Exercising Repurchase Right.
(a) On or before the 15th day after the Repurchase Event, the
Company, or, upon Company Request, the Trustee (in the name and at the
expense of the Company), shall give notice of the occurrence of the
Repurchase Event and of the repurchase right set forth herein arising
as a result thereof by first-class mail, postage prepaid, to each
Holder of the Securities at such Holder's address appearing in the
Security Register. The Company shall at the same time also deliver a
copy of such notice of a repurchase right to the Trustee.
Each notice of repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be
exercised,
(3) the Repurchase Price, and
(4) the instructions a Holder must follow to exercise a
repurchase right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Repurchase
Event.
(b) To exercise the repurchase right, a Holder shall deliver
to the Company (or an agent designated by the Company for such purpose
in the notice referred to in (a) above) and to the Trustee on or before
the fifth (5th) day prior to the Repurchase Date (i) written notice of
Holder's exercise of such right, which notice shall set forth the name
of the Holder, the principal amount of the Security or Securities (or
portion of a Security) to be repurchased, and a statement that an
election to exercise the repurchase right is being made thereby, and
(ii) the Security or Securities with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the Company.
Such written notice shall be irrevocable following the close of
business on the fifth (5th) day prior to the Repurchase Date, provided,
however, that the Company, in its sole and absolute discretion, may
consent to the withdrawal of any Securities after such date and prior
to the Repurchase Date. If the Repurchase Date falls between any
Regular Record Date and the next succeeding Interest Payment Date,
Securities to be repurchased must be accompanied by payment from the
Holder of an amount equal to the interest thereon which the registered
Holder thereof is to receive on such Interest Payment Date.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall on the Repurchase
Date pay or cause to be paid in cash to the holder thereof the
Repurchase Price of the Security or Securities as to which the
repurchase right had been exercised. In the event that a repurchase
right is exercised with respect to less than the entire principal
amount of a surrendered Security, the Company shall execute and deliver
to the Trustee and the Trustee shall authenticate for issuance in the
name of the Holder a new Security or Securities in the aggregate
principal amount of the unrepurchased portion of such surrendered
Security.
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SECTION 1403. Deposit of Repurchased Price.
On or prior to the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Repurchase Price of the Securities which are to be
repurchased on the Repurchase Date.
SECTION 1404. Securities Not Repurchased on Repurchase Date.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at a rate per annum borne
by such Security.
SECTION 1405. Securities Repurchased in Part.
Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by the Holder thereof or his attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
SECTION 1406. Certain Definitions.
For purposes of this Article:
(a) "Fundamental Change" means the occurrence of any
transaction or event in connection with which all or substantially all
of the Common Stock shall be exchanged for, converted into, acquired
for or constitute the right to receive consideration (whether by means
of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) which is
not all or substantially all common stock which is (or, upon
consummation of or immediately following such transaction or event,
will be) listed on a national securities exchange or approved for
quotation in any NASDAQ system or any similar system of automated
dissemination of quotations of securities prices. A Fundamental Change
shall not include any acquisition of Common Stock by any person or
group so long as it does not result in termination of such listing or
approval for quotation. For purposes of the definition of a
"Fundamental Change," (i) "substantially all of the Common Stock" shall
mean at least 85% of the Common Stock outstanding immediately prior to
the transaction giving rise to a Fundamental Change, and (ii)
consideration shall be "substantially all common stock" if at least 80%
of the fair value (as determined in good faith by the Board of
Directors) of the total consideration is attributable to common stock.
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(b) A "Repurchase Event" shall have occurred if a Fundamental
Change shall have occurred unless (i) the current market price of the
Common Stock per share (which shall be deemed to be the average of the
daily Closing Prices of the Common Stock for the 5 (five) consecutive
Trading Days before the Fundamental Change) is at least equal to the
conversion price per share of the Securities in effect immediately
preceding the time of such Fundamental Change, or (ii) (A) the
consideration, in the transaction or event giving rise to a Fundamental
Change, to the holders of Common Stock consists of (w) cash, (x)
securities (other than common stock) that are, or immediately upon
issuance will be, listed on a national securities exchange or quoted in
the NASDAQ National Market System, or (y) common stock that is, or
immediately upon issuance will be, listed on a national securities
exchange or approved for quotation in any NASDAQ System or similar
system of automated dissemination of quotations of securities prices,
or (z) any combination of cash and such securities including common
stock, and (B) the aggregate fair market value of such consideration
(which, in the case of such securities, shall be equal to the average
of the daily Closing Prices of such securities during the 10 (ten)
consecutive Trading Days commencing with the sixth Trading Day
following consummation of such transaction or event) is at least 105%
of the conversion price of the Securities in effect on the date
immediately preceding the closing date of such transaction or event.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
COMPLETE MANAGEMENT, INC.
By:
--------------------------------------
Name:
Title:
Attest:
- ----------------------------
CHEMICAL BANK
By:
--------------------------------------
Name:
Title:
Attest:
- ----------------------------
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the day of May, 1996, before me personally came , to me known, who,
being by me duly sworn, did depose and say that he/she is the
of COMPLETE MANAGEMENT, INC., one of the corporations described in
and which executed the foregoing instrument; and that he/she signed his/her name
thereto by authority of the Board of Directors of such corporation.
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the day of May, 1996, before me personally came , to me known, who,
being by me duly sworn, did depose and say that he/she is the
of CHEMICAL BANK, one of the corporations described in and which
executed the foregoing instrument; and that he/she signed his/her name thereto
by authority of the Board of Directors of such corporation.
Notary Public
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<PAGE>
COMPLETE MANAGEMENT, INC.
% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2003
$
R CUSIP 20452C AA 2
Complete Management, Inc., a New York corporation (herein called the
``Company'', which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
, or registered assigns,
the principal sum of Dollars
on , 2003, and to pay interest thereon from , 1996 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on August 15 and February 15 in each year, commencing August
15, 1996 at the rate of % per annum, until the principal hereof is paid or
made available for payment. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the August 1 or February 1
(whether or not a Business Day), as the case may be, next preceding each
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Security will be made at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, City of New York or at any other office or agency maintained by the
Company for such purpose, in such coin or currency of the United States of
America which at the time of payment is legal tender for payment of public and
private debts; provided, however, that, at the option of the Company, payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
under its corporate seal.
Dated:
COMPLETE MANAGEMENT, INC.
CERTIFICATE OF AUTHENTICATION:
This is one of the Securities referred to
in the within-mentioned Indenture.
CHEMICAL BANK,
AS TRUSTEE
BY:
-------------------------
AUTHORIZED OFFICER
[SEAL]
Attest: By:
--------------------------------- -------------------------------
SECRETARY PRESIDENT
<PAGE>
This Security is one of a duly authorized issue of Securities of the Company
designated as its % Convertible Subordinated Debentures Due 2003 (herein
called the ``Securities''), limited in aggregate principal amount to
$34,500,000.00 issued and to be issued under an Indenture, dated as of May ,
1996, (herein called the ``Indenture''), between the Company and Chemical Bank,
as Trustee (herein called the ``Trustee,'' which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, the holders of Senior Indebtedness of the Company, and the Holders
of the Securities and the terms upon which the Securities are, and are to be,
authenticated and delivered.
Subject to and upon compliance with the provisions of the Indenture, the Holder
of this Security is entitled, at his irrevocable option, at any time and from
time to time, on or before the close of business on , 2003, or in case this
Security or a portion hereof is called for redemption, through optional
redemption by the Company, a sinking fund or otherwise, then in respect of this
Security or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the fifth (5th) day preceding the Redemption Date, to convert this
Security (or any portion of the principal amount hereof which is $1,000 or an
integral multiple thereof), at the principal amount hereof, or of such portion,
into fully paid and non-assessable shares (calculated as to each conversion to
the nearest 1/100 of a share) of Common Stock of the Company at a conversion
price equal to $ aggregate principal amount of Securities for each share of
Common Stock (or at the current adjusted conversion price if an adjustment has
been made as provided in the Indenture) by surrender of this Security, duly
endorsed or assigned to the Company or in blank, to the Company at its office
or agency in the Borough of Manhattan, The City of New York or at any other
office or agency maintained by the Company for such purpose, accompanied by
written notice to the Company that the Holder hereof elects to convert this
Security, or if less than the entire principal amount hereof is to be
converted, the portion hereof to be converted, and, in case such surrender
shall be made during the period from the close of business on any regular
Record Date next preceding any Interest Payment Date to the opening of business
on such Interest Payment Date (unless this Security or the portion thereof
being converted matures prior to such Interest Payment Date or has been called
for redemption on a Redemption Date within such period), also accompanied by
payment in New York Clearing House or other funds acceptable to the Company of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the
aforesaid requirements for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made on conversion for interest accrued hereon
or for dividends on the Common Stock issued on conversion. No fractions of
shares or scrip representing fractions of shares will be issued on conversion,
but instead of any fractional interest the Company shall pay a cash adjustment
as provided in the Indenture. The conversion price is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in case of
certain consolidations or mergers to which the Company is a party or the
transfer of substantially all of the assets of the Company, the Indenture shall
be amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the
period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon the
consolidation, merger or transfer by a holder of the number of shares of Common
Stock into which this Security might have been converted immediately prior to
such consolidation, merger or transfer (assuming such holder of Common Stock
failed to exercise any rights of election and received per share the kind and
amount received per share by a plurality of non-electing shares).
<PAGE>
The Securities are redeemable, at the Company's option, as a whole or from time
to time in part, upon not less than 45 nor more than 60 days' notice mailed to
each Holder of Securities to be redeemed at his address appearing in the
Security Register, on any date on or after , 1999 and prior to maturity, at
a Redemption Price equal to 100% of the principal amount together in the case
of any such redemption, with accrued but unpaid interest to the Redemption
Date, except that the Securities may not be redeemed prior to Maturity unless
for a period of 20 consecutive Trading Days ending on the date immediately
preceding the date on which notice of the Redemption Date is given, the Closing
Price of the Common Stock has equalled or exceeded $ , subject to adjustment
in the case of the same events which would result in an adjustment of the
conversion price as provided in Section 1204 of the Indenture with any
adjustments to the Closing Price to be effected in the same manner and to the
same extent as provided in Section 1204 with respect to adjustments to the
conversion price. Interest installments whose Stated Maturity is on or prior to
such Redemption Date will be payable to the Holders of such Securities (or one
or more Predecessor Securities) of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
In the event of redemption or conversion of this Security in part only, a new
Security or Securities for the unredeemed or unconverted portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Indebtedness of the Company, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of all the
Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed or to convert this Security as provided in the Indenture.
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in the Borough of Manhattan, The City of New York or at
any other office or agency maintained by the Company for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration or transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent for the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signa-ture guaranteed:
I or we assign and transfer this Security to
|-----------------------------------------------------------------------------|
| |
| |
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|-----------------------------------------------------------------------------|
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- -------------------------------------------------------------------------------
agent to transfer this Security on the books of Complete Management, Inc. The
agent may substitute another to act for him.
Date: Your Signature:
------------------- -------------------------------------
(Sign exactly as your name appears on
the other side of this Security).
Signature Guarantee:*
----------------------------------------------------------
* Needed only if the stock certificate is to be registered
in a name other than that of the record holder.
<PAGE>
CONVERSION NOTICE
To convert this Security into Common Stock of Complete Management, Inc., check
the line below:
--------------------------------
To convert only part of this Security, state the principal amount to be
converted:
$
--------------------------------
If you want the stock certificate made out in another person's name, fill in
the form below:
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| |
| |
| |
|-----------------------------------------------------------------------------|
(Insert other person's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type other person's name, address and zip code).
Date: Your Signature:
------------------- -------------------------------------
(Sign exactly as your name appears on
the other side of this Security).
Signature Guarantee:*
----------------------------------------------------------
<PAGE>
EXHIBIT 5.1
MORSE, ZELNICK, ROSE & LANDER
A LIMITED LIABILITY PARTNERSHIP
450 PARK AVENUE
NEW YORK, NEW YORK 10022-2605
212-838-1177
FAX - 212-838-9190
May 30, 1996
WRITER'S DIRECT LINE
(212) 838-8040
Complete Management, Inc.
245 West 31st Street
New York, NY 10001
Dear Sirs:
We have acted as counsel to Complete Management, Inc., a New York
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), to register the offering by the Company of (a) $30,000,000 face
amount of Convertible Subordinated Debentures due 2003 (the "Debentures") (and
the offering of an additional $4,500,000 face amount of Debentures if the
over-allotment option is exercised in full), (b) Common Shares to be issued upon
conversion of the Debentures, (c) Representative's Warrants to purchase Common
Shares (the "Warrants"), and (d) Common Shares underlying the Warrants.
In this regard, we have reviewed the Certificate of Incorporation of the
Company, as amended, the Company's By-laws, resolutions adopted by the Company's
Board of Directors, the Registration Statement, the proposed form of the
Warrants, the proposed form of Trust Indenture, the other exhibits to the
Registration Statement and such other records, documents, statutes and decisions
as we have deemed relevant in rendering this opinion. Based upon the foregoing,
we are of the opinion that:
Each Debenture being offered, the Common Shares to be issued upon
conversion of the Debentures, the Warrants, and the Common Shares underlying the
Warrants have been duly and validly authorized for issuance and when issued as
contemplated by the Registration Statement, including Common Shares which may be
issued upon conversion of the Debentures or upon exercise of the Warrants, will
be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder. Members of this firm or their affiliates own an aggregate
of 116,194 Common Shares of the Company.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
RATIO OF EARNINGS TO CHARGES
(in thousands)
<TABLE>
<CAPTION>
Three Months ended
March 31,
--------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed charges $ - $ - $ 46 $ - $ 308
---------- ---------- ---------- ---------- ----------
- - 46 - 308
---------- ---------- ---------- ---------- ----------
Earnings - - 3,227 - 1,110
Add back:
Income taxes - - 2,861 - 1,081
---------- ---------- ---------- ---------- ----------
6,088 - 2,191
Ratio of earnings to
fixed charges $ - $ - $ 133.35 $ - $ 8.11
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement.
Arthur Andersen LLP
New York, New York
May 29, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated March 21, 1995,
except for paragraph 3 of Note 4 and paragraph 2 of Note 13, as to which the
date is April 17, 1995, with respect to the financial statements of Medical
Management, Inc. included in Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-4262) and related Prospectus of Complete Management, Inc.
for the registration of convertible subordinated debentures due 2003.
ERNST & YOUNG LLP
New York, New York
May 29, 1996
