<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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 of Incorporation Industrial Identification
or Organization) Classification Code Number) 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.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Proposed
Proposed Maximum Maximum Amount of
Title of Each Class of Amount Being Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[6 1/2 to 8%] Convertible
Subordinated Debentures due 2003.. $28,750,000(2) 100% $28,750,000 $ 8,712.12
- -----------------------------------------------------------------------------------------------------------
Common Shares, par value $.001 .... (3) -- -- --
- -----------------------------------------------------------------------------------------------------------
Common Shares, par value $.001 .... 3,450,000(4) $15.50(5) $53,475,000 $16,204.55
- -----------------------------------------------------------------------------------------------------------
Representatives' Warrants to
purchase Common Shares .......... (6) $.0001 -- --
- -----------------------------------------------------------------------------------------------------------
Common Shares, par value $.001,
issuable upon exercise of
Representatives' Warrants ....... 384,409(7) $25.58(8) $ 9,833,182 $ 2,979.75
- -----------------------------------------------------------------------------------------------------------
Total Registration Fee ................................................................... $27,896.42
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes $3,750,000 principal amount of Debentures which may be sold
pursuant to the Underwriter's Over- Allotment Option.
(3) Such indeterminate number of Common Shares as may be acquired upon
conversion of the Debentures being registered hereunder, subject to
adjustment pursuant to anti-dilution provisions of the Indenture pursuant
to which the Debentures are issued.
(4) Includes 450,000 Common Shares which may be sold pursuant to the
Underwriter's Over-Allotment Option.
(5) The maximum offering price is based pursuant to Rule 457(c) on a share
price of $15.50, which is not less than the average of the high and low
sales price on October 31, 1996.
(6) Such indeterminate number of Representatives' Warrants as grant the
Representatives a right to buy a number of Common Shares equal to 10% of
the Common Shares issuable upon conversion of the firm commitment
Debentures at the initial conversion price of the Debentures plus 250,000
Common Shares. The initial conversion price is estimated at $18.60 based,
pursuant to Rule 457(c), on a share price of $15.50, which is not less
than the average of the high and low sales price on October 31, 1996,
multiplied by the minimum proposed conversion price of 120% of the
closing market price of the Common Shares on the effective date of this
offering.
(7) The number of Common Shares is calculated as set forth in item (5) above.
(8) Price per share equals 165% of the highest estimated closing price of the
Common Shares on the effective date of this offering. Such closing price
is estimated pursuant to Rule 457(c) at $25.58 (i.e., 165% of not less
than the average high and low sales price on October 31, 1996).
2
<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 by 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 NOVEMBER 5, 1996
PROSPECTUS
COMPLETE MANAGEMENT, INC.
3,000,000 COMMON SHARES
AND
$25,000,000
[6 1/2 % TO 8%] CONVERTIBLE SUBORDINATED DEBENTURES DUE [DECEMBER] 15, 2003
INTEREST PAYABLE [DECEMBER] 15 AND [MAY] 15
Of the securities offered hereby, $25,000,000 face amount % Convertible
Subordinated Debentures due December 15, 2003, (the "Debentures") and
2,500,000 Common Shares, par value $.001 per share (the "Common Shares") are
offered by Complete Management, Inc. ("CMI") and 500,000 Common Shares are
offered by a founder and principal shareholder of CMI (the "Selling
Shareholder"). CMI will not receive any proceeds from the sale of Common
Shares by the Selling Shareholder.
The Debentures are convertible into Common Shares of 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
("AMEX") on the effective date of this offering], subject to adjustment in
certain events. On November 1, 1996, the closing sale price for the Common
Shares on the AMEX was $14.875 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.B."
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 [December ,]
1999 [36 months after issuance], 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 September 30, 1996, CMI had
indebtedness to which the Debentures would be effectively subordinated
aggregating approximately $7,750,000. See "Description of Debentures."
See "Investment Considerations" on page 10 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.
================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public(1) Discount(2) Company(2)(3) Shareholder
- --------------------------------------------------------------------------------
Per Debenture 100% % % --
- --------------------------------------------------------------------------------
Per Share .......... $ $ $ $
- --------------------------------------------------------------------------------
Total Debentures ... $ $ $ --
- --------------------------------------------------------------------------------
Total Shares ....... $ $ $ $
- --------------------------------------------------------------------------------
Total (4) .......... $ $ $ $
================================================================================
(1) Plus accrued interest, if any, from , 199_.
(2) Does not include additional compensation to National Securities
Corporation and Commonwealth Associates, the representatives (the
"Representatives"), of the several underwriters (the "Underwriters") in
the form of a non-accountable expense allowance equal to 2% of the gross
proceeds of this offering. CMI has also agreed to issue to the
Representatives warrants (the "Representatives' Warrants") to purchase up
to Common Shares. For indemnification arrangements with the
Underwriters and additional compensation payable to the Representatives,
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 $3,750,000 principal
amount of Debentures and certain shareholders (the "Over-Allotment
Selling Shareholders") have granted to the Underwriters a similar option
to purchase up to an additional 450,000 Common Shares, in both cases
solely for the purpose of covering over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company, Proceeds to Selling Shareholder and
Proceeds to Over-Allotment Selling Shareholders, will be $ , $ , $ , and
$ , respectively. See "Underwriting."
The Debentures and the Common Shares 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 and the
Common Shares 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 COMMONWEALTH ASSOCIATES
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON SHARES AND THE DEBENTURES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMEX, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, THE
UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON SHARES ON THE AMEX IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED. SEE "UNDERWRITING."
<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. Unless otherwise indicated, the information in
this Prospectus assumes that the Over-Allotment Option and the
Representatives' Warrants are not exercised.
Complete Management, Inc. ("CMI") acquired the assets and business of
Medical Management, Inc. ("MMI") and Advanced Alliance Management, Corp.
("AAMC"), on January 3, 1996 and October 2, 1996, respectively, each through
a merger (the "MMI Merger" and the "AAMC Merger," respectively) into wholly
owned subsidiaries of CMI. Prior to being acquired by CMI, MMI provided and
administratively managed diagnostic imaging equipment in physicians' offices
and hospitals and AAMC provided physician practice management services.
Unless otherwise indicated, all references to the Company herein include CMI,
MMI, AAMC and any of their respective subsidiaries. "MMI and AAMC" refers to
those entities before the mergers.
THE COMPANY
The Company is a physician practice management company. It provides a full
range of management services to physicians and hospitals located primarily in
the most densely populated area of New York State, including New York City,
Long Island and the Hudson Valley region. The Company offers virtually all
the business, financial and marketing support required by medical practices.
The Company's sophisticated management systems and its high level of
professionalism enable its clients to handle the non-medical aspects of
their practices effectively. It provides its clients with office space,
equipment and supplies and non-medical personnel. It also bills patients and
third-party payors, collects receivables and assists in record keeping and
compliance with reporting requirements. The Company also advises clients
regarding regulatory compliance, consults on marketing and business
strategies, and provides financing for expansion. In addition, the Company
provides and administratively manages diagnostic imaging equipment used by
doctors in their own practices and by hospitals. The Company does not,
however, perform any type of medical diagnostic or treatment services. By
focusing on the complex, time-consuming and expensive non-medical aspects of
medical practices, the Company can offer its clients operating efficiencies
that they could not attain on their own.
Since July 1, 1996, the Company has made significant progress towards
becoming a fully diversified and integrated company serving both primary care
and specialty practices. The Company's services are designed to work
effectively both in today's fee-for-service environment and the managed care
capitated fee environment of the future. Pursuant to the Company's expansion
program, it has acquired two medical billing and collection companies, one
primarily serving hospitals and one primarily serving medical practices. The
Company has also acquired three physician practice management companies
serving primary care, neurology, radiology, and community and industrial
medicine practices in New York City and Westchester, Orange, Putnam and
Dutchess counties. It has also assisted Greater Metropolitan Medical Services
("GMMS"), its first and largest client, in acquiring a neurology practice
with three offices in New York City. With these acquisitions and GMMS'
continued growth, the number of physicians to whom the Company provides a
full range of services has increased from 16 at December 31, 1995 to 68 at
October 15, 1996. More limited services, such as transcribing, billing,
collecting and temporary staffing, are provided by the Company to 50 medical
practices with more than 820 doctors and to 32 hospitals.
The Company believes the practices that it provides with a broad range of
services will serve as the nucleus of a network offering both primary care
and multi-specialty services throughout New York State. The Company believes
that although managed care has evolved slowly in New York State, its growth
rate will increase, and the Company's network will enable its clients to
enter into managed care and capitated fee arrangements with insurance
companies and employers.
3
<PAGE>
The Company's management is experienced in hospital administration and
trains its and clients' staffs to operate with full efficiency. The Company,
by standardizing many of its procedures and automating large portions of the
business aspects of its clients' practices, offers significant management
efficiencies. For example, standardized and automated systems are used to
produce and administer the records use to support clients' claims for
payment. In addition, the Company has centralized its purchasing and
collection functions, and its standard office format permits medical and
non-medical personnel and equipment to be shifted among offices as required.
Historically, almost all of CMI's revenues have come from GMMS, a single
medical practice group. However, if the various mergers and acquisitions
consummated before October 15, 1996 had been consummated at January 1, 1995
then, on a pro form combined basis, 62% of 1995 net revenues (27% if the
proposed Amedisys Merger is consummated and given effect on such date) would
have been received from GMMS. Lawrence Shields, M.D., holds 95% of the stock
of GMMS and is a founder of the Company and the Selling Shareholder in this
offering. GMMS focuses on the evaluation and treatment of injury-related
conditions. Since becoming a client of CMI in early 1993, GMMS has expanded
from a neurological practice occupying a single office to a multi-specialty
practice with nine offices. Its twenty-one doctors currently perform or
supervise procedures at a rate in excess of 200,000 a year. The injury-related
conditions treated by GMMS are principally covered by automobile no-fault and
workers' compensation insurance.
The Company's objective is to become the dominant provider of medical
management services in New York State and other selected markets including
New Jersey by implementing an aggressive growth strategy. The key elements of
the Company's strategy are:
o Increase Number of Primary Care Clients.
o Assist Clients in Expanding the Scope of their Services.
o Expand the Reach of all Medical Practices Under Management.
o Create a Network of Physicians to Participate in Managed Care.
o Assist Clients in Maintaining High Credibility with Third-Party Payors
and other Referral Sources.
o Maintain Industry Leadership in Medical Management Systems.
CMI was incorporated in New York on December 30, 1992 and commenced
operations on April 1, 1993. On January 3, 1996, CMI consummated its initial
public offering (the "IPO") of 2,000,000 Common Shares at a price of $9.00
per share and received proceeds net of registration costs and repayment of
certain obligations of $13,480,000. On January 3, 1996, it also consummated
the acquisition of MMI. In June 1996, it consummated a second public offering
(the "First Series Debenture Offering") of $40,250,000 aggregate principal
amount of 8% Convertible Subordinated Debentures due August 15, 2003, (the
"First Series Debentures") and received net proceeds of $36,144,000. In March
and July 1996 the Company borrowed an aggregate of $5,000,000 due March 20,
2001 evidenced by 8% convertible subordinated notes (the "Convertible
Subordinated Notes".)
On October 16, 1996, CMI entered into a letter of intent (the "Letter of
Intent") for the acquisition of Amedisys, Inc. ("Amedisys"). Amedisys
provides home health care, supplemental nurse staffing, management services
to independent home care agencies and physician services, including physician
practice management services and the organization, development and management
of independent practice associations ("IPAs"). It also operates outpatient
ambulatory surgery centers and has recently organized Future Care, Inc., a 51%
owned subsidiary to organize and operate a preferred provider network and
engage in certain related activities. Amedisys maintains 28 home health care
and supplemental staffing offices in eight states, operates two outpatient
surgery centers in Texas, and is developing an ambulatory surgery center in
Louisiana. Amedisys also manages home health agencies, physician practices and
rural health clinics and is the network manager of the Home Care Alliance of
Louisiana.
4
<PAGE>
The acquisition of Amedisys, if consummated, will be effected through its
merger (the "Amedisys Merger") into a wholly-owned subsidiary of CMI in exchange
for approximately 1.44 to 1.84 million Common Shares. Although CMI has no
obligation to do so, the Letter of Intent also contemplates that CMI may invest
up to $15 million in Amedisys' ambulatory surgery centers now owned or to be
acquired and $4,000,000 in other Amedisys operations following the Amedisys
Merger, provided such centers and operations meet certain post-merger financial
goals. Amedisys has granted CMI an option to purchase 500,000 shares of Amedisys
common stock exercisable only upon the occurrence of certain Prohibited Events,
as defined in the Letter of Intent. The Letter of Intent is nonbinding, except
for the provisions relating to the option and certain other ancillary matters,
and is subject to the execution of a definitive agreement, the completion of due
diligence and the approval of the Amedisys Merger by the Boards of Directors of
both parties and the shareholders of Amedisys. Accordingly, no assurances can be
given that the Amedisys Merger will be consummated. However, since it is not
improbable that the Amedisys Merger will occur, certain business and financial
information relating to Amedisys and certain new investment considerations which
will be applicable to the Company if the Amedisys Merger is consummated are
included in this Prospectus. See "Investment Considerations" and "Proposed
Amedisys Merger."
The Company believes that the Amedisys Merger, if consummated, will
provide it with added expertise in obtaining capitated fee contracts for its
clients and assisting its clients in operating in a capitated fee
environment. The Company believes that these skills are not generally
available in New York State. Further, Amedisys will also provide the Company
with additional skills in managing large independent physician associations.
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
Debentures .................... $25,000,000 aggregate principal amount of [6
to 8%] Convertible Subordinated Debentures
Due [December] 15, 2003 (the "Debentures")
Common Shares ................. 3,000,000 shares, of which 2,500,000 shares
are offered by the Company and 500,000
shares by the Selling Shareholder.
DEBENTURE TERMS
Interest Payment Dates ........ [December] 15 and [May] 15, commencing ,
199_
Maturity Date ................. [December] 15, 2003
Conversion .................... The Debentures are convertible into Common
Shares, par value $.001 per share, 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 the
closing price for 20 consecutive trading
days prior to the
5
<PAGE>
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. 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. See "Description of Debentures."
SECURITIES OUTSTANDING BEFORE THIS OFFERING
Common Shares ................. 7,958,971 shares
First Series Debentures ....... $40,250,000 aggregate principal amount,
convertible into Common Shares at $14.00 per
share, subject to adjustment.
Convertible Subordinated Notes. $5,000,000 aggregate principal amount,
convertible into Common Shares at $9.00 per
share, subject to adjustment.
SECURITIES OUTSTANDING AFTER THIS OFFERING
Common Shares ................. 10,458,971 shares(1)
First Series Debentures ....... $40,250,000 aggregate principal amount
Convertible Subordinated
Notes ........................ $5,000,000 aggregate principal amount
Debentures .................... $25,000,000 aggregate principal amount
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."
6
<PAGE>
TRADING SYMBOLS
Common Shares ................. "CMI"
Debentures .................... Application has been made for listing of the
Debentures on the AMEX under the symbol "CMI.B"
------
(1) Excludes Common Shares reserved for the following purposes: (a) 940,792
Common Shares issuable upon the exercise of options granted under CMI's 1995
Stock Option Plan (the "Option Plan"), of which options for 240,792 shares
are subject to approval by shareholders of an increase in the number of
shares issuable under such plan; (b) 225,000 shares issuable upon the
exercise of options granted to professional and other consultants to the
Company; (c) 200,000 shares issuable upon the exercise of warrants ("IPO
Representatives' Warrants") issued to the representatives ("IPO
Representatives") in the Company's IPO; (d) 250,000 shares issuable upon the
exercise of warrants ("First Series Debenture Offering Representative's
Warrants") issued to the representative ("First Series Debenture Offering
Representative") in the First Series Debenture Offering; (e) 2,875,000
shares issuable upon conversion of the First Series Debentures; (f) 555,555
shares issuable upon conversion of the Convertible Subordinated Notes;
(g) 75,334 shares issuable upon exercise of warrants granted in the initial
public offering of MMI and assumed by the Company in the MMI Merger and
(h) shares which may be issued in the proposed Amedisys Merger.
7
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
----------------------- --------------------------
For the period
from April 1, 1993
to December 31, 1993 1994 1995 1995 1996
-------------------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue ................................ $5,283 $10,654 $12,294 $6,390 $11,263
Interest discount (1) .................. (865) (1,744) (2,017) (987) (1,056)
-------- --------- --------- -------- ---------
Net revenue ............................ 4,418 8,910 10,277 5,403 10,207
Operating expenses ..................... 2,790 4,520 5,745 2,481 6,456
-------- --------- --------- -------- ---------
Operating income ....................... 1,628 4,390 4,532 2,922 3,751
Interest discount included in income (2) . 207 922 1,585 630 1,236
Other income/(expense) ................. 62 55 (29) -- (357)
-------- --------- --------- -------- ---------
Income before provision for taxes ...... 1,897 5,367 6,088 3,552 4,630
Provision for income taxes ............. 891 2,522 2,861 1,664 2,191
-------- --------- --------- -------- ---------
Net income ............................. $1,006 $2,845 $3,227 $1,888 $2,439
======== ========= ========= ======== =========
Primary net income per share ........... $0.34 $0.95 $1.08 $0.63 $0.32
======== ========= ========= ======== =========
Fully diluted net income per share ..... N/A N/A N/A N/A $0.29
======== ========= ========= ======== =========
Weighted average number of shares
outstanding ........................... 2,981 2,981 2,981 2,981 7,617
======== ========= ========= ======== =========
Ratio of earnings to fixed charges (3) . N/A N/A 133.35 N/A 8.77
======== ========= ========= ======== =========
</TABLE>
UNAUDITED PRO FORMA COMBINED
<TABLE>
<CAPTION>
Without Amedisys (4) With Amedisys (5)
----------------------------- -----------------------------
Year Ended Six Months Year Ended Six Months
December 31, June 30, December 31, June 30,
1995 1996 1995 1996
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues .................................... $29,335 $16,623 $66,924 $38,509
Interest discount (1) ....................... (2,719) (1,056) (2,719) (1,056)
-------------- ------------ -------------- ------------
Net revenue ................................. 26,616 15,567 64,205 37,453
Operating expenses .......................... 21,121 12,088 57,330 33,135
-------------- ------------ -------------- ------------
Operating income ............................ 5,495 3,479 6,875 4,318
Interest discount included in income (2) .... 2,236 1,236 2,236 1,236
Other income/(expense) ...................... (213) (374) (451) (525)
-------------- ------------ -------------- ------------
Income before provision for taxes ........... 7,518 4,341 8,660 5,029
Provision for income taxes .................. 3,997 2,179 4,197 2,421
-------------- ------------ -------------- ------------
Net income .................................. $ 3,521 $ 2,162 $ 4,463 $ 2,608
============== ============ ============== ============
Primary net income per share ................ $ 0.44 $ 0.27 $ 0.47 $ 0.27
============== ============ ============== ============
Fully diluted net income per share .......... $ -- $ -- $ -- $ --
============== ============ ============== ============
Weighted average number of shares outstanding . 7,891 8,070 9,545 9,724
============== ============ ============== ============
</TABLE>
8
<PAGE>
SUMMARY FINANCIAL INFORMATION (CONTINUED)
(IN THOUSANDS)
UNAUDITED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As at June 30, 1996
-------------------------------------------------------------------
Pro Forma
----------------------------
As Adjusted
Actual CMI, AAMC, ------------------------
--------- CMI, AAMC, Other Acquisitions, CMI, AAMC,
CMI Other Acquisitions AMEDISYS CMI Other Acquisitions
--------- ----------------- ------------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
(6) (7) (8) (9)
Cash and cash equivalents ........... $20,518 $ 14,430 $ 14,832 $ 77,268 $ 74,180
Marketable securities (10) .......... 22,644 22,644 22,644 22,644 22,644
Accounts receivable, net (11) ....... 30,739 32,584 41,347 30,739 32,584
Purchase price in excess of net assets
acquired (12) ...................... 8,459 19,034 19,395 8,459 19,034
Total assets ........................ 96,463 103,534 118,106 155,959 166,030
Current liabilities ................. 8,378 9,535 17,426 8,378 9,535
Long-term obligations, less current . 2,019 2,325 4,240 2,019 2,325
Convertible subordinated obligations . 42,250 42,250 42,250 67,250 70,250
Shareholders' equity ................ 38,875 44,483 49,221 73,371 78,978
Working capital ..................... 42,455 37,179 39,369 99,205 96,930
</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."
(2) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
(3) As there was no interest expense incurred in 1993, 1994 and for the six
months ended June 30, 1995, the ratio of earnings to fixed charges is
not applicable.
(4) The Unaudited Pro Forma Combined Statements of Income Data gives effect to
all of CMI's acquisitions made through October 15, 1996 (the MMI Merger,
AAMC Merger and various non-material acquisitions ("Other Acquisitions"))
and with and without the effect of the Amedisys Merger as if they had
occurred at the beginning of each period. Aggregate purchase price of the
AAMC Merger and the Other Acquisitions was $13,341,000, which was in
excess of the aggregate net assets acquired in the amount of $10,575,000.
The excess purchase price is assumed to have a life not exceeding 20 years.
(5) On October 19, 1996 the Company entered into a non-binding Letter of Intent
with Amedisys to exchange all of the outstanding shares of Amedisys
(approximately 2,600,000 at October 15, 1996) for an estimated 1,523,000
Common Shares with a total value of $23,600,000. For the purpose of this
presentation the share price used in determining the number of Common
Shares to be exchanged is $15.50 per share. This transaction, if
consummated, will be accounted for as a pooling-of-interests.
(6) CMI, AAMC, Other Acquisitions Pro Forma Balance Sheet Data gives effect to
the AAMC Merger and the Other Acquisitions as if they had occurred on June
30, 1996.
(7) CMI, AAMC, Other Acquisitions, Amedysis Pro Forma Balance Sheet Data gives
effect to the AAMC Merger, the Other Acquisitions and the proposed
Amedysis Merger as if they had occurred on June 30, 1996.
(8) CMI As Adjusted reflects the Balance Sheet Data giving effect to this
offering as if it had occurred on June 30, 1996 without the effect of
the AAMC Merger and the Other Acquisitions.
(9) CMI, AAMC and Other Acquisitions As Adjusted reflects the Balance Sheet
Data giving effect to this offering and the AAMC Merger and the Other
Acquisitions as if they had occurred on June 30, 1996 as well as the
receipt subsequent to June 30, 1996 of the last $3,000,000 from the
issuance of the Convertible Subordinated Notes.
(10) Includes all marketable securities including those available for sale
and those the Company intends to hold to maturity.
(11) Includes both the current and long-term portions of accounts receivable.
(12) Reflects the aggregate purchase prices in excess of the aggregate net
assets acquired from the acquisitions made by the Company through October
15, 1996 consisting of the MMI Merger, the AAMC Merger and the Other
Acquisitions.
9
<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 June 30, 1996, CMI had a net tangible book value of $25.7 million and its
ratio of total debt to net tangible book value was 1.75 to 1. Giving pro
forma effect at June 30, 1996 to all acquisitions through October 15, 1996,
and the issuance of the Debentures and $3 million aggregate principal amount
of Convertible Subordinated Notes issued subsequent thereto, the Company's
consolidated assets would have been approximately $106 million, its long term
debt would have been $45 million and its ratio of total debt to net tangible
book value would have been 3.12 to 1. If the Company experiences
unanticipated costs, write-offs of investments or other assets or operating
or other losses, the Company's leverage could increase. Such increased
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 that a
substantial portion of the Company's cash flow from operations be dedicated
to debt service, (iii) could place the Company at a competitive disadvantage,
if it is more highly leveraged than its competitors, and (iv) could make the
Company more vulnerable to a downturn in its business.
Assuming that the Debentures, the First Series Debentures and the
Convertible Subordinated Notes had been outstanding during 1995, the ratio of
pro forma consolidated 1995 income, before income taxes, to fixed charges (at
an assumed interest rate of 8.0% on the Debentures) would have been 2.66 to
1.
Dependence on Principal Client. All of the net revenues of CMI in 1994 and
1995 and approximately 62% of the pro forma combined net revenue of CMI, MMI,
AAMC and the other acquired companies 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 the growth of the GMMS medical practice. The
continued vitality of the GMMS medical practice is subject to numerous risks,
including the loss of its key medical personnel, malpractice claims and
liability for failure to comply with applicable regulations. There is no
assurance that GMMS will continue to operate successfully. For the six months
ended June 30, 1996 owner physician payroll and entity income at GMMS showed
a loss of $253,000, as compared to income of $682,000 in 1995. The Company
believes that this loss principally results from an increase of $756,000 in
medical personnel payroll at GMMS as GMMS increased its professional staff in
expectation of future higher levels of operation. A continuation of these
deficits at GMMS, or its failure to operate successfully, could jeopardize
GMMS' ability to pay management fees to the Company. 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 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, 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 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 receiving the Company's
services are dependent on third-party payors, changes in such payors'
policies that reduce reimbursement rates could impair clients' ability to pay
management fees to the Company. See "Business -- Third-Party Reimbursement."
Risk of Lower Margins. Certain services offered by the Company are
provided in accordance with fee schedules based on the Company's estimate of
the cost of providing these services. Such fee schedules are not readily
subject to modification. Accordingly, an unanticipated increase in costs,
such as those for personnel,
10
<PAGE>
space, equipment or capital, would have a substantial and adverse impact on
the Company's operating margins and net income. There is no assurance that
the Company's actual costs will not exceed its estimated costs. 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 the Company's future business
relationships will provide margins comparable to those currently earned under
the PMSA and MSA. 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 for the Company's 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 insurance carriers 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. As a
result, the Company requires more capital to finance its receivables than do
businesses with shorter receivable 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. The Company is generally prepared to take all
legally available steps, including arbitration, to collect the receivables
generated by its clients, whether owned by the Company or by the client.
Nevertheless, some of those receivables may be uncollectible if third-party
payors determine that the Company's clients performed medically unnecessary
procedures, charged excessive fees for procedures, or completed claim forms
improperly. The inability of the Company's clients to collect their
receivables could adversely affect their ability to pay the Company's fees.
See "Business -- Third-Party Reimbursement."
Inability to Collect Loans to Clients. The Company has provided financing
to GMMS and other clients, either through loans or the purchase of
receivables, to open new offices or renovate existing ones, acquire medical
practices or add medical specialties and acquire diagnostic imaging and other
equipment. When the Company makes loans to its clients it generally takes a
security interest in the assets of such clients (including receivables not
otherwise assigned to 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 and type of medical practices to which it
provides management services in its current market, other areas in New York
State and selected other markets including New Jersey, and securing contracts
on behalf of its clients with managed care organizations. The Company intends
to identify high volume medical practices to be acquired by existing clients
or to become clients of the Company, possibly in conjunction with 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 be acquired or to
contract for the management services offered by 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 order to operate in other states, the Company must adapt its procedures to
each such state's regulatory requirements and systems. See "Business --
Growth Strategies."
Management of Growth and Expansion. The Company is undergoing substantial
growth. This growth places significant demands on the Company's management,
and its technical, financial and other resources. To
11
<PAGE>
manage its growth effectively, the Company must maintain a high level of
operational quality and efficiency, continue to enhance its operational,
financial and management systems and expand, train and manage its management
and staff. Through June 30, 1996, the Company has rendered its services
primarily to a single multi-office medical practice and thus has only
limited experience in simultaneously providing physician practice management
services to several practices. To execute its growth strategy, the Company
plans to significantly increase the number of physician practices under
management. There can be no assurance that the Company will be able to manage
growth effectively, and any failure to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations and the price of the Common Shares and Debentures.
Cost Containment and Reimbursement Trends. Government and private
third-party payors are seeking to contain health care costs by imposing lower
reimbursement and higher utilization rates and negotiating reduced payment
schedules with service providers. The federal government has implemented,
through the Medicare program, a resource-based relative value scale ("RBRVS")
payment methodology for physician services. The RBRVS began to cover certain
physician services in 1992 and will be fully phased in on December 31, 1996.
RBRVS is a fee schedule that pays similarly situated physicians the same
amount for the same services, with certain geographical and other
adjustments. The RBRVS is adjusted each year, and is subject to increases or
decreases at the discretion of Congress. RBRVS has reduced payment rates for
certain of the procedures historically provided by the physician groups
managed by the Company. Management estimates that 22% of the 1995 revenues of
physician groups to which the Company now provides broad based management
services are derived from government sponsored health care programs
(principally, Medicare, Medicaid and state reimbursed programs) subject to
the RBRVS. RBRVS-type of payment systems have also been adopted by certain
private third- party payors and may become a predominant payment methodology.
Wide-spread implementation of such RBRVS-type programs would reduce payments
by third-party payors. Rates paid by many private third-party payors,
including those that provide Medicare supplemental insurance, are based on
established physician and hospital charges and are generally higher than
Medicare payment rates. A decrease in the number of privately insured
patients seen by the practices managed by the Company could cause the
revenues of such practices to decrease and in turn adversely affect the
Company's results of operations. Thus, there can be no assurance that the
Company's revenues from its relationship with such affiliated physicians will
be sufficient to achieve or maintain profitability. The Company believes that
cost containment trends will continue to result in a reduction from
historical levels in per-patient revenue for medical practices. Further
reductions in payments to physicians or other changes in reimbursement for
health care services could have an adverse effect on the Company's
operations. There can be no assurance that the effect of any or all of these
changes in third-party reimbursement could be offset by the Company through
cost reductions, increased volume, introduction of new services and systems
or otherwise. See "Business -- Government Regulation."
Risks Associated with Capitated Fee Arrangements. Physicians and other
healthcare providers are, increasingly, being asked to provide professional
services on a risk-sharing or capitated basis. Under these arrangements, the
healthcare provider often receives a predetermined amount per patient per
month in exchange for providing specified services to patients covered by the
arrangement. Such arrangements pass the economic risk of providing care from
the payor to the provider. While capitated fee arrangements are relatively
new and still uncommon in the New York State marketplace, they are now of
significant importance nationally and the Company expects they will become
more important in New York in the next few years. While the growth of such
arrangements could result in greater predictability of revenues for those
clients of the Company who enter into such arrangements, it may create new
risks and uncertainties for the profitability of these clients and their
ability to pay the Company's management fees. Additionally, the Company may
be required to negotiate capitated fee arrangements for its clients to
maintain their competitive position in the marketplace. There can be no
assurance that the Company will be able to negotiate satisfactory
arrangements for its clients or be able to provide the service of negotiating
such arrangements at commercially reasonable rates. To the extent that
medical practice clients have reduced profitability as a result of capitated
fee arrangements there can be no assurance that the Company will be able to
derive sufficient revenues from its relationships with such clients to
maintain profitability or sustain its current level of operations.
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
12
<PAGE>
regulations (as determined by agencies or judicial authorities) may result in
substantial criminal and/or civil penalties. The Company believes that its
operations 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 neither obtained nor applied for an 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 current or
future operations (including the purchase and lease-back of client assets,
the provision of financing to new or existing clients, the purchase of client
accounts receivable and, if appropriate, the granting of 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 continuation 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, the federal government and New York State are considering
numerous new laws and regulations that, if enacted, could result in
comprehensive changes to 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 injunctive relief. 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. See "Business -- Government Regulation."
Dependence Upon Key Personnel. The Company is dependent upon the expertise
and abilities of its management, including its Chairman and Chief Executive
Officer, Steven Rabinovici. The loss of the services of Mr. Rabinovici 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. The Company is the beneficiary of key man insurance
policies on the lives of Steven M. Rabinovici and Dr. Lawrence W. Shields in the
amounts of $2,000,000 and $10,000,000, respectively. 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.
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
13
<PAGE>
of using such equipment or if persons are injured on premises leased by the
Company to its clients, liability claims could 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 its clients carry
substantial 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 that until June 1, 2005, they
will 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 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, Dennis Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially
own an aggregate of 3,094,581 shares or 38.9% of the Company's outstanding
Common Shares (2,594,581 shares or 24.8% of the Company's outstanding shares
after giving effect to the transactions contemplated hereby or, if the
Over-Allotment Option is exercised in full, 2,197,358 shares and 20.1% of the
outstanding 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 may adversely
affect the market price of the Common Shares by deterring any unsolicited
acquisition of the Company. See "Principal Shareholders."
Broad Discretion in Application of Proceeds. Of the estimated net proceeds
from this offering (assuming an offering price of $15.50 per share),
approximately $45,000,000 (79.3%) has been allocated to the Company's
acquisition program and $11,750,000 (20.7%) to working capital and other
general corporate purposes. The funds allocated to the foregoing purposes are
not subject to binding agreements requiring such use and no material
acquisition now being negotiated, except for the acquisition of Amedisys, 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 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 Representatives 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. The Company's officers and directors, other than Steven
Hirsh, have agreed with the Representatives that they will not sell or
otherwise dispose of any Common Shares, or any securities convertible into
Common Shares, without the prior written consent of such Representatives
until , 1997. [120 days after the effective date of this offering].
After that date, an aggregate of 3,164,368 Common Shares will become eligible
for sale pursuant to Rule 144 and the limitations specified therein. The
lock-up does not apply to the sale of shares by the Selling Shareholder in
this offering or the shares subject to the Over-Allotment Option. The
3,000,000 Common Shares offered hereby will be publicly tradeable without
registration immediately following the effective date of this Offering,
unless held by affiliates. In addition, all of the Common Shares into which
the Debentures or the First Series Debentures are convertible will be
saleable publicly immediately upon conversion of the Debentures. See "Shares
Eligible for Future Sale." Sales in the public market of substantial numbers
of Common Shares can be expected to affect the price of the Common Shares and
14
<PAGE>
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 have been 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.
------------------
Prospective investors should also carefully consider the following matters
which will become applicable to the business of the Company and the
securities offered hereby if the Company consummates the proposed Amedisys
Merger. At present, there is no binding agreement for the consummation of the
Amedisys Merger. Consummation of the Amedisys Merger is subject to a number
of material conditions and, accordingly, no assurances can be given that the
Amedisys Merger will be consummated.
Classification of Physicians and Nurses as Independent Contractors;
Potential State and Federal Tax Liability. Amedisys contracts with physicians
and nurses as independent contractors, rather than employees, to fulfill some
of its supplemental staffing obligations. Therefore, Amedisys has not
withheld federal or state taxes based on income, made federal or state
unemployment tax payments or provided workers' compensation insurance with
respect to such independent contractors. The payment of applicable taxes is
regarded as the responsibility of such independent contractors. Management of
Amedisys believes that classification of physicians and nurses as independent
contractors is standard industry practice and proper for federal tax
purposes. A contrary determination by federal taxing authorities or a change
in existing law could materially adversely affect Amedisys and its
operations. Most state taxing authorities either have not challenged or have
accepted the classification of contract physicians and nurses as independent
contractors. Amedisys' records regarding independent contractors have been
reviewed by federal taxing authorities and no significant issues have been
identified. Amedisys is currently under review by the Louisiana Department of
Labor. Management of Amedisys believes that the ultimate resolution of this
review will not have a significant effect on Amedisys' financial position or
results of operations. However, there are some states in which the independent
contractor classification of physicians and nurses is or has been under
administrative or judicial review.
Corporate Exposure to Professional Liabilities. Due to the nature of its
business, including the direct employment of healthcare providers, Amedisys
and certain physicians who provided services on its behalf may be the subject
of medical malpractice claims, with the attendant risk of substantial damage
awards. The most significant source of potential liability in this regard is
the alleged negligence of nurses placed by Amedisys in home health care and
supplemental staffing settings. In addition, Amedisys could be exposed to
liability based on the negligence of physicians operating in Amedisys'
outpatient surgery centers. To the extent such nurses or physicians were
regarded as agents of Amedisys in the practice of medicine, Amedisys could be
held liable for any medical negligence of such persons. In addition, Amedisys
could be found in certain instances to have been negligent in performing its
contract management services for hospital and clinics even if no agency
relationship exists between Amedisys and such physicians. There can be no
assurance that a future claim or claims will not exceed the limits of
available insurance coverage or that such coverage will continue to be
available.
Relationships with Other Organizations. The development and growth of
Amedisys' business largely depends on having close working relationships with
health maintenance organizations, preferred provider organizations,
hospitals, clinics, nursing homes, physician groups, and other health care
providers. Although Amedisys has established such relationships, there is no
assurance that existing relationships will be successfully maintained and
that additional relationships will be successfully developed and maintained
in the future.
Dependence upon Management. Amedisys is dependent upon the expertise and the
abilities of its management, including its Chief Executive Officer, William F.
Borne. Amedisys maintains key employee life insurance upon Mr. Borne's life in
the amount of $4.5 million. The loss of the services of Mr. Borne or other key
members of management could have a material adverse effect of the business of
Amedisys.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures and the 2,500,000 Common Shares offered by the Company hereby
(assuming an offering price of $15.50 per share) are estimated to be
approximately $56,750,000, ($60,150,000 if the Over-Allotment Option is
exercised in full) after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company. Of these net
proceeds, approximately $45,000,000 will be allocated to the Company's
acquisition program, and the balance will be used for working capital and
general corporate purposes. The acquisition program includes possible
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 is 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."
16
<PAGE>
RECENT FINANCINGS
On March 20 and July 10, 1996, the Company borrowed an aggregate of
$5,000,000 due from 13 accredited investors (the "Purchasers") evidenced by
the Convertible Subordinated Notes. The Convertible Subordinated Notes are
convertible into an aggregate of 555,555 Common Shares, subject to adjustment
to protect against dilution for capital changes, and bear interest at the
rate of 8% per annum, payable quarterly until the Convertible Subordinated
Notes are paid in full on March 20, 2001. Under certain circumstances, such
as a change in control, holders of the Convertible Subordinated Notes may
require the Company to redeem the Convertible Subordinated Notes at 125% of
their principal amount plus all accrued and unpaid interest thereon. The
Convertible Subordinated Notes are subordinate in right of payment to
existing and to certain future indebtedness which may be incurred by the
Company. The Company has agreed to file with the SEC, by January 31, 1997, a
Registration Statement on Form S-3 covering the sale of the shares issuable
on conversion of the Convertible Subordinated Notes together with 16,666
other shares owned by two of the purchasers of the Convertible Subordinated
Notes, and to keep such Registration Statement effective until July 10, 1998.
Subsequent to the issuance of the Convertible Subordinated Notes, Steven
Hirsh, who had investment authority or shared investment with respect to four
of the accredited investors, became a director of the Company.
On June 11, 1996, the Company issued $40,250,000 face amount of First
Series Debentures due August 15, 2003. The First Series Debentures bear
interest at the rate of 8% per annum payable on August 15 and February 15 of
each year until the First Series Debentures are paid in full. Holders of the
First Series Debentures may convert all or any portion of the principal
amount thereof into common shares of the Company at an initial conversion
price of $14.00 per share, subject to adjustment for stock splits, dividends,
recapitalization and certain other capital changes. The First Series
Debentures are not redeemable prior to June 5, 1999. Thereafter, the First
Series 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 First
Series Debentures may not be redeemed prior to maturity unless for the 20
consecutive trading days prior to the date of notice of such redemption, the
Closing Price (as defined) has equaled or exceeded $19.125, subject to
adjustment in certain events. In the event that a Repurchase Event (as
defined) occurs, subject to certain conditions, each holder of a First Series
Debenture shall have the right to require the Company to purchase all or any
part of such holder's First Series Debentures at 100% of the principal amount
thereof plus accrued interest.
17
<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. On
May 6, 1996 the Common Shares commenced trading on the AMEX under the symbol
"CMI." 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) .... 9 8 3/8
1996
First Quarter ........................ 9 1/4 7 3/4
Second Quarter ....................... 13 3/8 7 1/2
Third Quarter ........................ 16 3/4 12 1/8
Fourth Quarter (through November 1) .. 15 3/4 14 5/8
On November 1, 1996 the closing price of the Common Shares was $14.875.
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of CMI, (ii) the capitalization of CMI on a pro forma basis,
giving effect to the consummation of all acquisitions through October 15,
1996 (specifically excluding the proposed Amedisys Merger), and the receipt
subsequent to June 30, 1996 of the last $3,000,000 from the issuance of the
Convertible Subordinated Notes and (iii) on a pro forma as adjusted basis
giving effect to the other pro-forma adjustments and the receipt of the
estimated net proceeds to be received by the Company from this offering. The
table should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro forma,
Actual Pro forma As adjusted
------- ----------- -------------
(1)(2)
<S> <C> <C> <C>
Current portion of long-term obligations .......................... $ 779 $ 989 $ 989
Long-term obligations ............................................. 2,019 2,325 2,325
Convertible Subordinated Notes .................................... 2,000 5,000 5,000
First Series Debentures ........................................... 40,250 40,250 40,250
Debentures ........................................................ -- -- 25,000
Shareholders' equity
Preferred Shares, $.001 par value, 2,000,000 shares authorized;
none issued ................................................. -- -- --
Common Shares, $.001 par value, 20,000,000 shares authorized;
7,478,298 issued and outstanding; 7,931,435 issued and
outstanding, pro forma; actual and pro forma, 10,431,435
issued and outstanding, as adjusted ......................... 7 8 10
Additional paid-in capital ...................................... 29,352 34,959 69,452
Retained earnings ............................................... 9,516 9,516 9,516
------- ------- --------
Total shareholders' equity .............................. 38,875 44,483 78,978
-------- ------- --------
Total capitalization ......................................... $83,923 $93,047 $152,542
======== ======= ========
Net tangible book value ........................................... $25,674 $20,707 $ 52,458
======== ======= ========
Ratio of total debt to tangible net worth ......................... 1.75 2.35 1.40
</TABLE>
- ---------
(1) Excludes Common Shares reserved for the following purposes: (a) 940,792
Common Shares issuable upon the exercise of options granted under the Option
Plan, of which options for 240,792 shares are subject to approval by
shareholders of an increase in the number of shares issuable under such
plan; (b) 225,000 shares issuable upon the exercise of options granted to
professional and other consultants to the Company; (c) 200,000 shares
issuable upon the exercise the IPO Representatives' Warrants; (d) 250,000
shares issuable upon the exercise of warrants issued to the First Series
Debenture Offering Representative; (e) 2,875,000 shares issuable upon
conversion of the First Series Debentures; (f) 555,555 shares issuable upon
conversion of the Convertible Notes; (g) 75,334 shares issuable upon
exercise of warrants granted in the initial public offering of MMI and
assumed by the Company in the MMI Merger; (h) shares which may be issued in
the proposed Amedisys Merger; (i) Common Shares issuable upon the exercise
of Amedisys stock options to be assumed in the proposed Amedisys Merger and
(j) shares issuable upon the exercise of the Representatives' Warrants.
(2) Reflects the consummation of this offering less estimated costs of
$7,000,000 as if it had occurred at June 30, 1996.
18
<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.
19
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Balance Sheet of CMI at June 30, 1996
and the Unaudited Pro Forma Consolidated Statements of Income of CMI for the
year ended December 31, 1995 and the six months ended June 30, 1996 which are
set forth below, give effect to all of the acquisitions consummated through
October 15, 1996, consisting of the MMI Merger, the AAMC Merger and the Other
Acquisitions, based upon the assumptions set forth below, and in the notes to
such statements. These acquisitions have each been accounted for as a
"purchase." However, because CMI and MMI have a common control group, that
portion of the assets of MMI attributable to such 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
these acquisitions occurred on December 31, 1995, is estimated at approximately
$19,250,000, and will be amortized over various periods based upon appraisals
and valuations by qualified independent parties. A period of 20 years has been
assumed for the amortization, for the purpose of the pro forma financial
statements. The unaudited pro forma financial statements reflect amortization
expense of such excess in the amount of $963,000 for the year ended December 31,
1995. The unaudited pro forma consolidated financial information assumes that
(i) the AAMC Merger and the Other Acquisitions were completed at June 30, 1996
for the Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996, (ii)
the MMI Merger, the AAMC Merger and Other Acquisitions were completed at January
1, 1995 for the Unaudited Pro Forma Consolidated Statement of Income for the
year ended December 31, 1995, and (iii) the AAMC Merger and Other Acquisitions
were completed at January 1, 1996 for the Unaudited Pro Forma Consolidated
Statement of Income for the six month period ended June 30, 1996. 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 the acquired companies and should
be read in conjunction with such financial statements and related notes thereto
to the extent included in this document. The Company believes that the
accompanying unaudited pro forma consolidated financial information contains all
the material adjustments necessary to fairly present the financial position of
CMI as of December 31, 1995. The unaudited pro forma financial information
presented does not purport to be indicative of the financial position or
operating results which would have been achieved had the acquisitions taken
place at the dates indicated and should not be construed as representative of
the Company's financial position or results of operations for any future date or
period.
The unaudited 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 acquisitions will be
based on ultimate appraisals, evaluations and estimates of fair values. If
these appraisals and evaluations identify assets with lives shorter than 20
years, such assets will be amortized over their expected useful lives.
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 its acquisitions 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.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Actual
--------------------------------------
Other
CMI AAMC Acquisitions
--------- -------- --------------
(1) (2)
<S> <C> <C> <C>
Cash and cash equivalents .................. $20,518 $ -- $ 310
Marketable securities ...................... 15,846 -- --
Notes receivable from related party --
current ................................... 1,953 30 37
Accounts receivable -- current, net ........ 11,786 798 1,047
Other current assets ....................... 730 12 45
--------- -------- --------------
Total current assets ..................... 50,833 840 1,439
Notes receivable from related party --
non-current .............................. 101 28 --
Accounts receivable -- non-current, net .... 18,953 -- --
Marketable securities held to maturity --
non-current .............................. 6,798 -- --
Property and equipment, net ................ 6,152 264 295
Purchase price in excess of net assets
acquired ................................. 8,459 -- --
Deferred & debt issuance costs ............. 4,742 -- --
Other long-term assets ..................... 425 8 20
--------- -------- --------------
Total assets .......................... $96,463 $1,140 $1,754
========= ======== ==============
Notes payable .............................. $ -- $ -- $ --
Accounts payable and accrued expenses ...... 1,323 395 284
Income taxes payable ....................... 1,440 -- --
Due to clients, related parties ............ -- 103 165
Deferred income taxes -- current ........... 4,836 -- --
Current portion of long-term debt .......... 272 -- 161
Current portion of obligations under capital
leases ................................... 507 49 --
--------- -------- --------------
Total current liabilities ............. 8,378 547 610
Deferred income taxes -- non-current ....... 4,941 -- --
Long-term debt, less current portion ....... 314 -- 250
Obligations under capital leases ........... 1,705 56 --
Convertible subordinated debt .............. 42,250 -- --
Minority interest .......................... -- -- --
Common stock ............................... 7 139 38
Paid-in capital ............................ 29,352 -- 0
Retained earnings .......................... 9,516 398 916
Treasury stock ............................. -- -- (60)
--------- -------- --------------
Total shareholder's equity ............... 38,875 537 894
--------- -------- --------------
Total liabilities and shareholder's equity . $96,463 $1,140 $1,754
========= ======== ==============
Working Capital ............................ $42,455 $ 293 $ 829
========= ======== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined
------------------------------------------------------------------------
CMI, AAMC
& Other Actual
Adjustments Acquisitions AMED Adjustments Total
------------- -------------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................. $(6,398)(3) $14,430 $ 402 $-- $14,832
Marketable securities ...................... 15,846 -- 15,846
Notes receivable from related party --
current ................................... 2,020 -- 2,020
Accounts receivable -- current, net ........ 13,631 8,763 22,394
Other current assets ....................... 787 916 1,703
------------- -------------- --------- ------------- ----------
Total current assets ..................... (6,398) 46,714 10,081 -- 56,795
Notes receivable from related party --
non-current .............................. 129 278 407
Accounts receivable -- non-current, net .... 18,953 -- 18,953
Marketable securities held to maturity --
non-current .............................. 6,798 -- 6,798
Property and equipment, net ................ 6,711 2,995 9,706
Purchase price in excess of net assets
acquired ................................. 10,575(4) 19,034 361 19,395
Deferred & debt issuance costs ............. 4,742 -- 4,742
Other long-term assets ..................... 453 857 1,310
------------- -------------- --------- ------------- ----------
Total assets .......................... $ 4,177 $103,534 $14,572 $ 0 $118,106
============= ============== ========= ============= ==========
Notes payable .............................. $ -- $ -- $ 4,092 $-- $ 4,092
Accounts payable and accrued expenses ...... 2,002 3,036 5,038
Income taxes payable ....................... 1,440 103 1,543
Due to/from clients, related parties ....... 268 -- 268
Deferred income taxes -- current ........... 4,836 -- 4,836
Current portion of long-term debt .......... 433 660 1,093
Current portion of obligations under capital
leases ................................... 556 -- 556
------------- -------------- --------- ------------- ----------
Total current liabilities ............. -- 9,535 7,891 -- 17,426
Deferred income taxes -- non-current ....... 4,941 -- 4,941
Long-term debt, less current portion ....... 564 1,915 2,479
Obligations under capital leases ........... 1,761 -- 1,761
Convertible subordinated debt .............. 42,250 -- 42,250
Minority interest .......................... -- 28 28
Common stock ............................... (176)(5) 8 3 (1)(7) 10
Paid-in capital ............................ 5,607 (6) 34,959 1,910 1 (7) 36,870
Retained earnings .......................... (1,314)(5) 9,516 2,825 12,341
Treasury stock ............................. 60 -- -- --
------------- -------------- --------- ------------- ----------
Total shareholder's equity ............... 4,177 44,483 4,738 0 49,221
------------- -------------- --------- ------------- ----------
Total liabilities and shareholder's equity . $ 4,177 $103,534 $14,572 $ 0 $118,106
============= ============== ========= ============= ==========
Working Capital ............................ $ 37,179 $ 2,190 $ 39,369
============== ========= ==========
</TABLE>
- -----------
(1) Reflects the AAMC Merger in which the Company paid $4,034,000 and 286,000
Common Shares with a market value of $4,501,000. Such acquisition has
been accounted for as a purchase.
(2) Reflects the aggregation of the Other Acquisitions for a total purchase
price of $2,364,000 and 167,000 Common Shares with a market value of
$2,303,000. The Other Acquisitions were not material individually or in the
aggregate and were accounted for as purchases.
(3) Reflects the cash portion of the consideration paid in the AAMC Merger
and the Other Acquisitions.
(4) Reflects the effect of the AAMC Merger and the Other Acquisitions, which
acquisitions were made after June 30, 1996. Aggregate purchase price of
the AAMC Merger and the Other Acquisitions was $13,341,000, which was in
excess of the aggregate net assets acquired in the amount of $10,575,000.
The excess purchase price is assumed to have a life of 20 years.
(5) Reflects the elimination of the shareholder's equity from the AAMC Merger
and the Other Acquisitions.
(6) Reflects the adjustments to increase paid-in capital arising from the
issuance of Common Shares in connection with the AAMC Merger and the
Other Acquisitions.
(7) Reflects the proposed Amedisys Merger which, if consummated, will be
accounted for as a pooling-of-interests.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Six Months Ending
June 30, 1996
----------------------------
CMI AAMC
--------- --------
<S> <C> <C>
Revenue ............................... $11,263 $3,573
Interest discount (2) ................. (1,056) --
--------- --------
Net revenue ........................... 10,207 3,573
Cost of revenue ....................... 3,725 2,942
General and administrative expenses ... 2,731 592
--------- --------
Operating income ...................... 3,751 39
Interest discount included in income
(3) .................................. 1,236 --
Other income/(expense) ................ (357) (7)
--------- --------
Income before provision for income
taxes ................................ 4,630 32
Provision for taxes ................... 2,191 --
--------- --------
Net income ............................ $2,439 $ 32
========= ========
Primary net income .................... $0.32
=========
Fully diluted net income per share .... $0.29
=========
Weighted average number of shares
outstanding .......................... 7,617
=========
Pro forma income taxes (5) ............ 4
--------
Pro forma net income .................. $ 28
========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OTHER Adjustments Pro forma AMED Total
-------- ------------- ----------- ---------- ---------
(6) (1) (7)
<S> <C> <C> <C> <C> <C>
Revenue ............................... $1,787 $ -- $16,623 21,886 $38,509
Interest discount (2) ................. -- (1,056) -- (1,056)
-------- --------- -------- ------- ---------
Net revenue ........................... 1,787 -- 15,567 21,886 37,453
Cost of revenue ....................... 1,526 8,193 12,327 20,520
General and administrative expenses ... 308 (264)(4) 3,895 8,720(9) 12,615
-------- --------- -------- ------- ---------
Operating income ...................... (47) (264) 3,479 839 4,318
Interest discount included in income
(3) .................................. -- 1,236 -- 1,236
Other income/(expense) ................ (10) (374) (151) (525)
-------- --------- -------- ------- ---------
Income before provision for income
taxes ................................ (57) (264) 4,341 688 5,029
Provision for taxes ................... 1 (13)(5) 2,179 242 2,421
-------- --------- -------- ------- ---------
Net income ............................ $ (58) $(251) $2,162 $446 $2,608
======== ========= ======== ======= =========
Primary net income .................... $0.27 $0.17 $0.27
======== ======== ======= =========
Fully diluted net income per share .... $-- $-- $--
======== ======== ======= =========
Weighted average number of shares
outstanding .......................... 8,070 2,584 9,724
======== ======== ======= =========
Pro forma income taxes (5) ............ 340 344 344
-------- ----------- ---------
Pro forma net income .................. $ (398) $1,818 $2,264
======== =========== =========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
---------------------------------------------
CMI MMI AAMC OTHER
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ..................... $12,294 $7,287 $6,530 $3,224
Interest discount (2) ....... (2,017) (702) -- --
--------- -------- -------- --------
Net revenue ................. 10,277 6,585 6,530 3,224
Cost of revenue ............. 2,771 2,792 3,905 2,160
General and administrative
expenses ................... 2,974 2,382 2,323 851
--------- -------- -------- --------
Operating income ............ 4,532 1,411 302 213
Interest discount included in
income (3) ................. 1,585 651 -- --
Other income/(expense) ...... (29) (170) (11) (3)
--------- -------- -------- --------
Income before provision for
income taxes ............... 6,088 1,892 291 210
Provision for taxes ......... 2,861 889 -- 1
--------- -------- -------- --------
Net income .................. $3,227 $1,003 $ 291 $ 209
========= ======== ======== ========
Primary net income per share $1.08 $0.33
========= ========
Fully diluted net income per
share ...................... $0.29 $0.29
========= ========
Weighted average number of
shares outstanding ......... 2,981 3,035
========= ========
Pro forma income taxes (5) .. 131 305
-------- --------
Pro forma net income ........ $ 160 $ (96)
======== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Adjustments Pro forma AMED Total
------------- ----------- ----------- ---------
(6) (1) (7)
<S> <C> <C> <C> <C>
Revenue ..................... $-- $29,335 $37,589 $66,924
Interest discount (2) ....... (2,719) -- (2,719)
------------- ----------- ----------- ---------
Net revenue ................. -- 26,616 37,589 64,205
Cost of revenue ............. 11,628 22,424 34,052
General and administrative
expenses ................... 963(4) 9,493 13,785 23,278
---------- ----------- -------- ---------
Operating income ............ (963) 5,495 1,380 6,875
Interest discount included in
income (3) ................. 2,236 -- 2,236
Other income/(expense) ...... (213) (238) (451)
---------- ----------- -------- ---------
Income before provision for
income taxes ............... (963) 7,518 1,142 8,660
Provision for taxes ......... 246(5) 3,997 200 4,197
---------- ----------- -------- ---------
Net income .................. $(1,209) $3,521 $942 $4,463
========== =========== ======== =========
Primary net income per share $0.45 $0.37 $0.47
=========== ======== =========
Fully diluted net income per
share ...................... $-- $-- $--
=========== ======== =========
Weighted average number of
shares outstanding ......... 7,891 2,570 9,545
=========== =========== =========
Pro forma income taxes (5) .. 436 436
----------- ---------
Pro forma net income ........ $3,085 $4,027
=========== =========
</TABLE>
- ------------
(1) Reflects the AAMC Merger and the Other Acquisitions as if they had
occurred at the beginning of each year and includes the MMI Merger at
January 1, 1995.
(2) 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."
(3) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI and MMI, respectively. See "Notes to Consolidated
Financial Statements of CMI and MMI."
(4) Reflects the amortization of purchase price in excess of net assets
acquired recorded at approximately $19,250,000 in 1995 assuming a useful
life of 20 years. In 1996, MMI is consolidated with CMI.
(5) Pro forma net income reflects a provision for income taxes since certain
acquisitions had been S Corporations before being acquired by CMI. Such
provision assumes an effective tax rate of 47%.
(6) The adjustments are based on available information and certain
assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the MMI Merger, AAMC
Merger, the Other Acquisitions and the proposed Amedysis Merger (which
recording management does not expect to vary materially) will be based on
independent appraisals, evaluations and estimates of fair values.
(7) The Company estimates that it will incur approximately $400,000 in legal,
accounting, printing and other related costs associated with the Amedysis
Merger. These costs will be charged to operations when incurred. In
addition upon consummation of the Amedysis Merger the Company will enter
into five year employment agreements with 6 key executives of Amedysis
including its Chief Executive Officer to induce the key executives of
Amedysis to assist in implementing the overall business strategies of CMI.
The Company anticipates paying a signing bonus to such executive in the
amount of $500,000 and an aggregate of $600,000 to the other five
executives. Such amounts will be charged to operations in accordance with
the final terms and conditions of the respective agreements.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (1)
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993
-------------------------------------------
Pro
CMI AMED forma
-------- --------- ---------
<S> <C> <C> <C>
Revenue .................. $5,283 $22,445 $27.728
Interest discount(2) ..... (865) -- (865)
-------- --------- ---------
Net revenue .............. 4,418 22,445 26,863
Cost of revenue .......... 1,103 14,674 15,777
General & administrative
exp.(4) ................. 1,687 7,204 8,891
-------- --------- ---------
Operating income ......... 1,628 567 2,195
Interest discount included
in income(3) ............ 207 -- 207
Other income/(expense) ... 62 (33) 29
-------- --------- ---------
Income before provision
for income taxes ........ 1,897 534 2,431
Provision for taxes ...... 891 39 930
-------- --------- ---------
Net income ............... $1,006 $ 495 $1,501
======== ========= =========
Primary net income per
share ................... $0.34 $0.22 $0.32
======== ========= =========
Weighted average number of
shares outstanding ...... 2,981 2,285 4,635
======== ========= =========
Pro forma income taxes (5). -- 155 155
-------- --------- ---------
Pro forma net income $2,981 $ 340 $1,346
======== ========= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1994 1995
---------------------------------- ----------------------------------
Pro Pro
CMI AMED forma CMI AMED forma
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $10,654 $28,902 $39,556 $12,294 $37,589 $49,883
Interest discount(2) ..... (1,744) -- (1,744) (2,017) -- (2,017)
--------- --------- --------- --------- --------- ---------
Net revenue .............. 8,910 28,902 37,812 10,277 37,589 47,866
Cost of revenue .......... 1.949 16,996 18,945 2,771 22,424 25,195
General & administrative
exp.(4) ................. 2,571 9,740 12,311 2,974 13,785 16,759
--------- --------- --------- --------- --------- ---------
Operating income ......... 4,390 2,166 6,556 4,532 1,380 5,912
Interest discount included
in income(3) ............ 922 -- 922 1,585 -- 1,585
Other income/(expense) ... 55 (248) (193) (29) (238) (267)
--------- --------- --------- --------- --------- ---------
Income before provision
for income taxes ........ 5,367 1,918 7,285 6,088 1,142 7,230
Provision for taxes ...... 2,522 13 2,535 2,861 200 3,061
--------- --------- --------- --------- --------- ---------
Net income ............... $2,845 $1,905 $4,750 $3,227 $942 $4,169
========= ========= ========= ========= ========= =========
Primary net income per
share ................... $0.95 $0.75 $1.02 $1.08 $0.37 $0.90
========= ========= ========= ========= ========= =========
Weighted average number of
shares outstanding ...... 2,981 2,525 4,635 2,981 2,570 4,635
========= ========= ========= ========= ========= =========
Pro forma taxes (5) ....... -- 646 646 191 191
--------- --------- --------- --------- --------- ---------
Pro forma net income....... $ 2,845 1,259 $ 4,104 $ 3,227 $ 751 $ 3,978
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
- -------------
(1) Reflects the Amedysis Merger, as if it had occurred, and accounted for as a
pooling of interest for each of the three years shown.
(2) 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."
(3) Represents interest income included in income as a result of the
amortization over three and two year periods of the interest discount on
revenues for CMI. See "Notes to Consolidated Financial Statements of
CMI."
(4) The Company estimates that it will incur approximately $400,000 in legal,
accounting, printing and other related costs associated with the Amedysis
Merger. These costs will be charged to operations when incurred. In
addition upon consummation of the Amedysis Merger the Company will enter
into five year employment agreements with 6 key executives of Amedysis
including its Chief Executive Officer. The Company anticipates paying a
signing bonus to such executive in the amount of $500,000 and an
aggregate of $600,000 to the other five executives. Such amounts will be
charged to operations in accordance with the final terms and conditions of
the respective agreements.
(5) Pro forma net income reflects a provision for income taxes since certain
corporations acquired by Amedisys had been S Corporations before being so
acquired.
SELECTED FINANCIAL DATA
The selected financial data of CMI presented below as of December 31,
1993, 1994 and 1995 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 as of
and for the six months ended June 30, 1995 and 1996 has been derived from
Unaudited Consolidated Financial Statements which have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments of a normal recurring nature necessary
for a fair presentation of the information shown therein. The results of
operations for the six month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year.
23
<PAGE>
SELECTED INCOME DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETE MANAGEMENT, INC.
<TABLE>
<CAPTION>
For the Years Ended December 31, Six Months Ended June 30,
--------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue ................................ $5,283 $10,654 $12,294 $6,390 $11,263
Interest discount (1) .................. (865) (1,744) (2,017) (987) (1,056)
-------- --------- --------- -------- ---------
Net revenue ............................ 4,418 8,910 10,277 5,403 10,207
Cost of revenue ........................ 1,103 1,949 2,771 1,117 3,725
General and administrative expenses .... 1,687 2,571 2,974 1,364 2,731
-------- --------- --------- -------- ---------
Operating income ....................... 1,628 4,390 4,532 2,922 3,751
Interest discount included in income (2) 207 922 1,585 630 1,236
Other income ........................... 62 55 (29) -- (357)
-------- --------- --------- -------- ---------
Income before provision for taxes ...... 1,897 5,367 6,088 3,552 4,630
Provision for income taxes ............. 891 2,522 2,861 1,664 2,191
-------- --------- --------- -------- ---------
Net income ............................. $1,006 $2,845 $3,227 $1,888 $2,439
======== ========= ========= ======== =========
Net income per share ................... $0.34 $0.95 $1.08 $0.63 $0.32
======== ========= ========= ======== =========
Weighted average number of shares
outstanding ........................... 2,981 2,981 2,981 2,981 7,617
======== ========= ========= ======== =========
Ratio of earnings to fixed charges (3) . N/A N/A 133.35 N/A 8.77
======== ========= ========= ======== =========
</TABLE>
- -------------
(1) Reflects an interest discount taken for the presumed collection cycle of
revenues over a three and two year period at a 12% interest rate for CMI
and MMI through December 31, 1995, 8% for the quarter ended March 31,
1996 and 7.25% for the quarter ended June 30, 1996, respectively, which
is management's best estimate of its incremental borrowing rate.
(2) Represents interest income earned as a result of the amortization over
three and two year periods of the interest discount discussed in footnote
(1) above.
(3) As there was no interest expense incurred in 1993, 1994 and for the six
months ended June 30, 1995, the ratio of earnings to fixed charges is not
applicable.
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Complete Management, Inc.
------------------------------------
As at December 31, As at June 30,
------------------- --------------
1994 1995 1996
------- -------- --------------
<S> <C> <C> <C>
Cash and cash equivalents ..................... $ -- $ -- $20,518
Marketable securities(1) ...................... -- -- 22,644
Accounts receivable, net (2) .................. 7,679 14,884 30,739
Purchase price in excess of net assets acquired -- -- 8,459
Total assets .................................. 8,009 17,860 96,463
Current liabilities ........................... 2,461 5,744 8,378
Long-term obligations, less current ........... -- 228 2,019
Convertible subordinated debt ................. -- -- 42,250
Stockholders' equity .......................... 3,854 7,330 38,875
Working capital ............................... 1,615 (63) 42,455
</TABLE>
- -----------
(1) Includes all marketable securities including those available for sale and
those the Company intends to hold to maturity.
(2) Includes both the current and long-term portions of the accounts
receivable.
24
<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
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 of CMI's fee revenue was
derived from the management of GMMS.
CMI's revenues are derived primarily from 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 financing provided by CMI to its clients for the
acquisition of high cost diagnostic imaging equipment and 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, the Company's largest client, 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 under workers' compensation and
no-fault programs. GMMS currently employs twenty-one (21) physicians (seven
neurologists, one chiropractor, three physiatrists, two orthopedists, one
general surgeon, one family practitioner, two psychologists and four
radiologists) operating in nine offices in New York City, Long Island and
Orange County.
The following unaudited tabulation sets forth the operating results of
GMMS for the years ended December 31, 1993, 1994 and 1995 and the six months
periods ended June 30, 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 or MMI except for the management fees related to general medical services
due to CMI and the management fees related to diagnostic imaging due to MMI.
<PAGE>
<TABLE>
<CAPTION>
(in thousands) For the Years Ended December 31,
----------------------------------------------------
1993 1994
-------------------------------------- ----------
General General
Medical Diagnostic Total Medical
Services Imaging GMMS Services
---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Unaudited:
Services rendered ...... $ 9,414 $3,856 $13,270 $15,874
Contractual allowances . (1,850) (107) (1,957) (2,244)
---------- ------------ --------- ----------
Net medical service fees 7,564 3,749 11,313 13,630
---------- ------------ --------- ----------
Less expenses:
Medical personnel
payroll ........... 1,206 430 1,636 1,419
Other ................ 319 40 359 475
---------- ------------ --------- ----------
Total expenses .... 1,525 470 1,995 1,894
---------- ------------ --------- ----------
Owner physicians
payroll and entity
income ............ 756 -- 756 1,082
Management fee ......... $ 5,283 $3,279 $ 8,562 $10,654
========== ============ ========= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
(in thousands) 1995
------------------------ -------------------------------------
General
Diagnostic Total Medical Diagnostic Total
Imaging GMMS Services Imaging GMMS
------------ --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Unaudited:
Services rendered ...... $6,362 $22,236 $17,325 $6,685 $24,010
Contractual allowances . (502) (2,746) (2,037) (302) (2,339)
------------ --------- ---------- ------------ ---------
Net medical service fees 5,860 19,490 15,288 6,383 21,671
------------ --------- ---------- ------------ ---------
Less expenses:
Medical personnel
payroll ........... 666 2,085 1,969 371 2,340
Other ................ 1 476 502 22 524
------------ --------- ---------- ------------ ---------
Total expenses .... 667 2,561 2,471 393 2,864
------------ --------- ---------- ------------ ---------
Owner physicians
payroll and entity
income ............ -- 1,082 522 -- 522
Management fee ......... $5,193 $15,847 $12,295 $5,990 $18,285
============ ========= ========== ============ =========
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
(in thousands) For the Six Months Ended June 30,
-------------------------------------------------------------------------------
1995 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 ...... $8,742 $3,326 $12,068 $9,790 $4,069 $13,859
Contractual allowances . (682) (210) (892) (726) (237) (963)
---------- ------------ --------- ---------- ------------ ---------
Net medical service fees . 8,060 3,116 11,176 9,064 3,832 12,896
---------- ------------ --------- ---------- ------------ ---------
Less expenses:
Medical personnel
payroll ........... 761 219 980 1,505 231 1,736
Other ................ 226 13 239 430 63 493
---------- ------------ --------- ---------- ------------ ---------
Total expenses .... 987 232 1,219 1,935 294 2,229
---------- ------------ --------- ---------- ------------ ---------
Owner physicians payroll
and entity income
(loss) ............ 682 -- 682 (253) -- (253)
Management fee ......... $6,391 $2,884 $ 9,275 $7,382 $3,538 $10,920
========== ============ ========= ========== ============ =========
</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 physicians 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 medical services rendered;
(3) Any other activities for the proper business functioning of GMMS;
and
(4) Marketing and expansion of the medical 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 and the MSA, are performed by the Company. GMMS'
principal liabilities are the fee due under the PMSA and the MSA and the
amounts due owner physicians and other medical personnel for services
rendered. This financing structure 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
doctors' compensation.
26
<PAGE>
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 non-material liabilities for miscellaneous costs not paid, due to timing
of cash flow. Further, GMMS' statement of operations would reflect three
components: (1) 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 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 SIX MONTHS ENDED JUNE 30, 1995 AND 1996
The Company's combined results of operations for the six months ended June
30, 1995 are discussed on a pro forma consolidated basis as if MMI had been
consolidated into CMI for the entire period. Results of operations for the
six months ended June 30, 1996 reflect the actual consolidation of MMI into
CMI for the entire reporting period.
Revenues for the six months ended June 30, 1996 were $11,263,000 as
compared to $10,007,000 in 1995, an increase of $1,256,000 (12.6%). The most
significant portion of the increase, $1,164,000, resulted from the increase
in management services rendered by the Company to GMMS as a result of an
increase in the number of patients treated and evaluated by GMMS.
Additionally, three new GMMS offices (Garden City, Staten Island and New
Windsor, New York) which opened during the fourth quarter of 1995 are fully
integrated in 1996. The balance of the increase in revenue, $227,000,
resulted from a 21% increase in the volume of diagnostic imaging scans in
1996 provided by GMMS as compared to 1995. Diagnostic imaging scans for the
six month period ended June 30, 1996 were 4,289 as compared to 3,555, for the
comparative period in 1995. In addition, during the latter part of the second
quarter of 1996, the Company began providing diagnostic imaging units to two
hospitals in New York City. Although these units were not operational for the
entire second quarter of 1996, they contributed approximately $127,000 of
revenues. This increase was partially offset by the loss of revenues upon the
expiration of an agreement with another metropolitan area hospital in January
1996.
Cost of Revenue was $3,725,000 for the six months period ended June 30,
1996 as compared to $2,287,000 in 1995, an increase of $1,438,000 (62.9%). A
significant portion of the increase of $827,000 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. Consulting fees, patient transportation
and occupancy costs increased by $100,000, $101,000 and $69,000,
respectively, as a result of the increase in the number of patient services
and diagnostic imaging scans provided by GMMS in 1996. Occupancy costs have
increased due to the expansion of locations for GMMS. Depreciation and
amortization increased by $154,000 primarily as a result of an increase in
medical equipment purchases.
27
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $2,731,000 for the six month
period ended June 30, 1996 as compared to $2,520,000 in 1995, an increase of
$211,000 (8.4%). The increases are primarily attributable to the hiring of
experienced management personnel in order to prepare for the Company's
anticipated growth through acquisitions and the amortization of goodwill
related to the MMI acquisition in January 1996.
INTEREST EXPENSE
Interest expense increased for the six months ended June 30, 1996 as
compared to 1995 by $515,000. The increases in principal during the first
quarter of 1996 are attributable to the write-off of $238,000 of original
issue discount as related to the repayment of the $1,000,000 principal amount
of secured notes (the "Secured Notes"). In addition, in the second quarter
the Company recorded interest on the Debentures of $161,000. Interest related
to the diagnostic testing machines utilized by the Company as a result of the
acquisition of MMI totaled $95,000.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues in 1994 were $10,654,000 as compared to $12,294,000 in 1995, an
increase of 15.4%. The increase in revenues 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 Revenues increased $822,000, from $1,949,000 (18.3% of net
revenue) to $2,771,000 (22.5% of net revenue) in 1995. A significant portion
of this increase ($694,000) was due to the hiring of 23 additional 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, a 15.7% increase, 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 and annual rent escalations in the remaining six 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 $193,000 in 1994 and $178,000 in 1995.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly operating results for the
years ended December 31, 1994 and 1995 and six months ended June 30, 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.
<TABLE>
<CAPTION>
As Percentage of Revenues:
Quarters
ending
Quarters ending 1994 1995
-------------------------------------------------- ----------
31-Mar 30-Jun 30-Sep 31-Dec 31-Mar
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ............. 100.0% 100.0% 100.0% 100.0% 100.0%
Interest discount ... -18.7% -16.4% -15.5% -15.5% -16.2%
---------- ---------- ---------- ---------- ----------
Net revenue ......... 81.3% 83.6% 84.5% 84.5% 83.8%
Cost or revenue ..... 18.2% 18.0% 17.5% 19.5% 18.9%
---------- ---------- ---------- ---------- ----------
Gross profit ........ 63.1% 65.6% 66.0% 65.0% 64.9%
Gen. and admin.
expenses ........... 25.2% 28.3% 22.4% 21.0% 23.0%
---------- ---------- ---------- ---------- ----------
Operating income .... 37.9% 37.3% 44.6% 44.0% 41.9%
Interest discount
included in income . 5.7% 5.9% 8.7% 13.9% 10.0%
Other income ........ -- 2.0% -- -- --
---------- ---------- ---------- ---------- ----------
Pre-tax income ...... 43.6% 45.2% 53.3% 57.9% 51.9%
Income taxes ........ 20.5% 21.2% 24.9% 27.3% 24.4%
---------- ---------- ---------- ---------- ----------
Net income .......... 23.1% 24.0% 28.4% 30.6% 27.5%
========== ========== ========== ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
As Percentage of Revenues:
Quarters ending 1996
-----------------------
30-Jun 30-Sep 31-Dec 31-Mar 30-Jun
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue ............. 100.0% 100.0% 100.0% 100.0% 100.0%
Interest discount ... -14.7% -18.6% -16.5% -9.9% -8.9%
---------- ---------- ---------- ---------- ----------
Net revenue ......... 85.3% 81.4% 83.5% 90.1% 91.1%
Cost or revenue ..... 16.3% 22.7% 32.4% 33.2% 33.0%
---------- ---------- ---------- ---------- ----------
Gross profit ........ 69.0% 58.7% 51.1% 56.9% 58.1%
Gen. and admin.
expenses ........... 19.9% 30.1% 24.9% 25.4% 23.2%
---------- ---------- ---------- ---------- ----------
Operating income .... 49.1% 28.6% 26.2% 31.5% 34.9%
Interest discount
included in income . 9.7% 19.3% 13.6% 11.3% 10.7%
Other income ........ -- 0.5% -1.3% -0.7% -5.3%
---------- ---------- ---------- ---------- ----------
Pre-tax income ...... 58.8% 48.4% 38.5% 42.1% 40.3%
Income taxes ........ 27.5% 23.0% 18.1% 20.8% 18.3%
---------- ---------- ---------- ---------- ----------
Net income .......... 31.3% 25.4% 20.4% 21.3% 22.0%
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
The PMSA tends to generate higher management fees than prior fixed cost
arrangements with GMMS because it recoups incremental costs (on a cost-plus
or unit of activity basis) incurred by CMI as GMMS needs increased services
as its medical practice grows. Accordingly, operating income as a percentage
of revenues tends to remain constant or decrease and receivables increase
accordingly.
Cost of revenue as a percentage of revenue has been increasing during the
reported quarters. The most recent two quarters reflect 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.
Interest discount as a percentage of revenue has decreased in 1996 due to
a decrease in the incremental cost of borrowing, from 12% in 1995 to 7.25%
currently.
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 $2,543,000. In addition, the
Company sold to the IPO Representative, or its designee, at a price of $.001 per
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 effective date of the IPO.
On January 3, 1996, the Company completed the merger of MMI into a wholly
owned subsidiary of CMI. The terms of the MMI Merger provided that MMI
shareholders receive .778 CMI Common Shares for each MMI common share which
they held based upon an IPO price of $9.00 per Common Share. The holders of
29
<PAGE>
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 issued in satisfaction of outstanding options and warrants to purchase
MMI shares. The excess of purchase price over net assets acquired (goodwill) of
$8,675,000 as a result of the acquisition of MMI will be amortized on a
straight-line basis over a period not to exceed twenty years.
To date, the Company has primarily used its cash to fund working capital
to support higher levels of receivables generated by increased management
fees as well as capital expenditures. The Company's primary sources of cash
have been cash flow from operations, the proceeds from the First Series
Debentures, Convertible Subordinated Notes and from the IPO.
During the first six 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 and $6,016,000 in 1996. 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 June 30, 1996 the Company
had working capital of $42,455,000.
The ability of GMMS to pay the management fees 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.
On March 20 and July 10, 1996, the Company borrowed an aggregate of
$5,000,000 from 13 accredited investors (the "Purchasers") evidenced by the
Convertible Subordinated Notes. The Convertible Subordinated Notes are
convertible into an aggregate of 555,555 Common Shares, subject to adjustment
to protect against dilution for capital changes, and bear interest at the
rate of 8% per annum, payable quarterly until the Convertible Subordinated
Notes are paid in full on March 20, 2001. Under certain circumstances, such
as a change in control, holders of the Convertible Subordinated Notes may
require the Company to redeem the Convertible Subordinated Notes at 125% of
their principal amount plus all accrued and unpaid interest thereon. The
Convertible Subordinated Notes are subordinate in right of payment to
existing and to certain future indebtedness which may be incurred by the
Company. The Company has agreed to file with the SEC, by January 31, 1997, a
Registration Statement on Form S-3 covering the sale of the shares issuable
on conversion of the Convertible Subordinated Notes together with 16,666
other shares owned by two of the purchasers of the Convertible Subordinated
Notes, and to keep such Registration Statement effective until July 10, 1998.
Subsequent to the issuance of the Convertible Subordinated Notes, Steven
Hirsh, who had investment authority or shared investment with respect to four
of the accredited investors, became a director of the Company.
On June 11, 1996, the Company issued $40,250,000 face amount of First
Series Debentures due August 15, 2003. The First Series Debentures bear
interest at the rate of 8% per annum payable on August 15 and February 15 of
each year until the First Series Debentures are paid in full. Holders of the
First Series Debentures may convert all or any portion of the principal
amount thereof into common shares of the Company at an initial conversion price
30
<PAGE>
of $14.00 per share, subject to adjustment for stock splits, dividends,
recapitalization and certain other capital changes. The First Series Debentures
are not redeemable prior to June 5, 1999. Thereafter, the First Series
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 First Series 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 $19.125, subject to adjustment in certain events. In the
event that a Repurchase Event (as defined) occurs, subject to certain
conditions, each holder of a First Series Debenture shall have the right, at the
holder's option, to require the Company to purchase all or any part of such
holder's First Series Debentures at 100% of the principal amount thereof plus
accrued interest.
In connection with the First Series Debenture Offering, the Company sold to
the First Series Debenture Offering Representative, or its designee, for nominal
consideration, 250,000 First Series Debenture Offering Representative's Warrants
entitling the holders thereof to purchase 250,000 Common Shares at a purchase
price of $21.04 per share for a period of four years commencing one year from
June 5, 1996, the effective date of the First Series Debenture Offering.
In October 1996, the Company obtained an advised unsecured revolving line
of credit from a bank in the amount of $10,000,000 providing for interest at
150 basis points over the LIBOR rate. The bank has broad discretion as to the
advancement of funds under the line of credit.
Subsequent to June 30, 1996 and through October 15, 1996, the Company
spent $13,341,000 to acquire various businesses. In addition the
Company made bridge loans aggregating $800,000 to two unrelated entities
repayable in 1997 and bearing interest at 10% and 12% per annum.
31
<PAGE>
BUSINESS
The Company is a physician practice management company. It provides a full
range of management services to physicians and hospitals located primarily in
the most densely populated areas of New York State, including New York City,
Long Island and the Hudson Valley region. The Company offers virtually all
the business, financial and marketing support required by medical practices.
The Company's sophisticated management systems and its high level of
professionalism enable its clients to handle the non-medical aspects of their
practices effectively. It provides its clients with office space, equipment
and supplies and non-medical personnel. It also bills patients and
third-party payors, collects receivables and assists in record keeping and
compliance with reporting requirements. The Company also advises clients
regarding regulatory compliance, consults on marketing and business
strategies, and provides financing for expansion. In addition, the Company
provides and administratively manages diagnostic imaging equipment used by
doctors in their own practices and by hospitals. The Company does not,
however, perform any type of medical diagnostic or treatment services. By
focusing on the complex, time-consuming and expensive non-medical aspects of
medical practices, the Company can offer its clients operating efficiencies
that they could not attain on their own.
Since July 1, 1996, the Company has made significant progress towards
becoming a fully diversified and integrated company serving both primary care
and specialty practices. The Company's services are designed to work
effectively both in today's fee-for-service environment and the managed care
capitated fee environment of the future. Pursuant to the Company's expansion
program, it has acquired two medical billing and collection companies, one
primarily serving hospitals and one primarily serving medical practices. The
Company has also acquired three physician practice management companies
serving primary care, neurology, radiology, and community and industrial
medicine practices in New York City and Westchester, Orange, Putnam and
Dutchess counties. It has also assisted GMMS, its first and largest client,
in acquiring a neurology practice with three offices in the Bronx and in
Queens. With these acquisitions and GMMS' continued growth, the number of
physicians to whom the Company provides a full range of services has
increased from 16 at December 31, 1995 to 68 at October 15, 1996. More
limited services, such as transcribing, billing, collecting and temporary
staffing, are provided by the Company to 50 medical practices with more than
820 doctors and to 32 hospitals.
The Company believes the practices that it provides with a broad range of
services will serve as the nucleus of a network offering both primary care
and multi-specialty services throughout New York State. The Company believes
that although managed care has evolved slowly in New York State, its growth
rate will increase, and the Company network will enable its clients to enter
into managed care and capitated fee arrangements with insurance companies and
employers.
The Company's management is experienced in hospital administration and
trains staff to operate with full efficiency. The Company, by standardizing many
of its procedures and automating large portions of the business aspects of its
clients' practices, offers significant management efficiencies. For example,
standardized and automated systems are used to produce and administer the
records used to support clients' claims for payment. In addition, the Company
has centralized its purchasing and collection functions, and its standard office
format permits medical and non-medical personnel and equipment to be shifted
among offices as required.
Historically, almost all of CMI's revenues have come from GMMS, a single
medical practice group. However, if the vaious mergers and acquisitions
consummated before October 15, 1966 had been consummated at January 1, 1995
then, on a pro forma combined basis, 62% of 1995 net revenues (27% if the
proposed Amedisys Merger is consummated and given effect on such date) would
have been received from GMMS. Lawrence Shields, M.D., holds 95% of the stock
of GMMS and is a founder of the Company and the Selling Shareholder of this
offering. GMMS focuses on the evaluation and treatment of injury-related
conditions. Since becoming a client of CMI in early 1993, GMMS has expanded
from a neurological practice occupying a single office to a multi-specialty
practice with nine offices. Its twenty-one doctors currently perform or
supervise procedures at a rate in excess of 200,000 a year. The injury-related
conditions treated by GMMS are principally covered by automobile no-fault and
workers' compensation insurance. Such insurance policies, associated
governmental regulations, and the threat of litigation require that GMMS keep
complex records and produce comprehensive reports. In addition, GMMS faces
dispute resolution processes that change rapidly and unpredictably, and
successfully handling them requires highly specialized non-medical knowledge.
The Company offers management and staff with high levels of training and
experience in these matters.
32
<PAGE>
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. See
"Business -- Growth Strategy."
BACKGROUND
Healthcare expenditures in the United States totaled approximately $1
trillion in 1994, of which approximately 9.6% was in New York State. Fees paid
to private practice physicians in the United States totaled approximately $220
billion in 1994, of which approximately $20 billion was paid to the 67,000
private practice physicians in New York State. Healthcare expenditures have been
rising rapidly over the past two decades, in significant part as a result of the
aging of the population. The average age of the population is expected to
continue to increase for at least the next decade.
Increasing concern over the rising cost of health care in the United
States has led to the development of managed care organizations and programs.
Under such programs, managed care payors seek to ensure delivery of quality
care in a cost-effective manner. The traditional fee-for-service method of
compensating health care providers is generally believed to contribute to
health care cost increases at rates significantly higher than inflation.
Consequently, fee-for-service reimbursement is rapidly being replaced by
alternative reimbursement models, including capitated and other fixed-fee
arrangements. The number of private insurance beneficiaries who are enrolled
in health maintenance organizations ("HMOs"), which generally use these new
reimbursement systems, increased by approximately 45% from 1991 to 1995, with
approximately 58 million beneficiaries enrolled in HMOs in 1995. The growth
in enrollment in these new reimbursement models is shifting the financial
risk of delivering health care from payors to providers.
As a result of this changing health care environment, health care cost
containment pressures have increased physician management responsibilities
while lowering reimbursement rates to physicians. Consequently, physician
compensation has declined; the average net income for physicians decreased by
approximately 4% from 1993 to 1994. All but large group practices have
limited ability to negotiate with payors and also tend to have limited
administrative capacity, restricted ability to coordinate care across a
variety of specialties, limited capital to invest in new clinical equipment
and technologies and limited negotiating leverage with vendors of medical
supplies. In addition, these group practices typically lack the information
systems necessary to enter into and manage risk-sharing contracts with payors
and to implement disease management programs efficiently.
In response to the foregoing factors, individual physicians and small
group practices are increasingly affiliating with large group practices and
physician practice management companies ("PPMs"), though New York State has
lagged behind national trends. From 1991 to 1995, the number of physicians
practicing in group practices increased by approximately 14% to 185,000
physicians, with approximately 5% of such physicians managed by PPMs. By
acquiring or managing physician practices, PPMs seek to provide physicians
with lower administrative costs, leverage with vendors and payors and
economies of scale necessary to attract capital resources.
The Company believes that significant opportunities exist in the
consolidating health care industry to assist physicians in managing the
administrative aspects of group practices and networks and in bidding for
service contracts with managed care providers. The Company believes its
integrated physician practice and network management services will enable
physicians to more effectively control both the quality and cost of health
care.
Injury-related medicine is an important segment of the healthcare market,
in which the Company's largest client has particular skill and expertise.
Injury-related medicine involves the process of evaluating and diagnosing the
nature and extent of a patient's injury, treating the injury and, where
appropriate, providing rehabilitation therapy.
Annual medical expenses in the United States related to accidents exceeded
$75 billion in 1992, with the largest categories as follows: work-related -
$22 billion; motor vehicle - $20.7 billion; and home - $21.6 billion.(1)
Workers' compensation medical claims, including medical benefits paid by
private insurance carriers and
- -----------
1. Accident Facts 1993 edition, utilizing data from the National Safety Council
33
<PAGE>
self insurers, grew from $1.4 billion in 1970 to $17.9 billion in 1991.(2)
The medical costs for claims covered by workers' compensation have been growing
at a faster rate than the cost for all medical claims. (3) 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, respectively, in 1986 to 11,294 doctors
and 22,740 doctors, respectively in 1995.(4)
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 reimbursement rates associated with such services
which, until recently, have been lower than average. Since the majority of
reimbursement claims for these medical services must be submitted to no-fault
insurers 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 and other factors have
increased the need for professional management to assist medical practices in
lowering costs, increasing efficiencies, and marketing their services 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 (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 are:
o Increase Number of Primary Care Clients. The Company, pursuant to its
acquisition program, has secured management contracts with primary care
medical practices and intends to aggressively seek additional contracts
with other primary care practices, as well as specialists to whom
primary care doctors typically refer patients. 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
that could benefit from improved management techniques which would
allow the physicians to spend more time treating patients (thereby
increasing their revenue) and less time being concerned with the day to
day tasks of managing the business.
o Expand the Scope of Services Provided by Client Medical Practices. The
Company's expansion program includes a strong emphasis on capturing for
medical practices as much of the revenue for services rendered to each
patient as is feasible. This program includes having diagnostic tests
performed by the practice and bringing within the practice, on either a
full time or per diem basis, physicians to whom that practice would refer
- ----------------
2. United States Healthcare Finance Administration, "Healthcare Financing
Review," winter 1992 edition.
3. "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.
4. American Medical Association, unpublished data.
34
<PAGE>
patients. Further, if the Amedysis Merger is consummated, Amedysis'
expertise in managing ambulatory surgery centers will contribute to the
Company's ability to acquire management contracts for such centers in New
York State. The Company would provide the capital to acquire the
diagnostic equipment and conduct the searches to satisfy physician
staffing needs. The Company would also assist its client practices in
marketing their services to potential patients and to managed health care
companies.
o Expand the Reach of all Medical Practices Under Management. In
addition, the Company will present to each practice under management a
business plan for the expansion of its practice through opening more
offices or expanding existing offices so as to be able to treat more
patients more efficiently. This aspect of the program also includes
improved interior design and decoration of the clients' offices to
improve patient flow and doctor efficiency and to provide amenities
making patient waiting time more pleasant.
o Create a Network of Physicians to Participate in Managed Care. The
advent of managed care arrangements has imposed on physicians
marketing, regulatory, record-keeping, billing, collection and other
administrative burdens similar to those encountered by GMMS. The
Company believes that it can assist clients by establishing a network
of physicians to compete for managed care, injury-related and other
medical care contracts by offering a large number of healthcare
providers in different geographic locations a broad range of medical
services and a high level of administrative support. The Company
believes that the successful implementation of this aspect of its
strategy will be particularly helpful to its clients when capitated fee
agreements are negotiated with certain insurers as its clients will be
able to offer more services from more locations and thereby obtain a
higher capitation rate than they might otherwise have been able to
obtain. The Amedysis Merger, if consummated, will allow the Company to
utilize the skills of Amedysis to manage large physician networks and
to assist its clients to obtain and operate under capitation
agreements.
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) with reputations 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 Maintain 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 highly trained
administrative support personnel. The Company believes that a highly
automated and standardized support system will support a higher level
of efficiency for its clients' medical personnel and also lead 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' revenue opportunities in a competitive environment
affected by shrinking profit margins. 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. In
addition, the Company believes that it has significant growth potential in
the high volume injury-related medical market served by GMMS. 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.
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
35
<PAGE>
imaging. However, at present, the Company has no commitments or agreements with
respect to any new material service contracts with medical practices nor have
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, importantly those necessary for the efficient and
profitable operation of 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 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
improving, updating, expanding or adapting to new technology.
Personnel. The Company staffs all the non-medical positions of its clients
with its own employees, eliminating the client's need to interview and train
non-medical employees, as well as process 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. It reviews
the completeness of the physician portions of complex forms to ensure 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
for the operation of their respective medical practices.
Receivable Collections. The Company has experience in the collection of
revenues from third-party payors including those 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.
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. 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.
36
<PAGE>
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) for
its clients focused on injury related conditions, expanding patient referral
sources by helping them 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 use a fully-integrated network
computer system that will provide necessary practice information to its
clients and coordinate 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. At September
30, 1996, such loans aggregated $2,537,000. The Company may also make loans
to, or purchase receivables from, new medical practice clients or other
healthcare providers to enable them to carry long-term receivables. Although
the Company intends, generally, 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 it may not always be in a position to do so. 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 twenty-one physicians (consisting of seven neurologists, one chiropractor,
three physiatrist, two orthopedists, one general surgeon, one family
practitioner, two psychologists, and four radiologists) operating a total of
nine offices in New York City, Long Island and New Windsor, New York. In
1996, GMMS saw patients at an annual rate of more than 22,000 new patients
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
performed more than 40,000 medical tests and 9,000 diagnostic imaging scans.
37
<PAGE>
The following table sets forth certain statistical data with respect to
GMMS:
Years Ended December 31,
--------------------------------- June 30,
1993 1994 1995 1996
-------- --------- --------- ----------
Procedures ................. 88,450 128,500 157,000 100,100
New patients for treatment . 5,950 10,850 11,160 11,200
New patients for evaluation * * 9,800 11,600
Patient by payor category --
No-fault .............. 59% 49% 46% 44%
Workers Compensation .. 14% 17% 20% 16%
All other ............. 27% 34% 34% 40%
At period end --
Doctors ............... 7 10 16 21
Technicians and other
staff ............... 7 15 20 33
Offices ............... 5 6 9 9
- -----------
* Not treated as a separate category for record keeping purposes.
All of CMI's revenues in 1994 and 1995 and approximately 62% of the CMI,
MMI and AAMC 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 term 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, 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. The Company
intends 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 and MSA, 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
38
<PAGE>
with a net collectible value equal to the amount of the management fee then
currently owed by GMMS, of an estimated average of 72% of GMMS' aggregate
monthly receivables, and also takes a security interest in the balance of
GMMS' receivable 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 certificate of need ("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 terminated earlier 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, other areas in New York State and selected other markets including
New Jersey. The Amedysis Merger, if consummated, will, the Company believes,
help it to achieve this goal by providing it with skills not readily
available in New York State. The Company's goal is also to broaden the types
of medical practices which it services, to develop a client base of primary
care and specialty practices and to implement growth strategies for its
existing and new clients. The Company expects to promote growth of the
patient and revenue bases by assisting its clients in the development of
multi-specialty medical practices to eliminate the need for patient
referrals, opening of additional offices and 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 New York State, including 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
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. 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 on GMMS' skills as a definer of injuries and as a preparer 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 client and thus also enhance the ability of such clients to
serve 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.
39
<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
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
cycle of the Company's clients was based on the Company's approximate 3 1/2
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 a shorter receivable payment
cycle. 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 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
Pursuant to its acquisition program, since January 1, 1996 the Company
acquired, or assisted its clients in acquiring, the seven medical practices
and businesses described below. Further, in October 1996, the Company entered
into a letter of intent for the acquisition of Amedisys. See "Proposed
Amedisys Merger." As a result of these acquisitions and the continuing growth
of GMMS, the number of doctors to whom the Company is providing broad-based
integrated physician practice management services increased from 16 at
December 31, 1995 to 68 at October 15, 1996. The company also now provides
limited management services, such as transcription, billing and collection
and temporary staffing to 50 medical practices with more than 820 doctors, as
well as to 32 hospitals.
o In January 1996, the Company acquired MMI, which provided diagnostic
imaging equipment and related practice management services.
40
<PAGE>
o In July 1996, the Company acquired a billing and collection company
serving primarily medical practices and a billing and collection
company serving, primarily, hospitals in New York City and Long Island,
both with common ownership. The acquired companies are now both
operated as the Intertech/Penta Group, Inc. They provided services to a
base of approximately 700 doctors and 23 hospitals at the time of
acquisition.
o In August 1996, the Company acquired the assets of Greenport Services
Corp., a practice management company servicing a five physician
multi-specialty community based medical practice in Brooklyn, New York.
Since the acquisition, the Company has provided a full range of
physician practice management services to the acquired offices.
o In August 1996, the Company arranged and financed the acquisition by
GMMS of the practice of two board certified neurologists with offices
in the boroughs of the Bronx and Queens in New York City.
o In August 1996, the Company acquired the assets of Northern
Metropolitan Physicians Network, LLC, a practice management company
servicing four primary care offices with a total of 10 physicians in
Orange, Putnam and Westchester counties of New York State.
o In October 1996, the Company acquired the assets of AAMC, a physician
practice management company holding a 30-year management contract with
a 30 physician group to which it provides comprehensive management
services. AAMC also provides transcription, billing, collection and
temporary staffing services to a total of 50 medical practices
employing 120 doctors and to nine hospitals located in the Hudson Valley
region of New York State.
In June and July 1996, MMI expanded its business by supplying MRI units
and administratively manage such units at two major New York City hospitals,
Brookdale Hospital, a 1,000 bed teaching hospital and Bronx Lebanon Hospital,
a 900 bed hospital. The agreements with these hospitals expire in December
1997 and May 2003, respectively. Brookdale is presently planning to construct
and operate a multi modality imaging facility after the expiration of the
agreement term and may not require management services from MMI thereafter.
GOVERNMENT REGULATION
The Company's provision of management and administrative services to
medical practices, its plans to finance its clients' acquisitions of medical
practices and its purchase of certain medical practice assets incidental to
obtaining new practice management service agreements are 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 which have uncertain merit, 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. The Company has neither 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
41
<PAGE>
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.
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 healthcare 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 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 (43 USC ss.1395nn) (which is
presently only applicable to Medicare and Medicaid patients), certain health
practitioners (including physicians, dentist, 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
42
<PAGE>
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
services. 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 Laws: 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 reimbursement 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 these
agreements do not violate the federal anti- kickback law or statute. If,
however, the Company's management arrangements were found to violate these
federal or state laws, the Company and its medical clients could be subject
to substantial civil monetary fines and/or criminal sanctions, including a
minimum mandatory five (5) 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 to establish an imaging center or to
purchase 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 purchase 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: The Company's initial client, 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
43
<PAGE>
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.
Workers' Compensation: The Company's initial client, 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 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 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. It is not possible at this time
to predict if 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
44
<PAGE>
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 coverage 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 believes that competition from practice management companies in New
York State is more limited than elsewhere in the United States and 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 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. 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
At October 30, 1996, the Company employed 510 persons on a full time
basis, comprised of 42 executive and managerial employees; 148 non-medical
support persons "on-site" at clients' offices; nine marketing support persons;
six information systems support persons; six legal support persons; 16
accounting staff members; 244 billing, collection and verification employees
and 39 recording 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.
45
<PAGE>
PROPOSED AMEDISYS MERGER
On October 16, 1995, CMI entered into the Letter of Intent for the
acquisition of Amedisys, through its merger into a wholly-owned subsidiary of
CMI in exchange for approximately 1.44 to 1.84 million Common Shares. Although
the Company has no obligation to do so, the Letter of Intent also contemplates
that CMI may invest up to $15 million in Amedisys ambulatory surgery centers now
owned or to be acquired and $4 million in other Amedisys operations following
the merger, provided such operations meet certain post-merger financial goals.
Amedisys has granted CMI an option to purchase 500,000 shares of Common Stock
exercisable only upon the occurrence of certain Prohibited Events, as defined in
the Letter of Intent. The Letter of Intent is nonbinding, except for the
provisions relating to the option and certain other ancillary matters, and is
subject to the execution of a definitive agreement, the completion of due
diligence and the approval of the Amedisys Merger by the Boards of Directors of
both parties and the shareholders of Amedisys. Accordingly, no assurances can be
given that the Amedisys Merger will be consummated. However, since it is not
improbable that the Amedisys Merger will occur, certain business and financial
information relating to Amedisys and certain new investment considerations which
will be applicable to the Company if the Amedisys Merger is consummated are
included in this Prospectus. See "Investment Considerations" and the material
with respect to the business of Amedisys set forth below.
The Company believes that the Amedisys Merger, if consummated, will
provide the Company with added expertise in obtaining capitated fee contracts
for its clients and assisting these clients in operating in a capitated fee
environment. The Company believes that these skills are not generally
available in New York State. Further, Amedisys will also provide the Company
with additional skills in managing large independent physician associations
and ambulatory surgery centers.
AMEDISYS BUSINESS
Amedisys provides home health care, supplemental staffing nurses,
management services to independent home care agencies and physician services,
including physician practice management services and the organization,
development and management of independent practice associations ("IPA"). It
also operates outpatient surgical centers and has recently organized Future
Care, Inc., a partially owned subsidiary to organize and operate a preferred
provider network and engage in certain related activities. Amedisys maintains
28 home health care and supplemental staffing offices in eight states,
operates two outpatient surgery centers in Texas, and is developing a surgery
center in Louisiana. Amedisys also manages home health agencies, physician
practices and rural health clinics and is the network manager of the Home
Care Alliance of Louisiana.
Home Health Care. Amedisys has a network of 12 home health care offices in
Louisiana and four offices in Texas. Amedisys is distinguished by its
specialty home care services and a staff dominated by RNs and professional
therapists. In addition to these services, Amedisys expanded its product line
to include private duty, psychiatric home care and additional rehabilitation
services. Amedisys received Joint Commissions on Accreditation of Healthcare
Organizations ("JCAHO") accreditation with commendation in 1995 which assures
managed care organizations, Medicare and Medicaid, as well as physicians and
patients, that Amedisys has met national quality standards and places it in a
competitive position for state-wide and regional insurance, managed care and
governmental contracts.
In 1995, Amedisys developed the Home Care Alliance of Louisiana. This
alliance is a consortium of independent home care agencies which are Medicare
certified and accredited by the JCAHO. The alliance is positioned to
negotiate with managed care organizations for discounted service fees and
capitated contracts. Amedisys serves as network manager and provides central
intake and business systems to the affiliated agencies.
Home Health Care Management Services. Amedisys offers management services
to independent home care agencies through its resource management division.
Management services include home health licensing, regulatory compliance,
administrative support services, clinical support services, billing and
reimbursement systems and proposal and bid development.
Supplemental Staffing. Amedisys has provided supplemental staffing
services for 11 years. Amedisys distinguishes itself from its competitors in
the following ways: (i) clinical managers at each office recruit nurses and
manage client services, (ii) it offers 24-hour access to staffing
coordinators who use computerized scheduling and information systems, (iii)
it maintains rigorous orientation and screening procedures, and (iv) it
utilizes a proprietary software scheduling program which generates faster
scheduling response time than traditional methods.
46
<PAGE>
Outpatient Surgery. Amedisys entered the outpatient surgery market and
expanded its service delivery network through the acquisition of Surgical
Care Centers of Texas, L.C. in June 1995. This subsidiary operates two
outpatient surgery centers in the Houston, Texas area and recently changed
its name to Amedisys Surgery Centers, L.C. Amedisys is currently building a
new facility in Hammond, Louisiana in a joint venture with area surgeons and
other physicians. Amedisys plans to strategically buy, build or manage
surgery centers where they complement a network of physicians or
Amedisys-owned alternative services. Amedisys believes that this industry
will grow due to advances in technology which allow more procedures to be
performed in the outpatient setting. Specifically, endoscopic and laser
technologies are making certain procedures less invasive and lowering the
amount of time required in surgery and post-surgical care. Pain management
techniques are also a rising trend in outpatient surgery procedures. Through
the acquisition of Surgical Care Centers of Texas, L.C., Amedisys gained
entry into the outpatient surgery market which expanded Amedisys' service
delivery network. In addition, outpatient surgery centers have a higher
earning potential than nursing services. As Amedisys expands its outpatient
surgery centers in Louisiana, this expansion will provide physicians
participating in Amedisys- affiliated independent practice associations an
opportunity to provide services within the Amedisys network and have an
alternative to costly hospital services. Amedisys believes that this feature
will have a high value to physicians who want to assume some risks with
capitated fees, a developing national trend.
Physician Services. Physician services consists of physician practice
management services and development of independent practice associations
("IPA"). Amedisys believes that physician practice management companies are
ready for significant consolidation. According to the Medical Group
Management Associates (MGMA), there are approximately 600,000 physicians in
the U.S., and 16,500 medical groups to which 185,000 physicians belong. Less
than 5% of all group practices have been acquired or are affiliated with
investor owned physician practice management companies.
Amedisys' affiliated IPAs have a higher percentage of primary care
physicians than traditional IPAs. Primary care physicians are the first
access point to the managed care system. Managed care emphasizes primary
care, and efficiently delivered services at an affordable cost. Providers
give managed care organizations discounted fees for a volume of patients. In
capitated arrangements, managed care organizations pre-pay physicians for
their services with a negotiated flat fee per patient in the plan regardless
of the services performed. Providers, including physicians and hospitals,
form integrated networks to achieve a critical mass of patients which are
attractive to large managed care groups. Amedisys is positioning itself for
continuing integration and consolidation by developing physician practice
management and IPA network services to assist physicians in remaining
independent but aligned in a larger entity.
Future Care. In February 1996, Amedisys formed FutureCare, Inc., a Nevada
corporation, to organize and operate a preferred provider network ("PPO");
provide health care services to independent health care providers, including
IPAs; and to merge with and capitalize FutureCare Health Plans of Louisiana,
Inc. ("Health Plans") which is expected to be licensed as a health
maintenance organization ("HMO") in the state of Louisiana. Amedisys
currently owns 51% of FutureCare. Upon completion of an offering to capitalize
FutureCare and licensing of the HMO, Health Plans will merge with and become a
70% owned subsidiary of FutureCare and Amedisys' ownership will be reduced to
30% of Health Plans. Amedisys owns approximately 33% of Health Plans and has
provided $1 million in cash to Health Plans in order to enable it to meet the
capital requirements for licensing as an HMO in the State of Louisiana. In
addition Amedisys has committed to advance up to $300,000 in start-up expenses
which are expected to be reimbursed upon completion of a private placement of
FutureCare stock.
47
<PAGE>
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 44 Chairman of the Board and Chief Executive Officer
David Jacaruso 51 Vice Chairman of the Board and President
Arthur L. Goldberg 57 Senior Executive Vice President and Chief Operating Officer
Dennis Shields 28 Executive Vice President and Director
Joseph M. Scotti 52 Vice President, Chief Financial Officer, Treasurer, Secretary and
Director
Dennis W. Simmons 45 Executive Vice President of Practice Development and Managed Care
Robert Keating 54 Senior Executive Vice President, Director of Operations -- Medical
Legal Services
John T. Dooley 53 Vice President and Chief Information Officer
Richard DeMaio 38 Vice President and Director
Claire Cardone 49 Vice President
Kenneth Theobalds 36 Vice President - Workers' Compensation
Steven Cohn 46 Director
Steven A. Hirsh 57 Director
</TABLE>
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. Mr. Rabinovici has a Bachelors degree from City University of New
York, Brooklyn College, a Masters degree in Public Health from Columbia
University School of Public Health and a Juris Doctorate degree from New York
Law School.
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. Mr. Jacaruso has a Bachelor's degree in Urban Health, a Master's
degree in Quantitative Analysis from St. John's University, and he completed
a one-year residency at Columbia University School of Public Health for
Hospital Administration.
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 consult-
48
<PAGE>
ant. Prior thereto he was the Chief Financial Officer of Elek-Tek, Inc., a
reseller of computer and related equipment since December 1990. Mr. Goldberg
has a Bachelor's degree in Business Administration from City University of
New York, Juris Doctor and Masters of Law degrees from New York University
School of Law and a Masters of Business Administration degree from the
University of Chicago. He is also a Certified Public Accountant.
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. Mr. Shields has a Bachelor's
degree from New York University School of Liberal Arts.
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. He has a Bachelors degree in
Accounting from Hofstra University.
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. He has a Bachelors
degree in environmental design from Texas A & M and an Master of Business
Administration degree from St. Edwards University.
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. Mr. Keating managed the daily judicial and non-judicial operations of
the court, which has general jurisdiction over all violations, infractions,
misdemeanors and pre-indictment processing of felony matters in New York
City. Concurrently, from 1992 to present he has supervised and developed the
Midtown Community Court. The court opened in October 1993 and focuses on
"quality of life" crimes or crimes that erode the public's sense of pride in
its neighborhood. Mr. Keating has a Bachelors degree from Georgetown
University and a Bachelor of Law degree from Duke University.
John T. Dooley has been a Vice President and Chief Information Officer of
the Company since September 1996. From May 1996 to September 1996, Mr. Dooley
was the Chief Information Officer for three corporations affiliated with Long
Island Jewish Medical Center: CHP: The Medical Group, Managed Health Inc. and
LIJ-MS. From January 1995 to May 1996 Mr. Dooley served as the Chief
Information Officer of New Hanover Regional Medical Center, a 628 bed
tertiary care medical center and teaching hospital in Wilmington, NC. From
March 1994 to December 1995, Mr. Dooley was a Senior Manager of
Implementation Specialists for Healthcare, a management consulting firm
specializing in healthcare systems. Prior thereto, from December 1992 to
February 1995, Mr. Dooley served as the Chief Information Officer of North
Shore University Hospitals, a series of tertiary care teaching and community
hospitals comprising 1,250 beds. From May 1988 to December 1992, Mr. Dooley
served as the Assistant Vice President, Information Services of St. Vincent's
Hospital and Medical Center, an 813 bed tertiary care teaching hospital
located in New York City.
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. He has a Bachelors degree in Urban Health
Management from St. John's University and a Masters degree in Health Care
Administration from Long Island University.
49
<PAGE>
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. She has a Master
in Business Administration degree from Adelphi University and a Bachelor's
degree, cum laude, from St. John's University.
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. Mr. Theobalds holds a Bachelor of Science
degree from Cornell University.
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. He has a Doctor of Jurisprudence
degree from Brooklyn Law School, a Masters of Law degree from New York
University School of Law and a Bachelor of Arts degree from New York
University.
Steven A. Hirsh has been a portfolio manager for William Harris & Co., a
financial services company, for more than five years. Since 1994 he has also
been Chairman, Chief Executive Officer and President of Astro Communications,
Inc., a manufacturer of strobe lights. He holds a Bachelor of Science degree
from the University of Colorado and Masters of Business Administration from
the University of Chicago.
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
almost all of the Company's revenues in 1995. Messrs. Rabinovici, Jacaruso,
Dennis Shields, Ms. Graziosi and Dr. Lawrence Shields beneficially own an
aggregate of approximately 3,094,581 shares or 38.9% of the Company's
outstanding Common Shares (2,594,581 shares or 25% of the Company's outstanding
shares after giving effect to the transactions contemplated hereby or, if the
over-allotment option is exercised in full, 2,144,581 shares and 21% of the
outstanding 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 may adversely
affect the market price of the Common Shares by precluding any unsolicited
acquisition of the Company. See "Principal Shareholders."
The Company's Board of Directors has established Compensation and Audit
Committees, whose members are Messrs. Cohn and Hirsh. 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. The Compensation
Committee has not met since Mr. Hirsh became one of its members and has
advised the Board that it will convene its next meeting only after the
appointment of a third committee member. It is the intention of the Company
to appoint only independent directors to the Audit and Compensation
Committees.
50
<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 compensation in excess of
$100,000. None of the below named executive officers were granted options by
the Company in 1995.
Annual compensation
-------------------- All other
Salary Bonus compensation
Name and principal position Year ($) ($) ($)
--------------------------- ------ ----------- ------- -------------
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
- ----------
(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 for
interior design services: Ms. Graziosi is 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 employment agreement with
Steven Rabinovici providing for his employment, effective upon the closing of
both the IPO and the Merger, 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
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. Rabinovici was President, Chief Executive Officer and a director of
MMI.
In October 1995, the Company entered into an employment agreement with
David Jacaruso, providing for his employment, effective upon the closing of
both the IPO and the Merger, 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
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 employment agreement with
Dennis Shields, providing for his employment, effective upon the closing of
both the IPO and the Merger, 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.
51
<PAGE>
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 his employment is terminated without cause (as defined in
the agreement), the Company will pay 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.
In January 1996, the Company entered into an employment agreement with
Joseph M. Scotti, providing for his employment upon the closing of both the
IPO and the Merger, 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 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 April 1996, an option to purchase 50,000
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 each year thereafter.
In March 1996, the Company entered into an employment agreement with
Arthur L. Goldberg as Senior Executive Vice President and Chief Operating
Officer expiring on March 10, 1999. The Agreement, as amended, provides for
an annual base salary of $200,000, 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 employment agreement with
Dennis W. Simmons providing for his employment as Executive Vice President of
Practice Development and Managed Care for a term expiring on March 10, 1999.
The agreement provides for an annual base salary of $175,000, 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 employment 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.
In September 1996, the Company entered into an employment agreement with
John T. Dooley providing for his employment as Vice President and Chief
Information Officer for a term expiring on September 23, 1997. The agreement
provides for an annual base salary of $150,000 and for participation in all
executive benefit plans and for the grant of an option for 50,000 shares
exercisable for approximately one-third of the shares covered, on a
cumulative basis, on each of the first three anniversaries on the date of
grant.
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
52
<PAGE>
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.
Since the beginning of the year and through October 15, 1996, the Company
granted options for an aggregate of 941,000 shares under the Option Plan as
follows: 620,000 shares to nine officers or former officers; 40,000 to two
outside directors; and 281,000 shares to 20 key employees (including officers
of acquired companies) and consultants at exercise prices ranging from $8.375
to $15.75. Options for 225,000 Shares included in the foregoing grants are
subject to shareholder approval of an amendment to the Option Plan increasing
the number of shares authorized for issuance thereunder. These options will have
an exercise price per share equal to the fair market value of a Common Share
on the date of such approval.
Outside directors are granted options for 20,000 shares, exercisable for
50% of the shares covered immediately upon grant and for the remainder of the
shares following one year's service, as soon as practicable after taking
office. Mr. Hirsh has waived this grant.
Options are for either five or ten year terms and, generally, vest to the
extent of 1/3 of the shares received on the date of grant or the first
anniversary thereof and on each of the next two anniversaries. Certain
options are exercisable only if specific performance criterion are met.
In addition the Company granted options to purchase 225,000 shares to nine
consultants including professional advisors at prices ranging from $8.375 to
$15.75.
CERTAIN TRANSACTIONS
The Company received approximately 95% and 93% of its revenue during 1994
and 1995, respectively, from its initial client, GMMS, pursuant to an
agreement dated as of April 1, 1993. 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.
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 .777777 CMI
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 $5,000,000 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.
53
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of September 30,
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 above and by the directors and
executive officers as a group and as adjusted for consummation of the
issuance of shares by the Company and the sale of shares by the Selling
Shareholder in this Offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Before this Offering Shares After this Offering
Name and Address(1) Number Percent Offered Number Percent
------------------------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Steven Rabinovici (2) ......... 476,813 5.99% 476,813 4.56%
David Jacaruso (3) ............ 424,640 5.34% 424,640 4.06%
Dennis Shields (4) ............ 567,837 7.13% 567,837 5.43%
Joseph M. Scotti (5) .......... 71,690 0.90% 71,690 0.69%
Richard DeMaio (5) ............ 19,843 0.25% 19,843 0.19%
Steven Cohn (5) ............... 14,921 0.19% 14,921 0.14%
Steven A. Hirsh (6) ........... 212,054 2.66% 212,054 2.02%
Lawrence Shields (7) .......... 1,625,291 20.42% 500,000 1,125,291 10.76%
All Officers and Directors as a
group (7 persons) (5) ........ 1,735,021 21.80% 1,735,021 16.59%
</TABLE>
- ------------
(1) The addresses of the persons named in this table are as follows: Steven
Rabinovici, David Jacaruso, Dennis Shields, Joseph M. Scotti 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; Lawrence Shields, M.D., 26 Court
Street, Brooklyn, New York 11242 and Steven A. Hirsh, c/o William Harris
& Co., 2 N. LaSalle, Suite 505, Chicago, IL, 60602.
(2) Includes 351,813 shares held as custodian for benefit of his minor son,
Jeffrey.
(3) Includes 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) Includes options granted under the Company's stock option plan
exercisable within 60 days of the date hereof as follows: Joseph M.
Scotti, 16,667; Steven Cohn, 10,000; and Richard DeMaio, 10,000.
(6) Consists of (i) 14,833 shares and 94,444 shares issuable on the
conversion of Convertible Subordinated Notes owned by a trust of which
Mr. Hirsh is the portfolio manager with investment power, (ii) 50,000
shares issuable upon conversion of Convertible Subordinated Notes owned
by a limited partnership of which Mr. Hirsh is a general partner with
investment power and (iii) 8,333 shares and 44,444 shares issuable on
conversion of Convertible Subordinated Notes owned by Astro
Communications, Inc., a company of which Mr. Hirsh is President and Chief
Executive Officer.
(7) Dr. Lawrence Shields is the father of Dennis Shields.
The Company's officers and directors, other than Steven Hirsh, have agreed
with the Representatives that they will not sell or otherwise dispose of any
Common Shares, or any securities convertible into Common Shares without the
prior written consent of such Representatives until , 1997 [120 days
after the effective date of this Offering]. After that date, an aggregate of
3,164,368 Common Shares will become eligible for sale pursuant to Rule 144
and the limitations specified therein.
Messrs. Rabinovici, Jacaruso and Shields and Astro Communications, Inc.
have granted to the Representatives a 45-day over-allotment option, to
purchase 124,132 shares, 124,132 shares, 148,959 shares and 52,777 shares,
respectively or up to an additional 450,000 Common Shares in the aggregate,
at the public offering price, less underwriting discount, solely for the
purpose of covering overallotments, if any. Steven A. Hirsh, a director of
the Company, is President and Chief Executive Officer of Astro
Communications, Inc. Messrs. Rabinovici, Jacaruso and Shields are each
executive officers, directors and principal shareholders of the Company.
54
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture, to be dated as of
[December], 1996, (the "Indenture"), between CMI, as issuer, and the Chase
Manhattan 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 $28,750,000 (including
$3,750,000 subject to the Underwriters' Over-Allotment Option) and will mature
on [December] 15, 2003. The Debentures will bear interest at the rate per annum
stated in their title from May or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semi-annually on
[December] 15 and [May] 15 of each year, commencing [May] 15, 1997, 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 [May] 1 or [December] 1 (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.
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
55
<PAGE>
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 if:
(a) The Company shall declare a dividend or make a distribution on its
outstanding Common Shares payable in Common Shares or shall declare or make a
dividend or other distribution on any other class of capital stock of the
Company or any subsidiary not wholly owned by the Company which dividend or
distribution includes Common Shares.
(b) The Company shall subdivide the outstanding Common Shares into a
greater number of shares, or combine the outstanding Common Shares into a
smaller number of shares.
(c) The Company shall fix a record date for the issuance of rights or
warrants to all holders of its Common Shares entitling them (for a period
expiring within 45 days after the record date therefor) 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 (as defined in Section 1204(h) of the Indenture) of a
Common Share of the Company on such record date.
(d) The Company shall fix a record date for making a distribution to
holders of its Common Shares or holders (other than the Company or its
wholly-owned subsidiaries) of capital stock of any Subsidiary (as defined in the
Indenture) (i) of evidences of indebtedness of the Company or any Subsidiary,
(ii) of assets (including shares of any class of capital stock, cash or other
securities, but excluding any rights or warrants referred to in subsection
(c), above, or securities referred to in subsection (e), below, excluding any
dividend or distribution referred to in subsection (a), above, and excluding
any dividend or distribution paid exclusively in cash out of retained or
current earnings) or (iii) of rights or warrants entitling the holders
thereof to receive upon payment of the consideration set forth therein shares
of capital stock of the Company (excluding those referred to in subsection
(c) above).
(e) The Company shall issue or distribute 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 described in subsection (f) below, (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
(e), (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 stockholders 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 (e) (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 10% of the Common Shares
outstanding at the time of any such issuance), (v) upon exercise of rights or
warrants issued to the holders of Common Shares, (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 Section 1204(j) of the Indenture) 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(h) 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.
(f) The Company shall issue any securities, convertible into or exchangeable
for its Common Shares (excluding securities issued in transactions described in
sections (c) and (d) above, or the Securities (as defined in the Indenture)) for
a consideration per Common Share 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.
56
<PAGE>
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 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 1% 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 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
57
<PAGE>
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.
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,
58
<PAGE>
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
and AAMC (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, 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.
59
<PAGE>
At September 30, 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 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
60
<PAGE>
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 [three years after the effective
date of this Offering]. Thereafter, the Debentures will be redeemable until
maturity, 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
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 $ [150% of the Closing
Price of the Common Shares on the effective date of this offering], 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 August 15, 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 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,
61
<PAGE>
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). 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
62
<PAGE>
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.
INCOME TAX CONSEQUENCES
The following summary sets forth the principal federal income tax
consequences of holding and disposing of 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 Debentures or
Common Shares received in exchange therefor 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 federal income tax consequences to holders of Debentures
("holders") that are citizens or residents of the United States. 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 an investor.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to an investor's decision to purchase
Debentures. Each 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, 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,
while a cash basis holder generally will be required to include interest in
income when cash payments are received (or made available for receipt) by
such holder.
CONVERSION OF DEBENTURES
Except as otherwise indicated below, no gain or loss will be recognized
for federal income tax purposes upon the conversion of 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, resulting in
either sale or exchange treatment or dividend treatment depending upon
whether the redemption is considered "not essentially equivalent to a
dividend." 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 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
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, conversion price of the Debentures is reduced,
such reduction will be deemed to be the payment of a stock distribution to
holders which may be taxable as a dividend. If the Company
63
<PAGE>
voluntarily reduces the conversion price for a period of time, holders may, in
certain circumstances, have to include in gross income an amount equal to the
value of the reduction in the 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.
POSSIBLE ORIGINAL ISSUE DISCOUNT
Because the Debentures have an initial interest accrual period that is
longer than each subsequent interest accrual period, it is possible that upon
retirement of the Debentures, the holders thereof would be required to
recognize income equal to the "de minimis OID" amount, within the meaning of
Section 1.1273-1 (d)(6) of regulations under the Code. Assuming a holder
holds the Debenture as a capital asset, any such income required to be
recognized thereunder will be characterized as capital gain.
DISPOSITION OF DEBENTURES OR COMMON SHARES
In general, the holder of a Debenture or the Common Shares into which it
is converted will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debenture 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 Debenture or
Common Shares. The holder's tax basis in a Debenture-generally will be such
holder's cost, increased by the amount of accrued market discount a holder
elects to include in income with respect to the Debenture (discussed below),
and reduced by (i) any principal payments received by such holder and (ii)
the amount of any amortizable bond premium the holder elects to amortize with
respect to the Debenture. If a holder holds a Debenture as a capital asset,
such gain or loss will be a capital gain or loss except to the extent of any
accrued market discount (see "Market Discount on Resale") if the Debenture
has been held for the then requisite holding period at the time of the sale,
exchange, redemption or retirement.
MARKET DISCOUNT ON RESALE
The tax consequences of the sale of a Debenture 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 (or its
revised issue price in the case of a debt instrument issued with original
issue discount) at maturity over the holder's tax basis in such debt
instrument immediately after its acquisition. If the market discount is less
than 25% of the stated redemption price (or the revised issue price, as the
case may be) 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.
If a holder purchases a Debenture at a market discount and thereafter
recognizes gain on its disposition (or the disposition of the Common Shares
into which such Debenture is converted) such gain is treated as ordinary
interest income to the extent it does not exceed the accrued market discount
on such Debenture. 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 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 a
Debenture 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 Debenture at the time payment is
received. However, when the holder disposes of the Debenture, the accrued
market discount is reduced by the amount of the partial principal payment
Enviously included in income.
A holder that acquires a Debenture 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 Debenture until the holder
disposes of such Debenture in a taxable transaction. A holder of Debentures
acquired 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
64
<PAGE>
be revoked without the consent of the Internal Revenue Service (the "IRS").
If a holder of a Debenture 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 a Debenture exceeds the Debenture's stated redemption price at maturity,
such excess may constitute amortizable bond premium. If the Debenture is 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 Debenture. The
amount of amortizable bond premium equals the excess of the holder's basis
(for determining loss on sale or exchange) in the Debenture 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 Debenture is 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 a Debenture 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 and
(iv) proceeds from the sale or redemption of the 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,
individual retirement accounts and, to a limited extent, nonresident aliens)
are not subject to the backup withholding importing requirements. A
nonresident alien must submit a statement, signed under penalties of perjury,
attesting to that individual's exemption from backup withholding. A holder of
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 credited
to the income tax liability of the person receiving the payment from which
such amount was withheld. Holders of 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 7,958,971 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.
65
<PAGE>
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 38.9% 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.
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.
FIRST SERIES DEBENTURE OFFERING REPRESENTATIVES WARRANTS
In connection with the First Series Debenture Offering, the Company sold to
the First Series Debenture Offering Representative, or its designee, for nominal
consideration, 250,000 First Series Debenture Offering Representative's Warrants
entitling the holders thereof to purchase 250,000 Common Shares at a purchase
price of $21.04 per share for a period of four years commencing one year from
June 5, 1996, the effective date of the First Series Debenture Offering.
REPRESENTATIVES' WARRANTS
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants (the "Representative's
Warrants") to purchase up to ________ Common Shares [i.e. that number of
Common Shares as equal 10% of the aggregate principal amount of the
Debentures when valued at the Closing Price of the Common Shares on the AMEX
on the effective date of this offering (the "Closing Price") plus 250,000 Common
Shares at a price equal to 165% of the market price of the Common Shares on the
effective date of this Offering]. The Representatives' Warrants are exercisable
for a period of four years commencing one year from the date of this Prospectus.
The Representatives' Warrants provide for reductions, which in certain
circumstances could be material, in the exercise price of the
Representatives' Warrants upon the occurrence of certain events, including
the issuance by the Company of Common Shares for a price below the market
price of the Common Shares, and corresponding potentially significant
increases in the number of shares purchasable upon exercise of the
Representatives' Warrants. The Representatives' Warrants also provide for
adjustment of the type of securities issuable upon exercise of the
Representatives' Warrants to reflect changes in the Common Shares. The
Representatives' 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 Representatives' Warrants.
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.
66
<PAGE>
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.
LISTING ON AMEX
CMI Common Shares are listed on the AMEX under the symbol "CMI."
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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
10,458,971 Common Shares. Of these shares, the 3,000,000 shares (or a maximum
of 3,450,000 Common Shares in the event the Representatives exercise its
Over-Allotment Option in full) sold in this offering, the 1,410,520 Common
Shares issued to non- affiliates in the MMI Merger and the 2,300,000 Common
Shares in the IPO will be freely tradable without restrictions under the
Securities Act. The remaining 3,748,451 Common Shares held by existing
shareholders (3,298,451 shares if the Over-Allotment Option is exercised in
full) were issued by the Company in private transactions in reliance upon one
or more exemptions under the Securities Act, are "restricted securities"
within the meaning of Rule 144 under that Act, and may be resold in a public
distribution only if registered under the Securities Act or pursuant to an
exemption therefrom, including Rule 144. In general, under Rule 144 a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding Common Shares and the average weekly trading volume in composite
trading on all exchanges during the four calendar weeks preceding such sale.
In addition, sales under Rule 144 may be made only through unsolicited
"broker's transactions" or to a "market maker" and are subject to various
other conditions.
The Company's executive officers and directors, other than Steven Hirsh,
have agreed with the Representatives that they will not sell or otherwise
dispose of any Common Shares or any securities convertible into Common Shares
without the prior written consent of such Representatives until , 1997
[180 days after the effective date of this offering]. The lock-up does not
apply to the sale of shares by the Selling Shareholder in this offering or
the shares subject to the Over-Allotment Option. After the lock-up period,
such Common Shares will be eligible for sale in the public market pursuant to
Rule 144 if the conditions of that Rule have been met. The Company is unable
to estimate the amount of restricted securities that will be sold under Rule
144 because this will depend, among other factors, on the market price for
the Common Shares and the personal circumstances of the sellers.
The Company has reserved 1,157,792 Common Shares for issuance upon the
exercise of options that have been granted to officers, directors, key
employees and consultants pursuant to and outside its Option Plan, of which
options for 232,792 Common Shares are subject to shareholder approval of an
amendment to the Option Plan. Unless registered under the Securities Act,
Common Shares issued upon the exercise of outstanding options will be
restricted securities. After this offering, the Company intends to file a
registration statement under the
67
<PAGE>
Securities Act to register the Common Shares issuable pursuant to the Stock
Option Plan. Such registration statement will become effective automatically
20 days after filing. Common Shares issued after the effective date of such
registration statement under the Option Plan will generally be eligible for
resale in the open market.
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 and Commonwealth Associates are acting as representatives (in
such capacity, the "Representatives"), and the Underwriters have severally
and not jointly agreed to purchase the principal amount of Debentures set
forth below.
Amount of Number
Underwriters Debentures of Shares
-------------------------------- ------------- -----------
National Securities Corporation
Commonwealth Associates ........
------------- -----------
Total ........................ $25,000,000 3,000,000
============= ===========
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 Representatives 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 the offering, the offering price and other
selling terms may be changed by the Representatives. 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 $3,750,000 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 and the
Common Shares underwritten, $25,000 of which has been advanced.
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants (the "Representatives'
Warrants") to purchase up to ________ Common Shares [i.e., that number of Common
Shares as equal 10% of the aggregate principal amount of the Debentures when
valued at the closing price of the Common Shares on the AMEX on the effective
date of this offering plus 250,000 Common Shares at a price equal to 165% of the
market price of the Common Shares on the effective date of this Offering]. The
Representatives' Warrants are exercisable for a period of four years commencing
one year from the date of this Prospectus. The Representatives' 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
Representatives' 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 Representatives' 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."
68
<PAGE>
LEGAL MATTERS
The validity of the Debentures and the Common Stock issuable upon
conversion thereof will be passed upon for the Company by Morse, Zelnick,
Rose & Lander, LLP, 450 Park Avenue, New York, New York 10178. 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.,
Medical Management, Inc., Advanced Alliance Management Corp., and Amedisys,
Inc. and Subsidiaries and schedules included (incorporated by reference) in
this Prospectus and elsewhere in the Registration Statement to the extent and
for the periods indicated in their reports 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 reports.
The financial statements of Medical Management, Inc. at December 31, 1994
and 1993, and for each of the two years in the period ended December 31,
1994, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included 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.
<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 and June 30, 1996 (Unaudited) ....... F-3
Consolidated Statements of Income for the period from April 1, 1993 to December 31, 1993, for the
years ended December 31, 1994 and 1995 and for six month periods ended June 30, 1995 and 1996
(Unaudited) ................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the period from April 1, 1993 to December 31,
1993, for the years ended December 31, 1994 and 1995 and for the six month period ended June
30, 1996 (Unaudited) .......................................................................... F-5
Consolidated Statements of Cash Flows for the period from April 1, 1993 to December 31, 1993, for
the years ended December 31, 1994 and 1995 and for the six month periods ended June 30, 1995
and 1996 (Unaudited) .......................................................................... F-6
Notes to Consolidated Financial Statements ....................................................... F-7
MEDICAL MANAGEMENT, INC.
Report of Independent Public Accountants ......................................................... F-21
Report of Independent Auditors ................................................................... F-22
Balance Sheets as of December 31, 1994 and 1995 .................................................. F-23
Statements of Income for the years ended December 31, 1993, 1994 and 1995 ........................ F-24
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 .......... F-25
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 .................... F-26
Notes to Financial Statements .................................................................... F-27
ADVANCED ALLIANCE MANAGEMENT CORP.
Report of Independent Public Accountants ......................................................... F-40
Consolidated Balance Sheets as of December 31, 1994, 1995, and June 30, 1996 (Unaudited) ......... F-41
Consolidated Statements of Income for the years ended December 31, 1994 and 1995 and for the six
month periods ended June 30, 1995 and 1996 (Unaudited) ........................................ F-42
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995 and
for the six month period ended June 30, 1996 (unaudited) ...................................... F-43
Consolidated Statements of Cash Flows for the year ended December 31, 1994 and 1995 and the six
month periods ended June 30, 1995 and 1996 (Unaudited) ........................................ F-44
Notes to Consolidated Financial Statements ....................................................... F-45
AMEDISYS, INC.
Report of Independent Public Accountants ......................................................... F-49
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited) ....... F-50
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and for the
six month periods ended June 30, 1995 and 1996 (Unaudited) .................................... F-51
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995 and for the six month period ended June 30, 1996 ......................................... F-52
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for
the six month periods ended June 30, 1995 and 1996 (Unaudited) ................................ F-53
Notes to Consolidated Financial Statements ....................................................... F-54
</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 period from April 1, 1993 to
December 31, 1993 and the years ended December 31, 1994 and 1995. 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 period from April 1,
1993 to December 31, 1993 and the years ended December 31, 1994 and 1995, 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 AS OF DECEMBER 31, 1994 AND 1995 AND
AS OF JUNE 30, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
Historical June 30,
1994 1995 1996
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash .................................................. $ -- $ -- $20,518,176
Marketable Securities ................................. -- -- 15,845,850
Notes Receivable from a related party ................. -- -- 1,952,792
Accounts Receivable:
Accounts receivable, net of unamortized discount of
$971,064, $1,307,034 and 1,617,171 respectively ..... 4,074,764 5,325,147 11,242,309
Other ................................................. -- -- 544,062
------------ ------------- -------------
4,074,764 5,325,147 11,786,371
Prepaid expenses and other current assets ............. 1,664 356,097 729,443
------------ ------------- -------------
Total current assets ................................. 4,076,428 5,681,244 50,832,632
Long-term portion of notes receivable from a related party -- -- 100,643
Long-term portion of accounts receivable, net of
unamortized discount of $508,537, $603,758 and 581,746
respectively .......................................... 3,604,571 9,559,424 18,953,087
Marketable securities held to maturity--non-current ..... -- -- 6,797,931
Property and equipment, less accumulated depreciation and
amortization of $71,708 and $173,483 .................. 303,774 400,170 6,151,950
Excess of cost over net assets acquired, less accumulated
amortization of $216,888 .............................. -- -- 8,458,644
Deferred registration costs ............................. -- 1,985,446 --
Deferred note issuance costs ............................ -- -- 4,680,961
Deferred costs, net of amortization of $74,116 .......... -- -- 62,056
Other assets ............................................ 24,172 233,777 425,084
------------ ------------- -------------
Total assets ........................................ $8,008,945 $17,860,061 $96,462,988
============ ============= =============
Liabilities and stockholders' equity
Current liabilities:
Notes payable ......................................... $ -- $ 1,000,000 $ --
Accounts payable and accrued expenses ................. 742,252 2,815,718 1,323,269
Income taxes payable .................................. 39,971 39,371 1,439,633
Deferred income taxes -- current ...................... 1,679,052 1,799,523 4,836,203
Current portion of long-term debt ..................... -- 89,369 272,257
Current portion of obligations under capital leases ... -- -- 506,943
------------ ------------- -------------
Total current liabilities ............................ 2,461,275 5,743,981 8,378,305
Deferred income taxes -- non-current .................... 1,694,148 4,435,776 4,940,903
Long-term debt .......................................... -- 228,534 313,880
Deferred rent ........................................... -- 121,595 --
Obligations under capital leases ........................ -- -- 1,704,631
Convertible subordinated debt ........................... -- -- 42,250,000
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, 2,980,573 shares
at December 31, 1995 and 7,478,298 shares
at June 30, 1996 ................................. 2,953 2,981 7,478
Paid-in capital ....................................... -- 249,972 29,351,967
Retained earnings ..................................... 3,850,569 7,077,222 9,515,824
------------ ------------- -------------
Total stockholders' equity ......................... 3,853,522 7,330,175 38,875,269
------------ ------------- -------------
Total liabilities and stockholders' equity .... $8,008,945 $17,860,061 $96,462,988
============ ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
COMPLETE MANAGEMENT, INC.
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 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Period from
April 1, 1993 to Year ended December 31, Six months ended June 30,
December 31, ------------------------------ ----------------------------
1993 1994 1995 1995 1996
---------------- ------------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
From a related party .......... $5,282,614 $10,654,298 $12,293,830 $6,389,974 $10,919,512
Other ......................... -- -- -- -- 343,082
Interest discount ............. (864,664) (1,743,900) (2,016,357) (987,399) (1,055,602)
---------------- ------------- ------------- ------------ -------------
Net revenue ..................... 4,417,950 8,910,398 10,277,473 $5,402,575 10,206,992
---------------- ------------- ------------- ------------ -------------
Cost of revenue ................. 1,102,900 1,948,755 2,771,256 1,116,670 3,724,629
General and administrative
expenses ...................... 1,482,653 2,374,695 2,863,806 1,327,021 2,720,922
Fees paid to related parties .... 204,529 196,627 109,975 37,250 10,425
---------------- ------------- ------------- ------------ -------------
2,790,082 4,520,077 5,745,037 2,480,941 6,455,976
---------------- ------------- ------------- ------------ -------------
Operating income ................ 1,627,868 4,390,321 4,532,436 2,921,634 3,751,016
Interest discount included in
income ........................ 206,981 921,977 1,585,171 630,589 1,236,036
Interest expense ................ -- -- (45,502) -- (596,196)
Other income .................... 61,723 54,870 16,048 -- --
Interest and Dividend Income .... -- -- -- -- 238,746
---------------- ------------- ------------- ------------ -------------
Income before provision for
income taxes .................. 1,896,572 5,367,168 6,088,153 3,552,223 4,629,602
Provision for income taxes ...... 890,729 2,522,442 2,861,500 1,663,950 2,191,000
---------------- ------------- ------------- ------------ -------------
Net income ...................... $1,005,843 $ 2,844,726 $ 3,226,653 $1,888,273 $ 2,438,602
================ ============= ============= ============ =============
Net income per share ............ $ 0.34 $ 0.95 $ 1.08 $ 0.63 $ 0.32
================ ============= ============= ============ =============
Weighted average number of shares
outstanding ................... 2,980,573 2,980,573 2,980,573 2,980,573 7,617,161
================ ============= ============= ============ =============
Fully diluted net income per
share ......................... N/A N/A N/A N/A $ 0.29
================ ============= ============= ============ =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
COMPLETE MANAGEMENT, INC.
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 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<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, 1993 ............. -- -- -- 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
Issuance of 2,000,000 shares of
common stock, net of
registration costs ............ -- 2,000 14,318,226 -- 14,320,226
Issuance of 2,497,725 shares of
common stock, net of
registration costs in
conjunction with merger with
MMI ........................... -- 2,497 14,783,769 -- 14,786,266
Net income for the six months
ended June 30, 1996 ........... -- -- -- 2,438,602 2,438,602
----------- -------- ------------- ------------ -------------
Balance at June 30, 1996 ....... $ -- $7,478 $29,351,967 $9,515,824 $38,875,269
=========== ======== ============= ============ =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
COMPLETE MANAGEMENT, INC.
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 AND FOR THE SIX MONTHS
ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Period from
April 1, 1993 to
December 31, Year ended December 31, Six months ended June 30
---------------- ------------------------------ -----------------------------
1993 1994 1995 1995 1996
---------------- ------------- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income ....................................... $ 1,005,843 $ 2,844,726 $ 3,226,653 $ 1,888,273 $ 2,438,602
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 16,914 54,794 101,775 48,263 654,760
Discount of accounts receivable, net of
amortization ................................ 657,683 821,918 431,191 356,810 (179,574)
Provision for deferred income taxes ............ 850,100 2,523,100 2,862,099 1,621,500 1,866,600
Amortization of prepaid insurance .............. -- -- 24,306 -- --
Amortization of original issue discount ........ -- -- 12,500 -- --
Write off of original issue discount ........... -- -- -- -- 237,500
Changes in operating assets and liabilities:
Notes receivable from a related party ....... -- -- -- -- (1,391,642)
Accounts receivable ......................... (2,622,777) (6,536,159) (7,636,427) (4,009,015) (8,255,897)
Prepaid expenses and other current assets ... (2,739) 1,075 (266) -- (454,428)
Accounts payable and accrued expenses ....... 194,755 402,846 1,945,655 240,773 (963,556)
Deferred costs and other assets ............. -- -- -- 1,155 (153,330)
Income taxes payable ........................ 40,629 (658) (600) 42,450 185,214
Other assets ................................ (23,092) (1,080) (578) -- --
Deferred rent ............................... -- -- 121,595 -- --
---------------- ------------- ------------ ------------- -------------
Net cash provided by operating activities ........ 117,316 110,562 1,087,903 190,209 (6,015,751)
---------------- ------------- ------------ ------------- -------------
Investing activities
Purchase of property and equipment ............... (182,516) (192,966) (177,768) (85,719) (1,932,920)
Purchase of marketable securities ................ -- -- -- -- (43,343,924)
Proceeds from sale of marketable securities ...... -- -- -- -- 20,822,083
---------------- ------------- ------------ ------------- ------------
Net cash used in investing activities ............ (182,516) (192,966) (177,768) (85,719) (24,454,761)
---------------- ------------- ------------ ------------- ------------
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 -- -- -- --
Proceeds from issuance of common stock, net of
underwriters' commission and expenses .......... -- -- -- -- 16,380,000
Payments of registration costs of common stock ... -- -- -- (98,490) (2,542,777)
Proceeds from issuance of subordinated debentures
and notes, net of underwriters' commission and
expenses ....................................... -- -- -- -- 38,144,000
Deferred note issuance cost ...................... -- -- - -- (574,961)
Proceeds from long-term debt ..................... -- -- -- -- 374,000
Proceeds from capital lease obligations .......... -- -- -- -- 625,000
Cash acquired in merger .......................... -- -- -- -- 103,631
Repayment of notes payable ....................... -- -- -- -- (1,000,000)
Principal payment of long-term debt .............. -- -- -- -- (385,483)
Repayment of capital lease obligations ........... -- -- -- -- (134,722)
---------------- ------------- ------------ ------------- -------------
Net cash provided by (used in) financing activities 65,200 82,404 (910,135) (98,490) 50,988,688
---------------- ------------- ------------ ------------- -------------
Net increase (decrease) in cash .................. -- -- -- 6,000 20,518,176
Cash at the beginning of the period .............. -- -- -- -- --
---------------- ------------- ------------ ------------- -------------
Cash at the end of the period .................... $ -- $ -- $ -- $ 6,000 $20,518,176
================ ============= ============ ============= =============
Supplemental disclosures of cash flow
information
Cash paid during the first year
Interest ....................................... $ -- $ -- 21,233 -- 412,911
Taxes .......................................... -- -- -- -- 137,557
Non-cash financing activities:
Issuance of common stock ........................ -- -- 250,000 -- --
Capital stock issued for acquisition ............. -- -- -- -- 15,266,503
</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
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
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 a 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.
Interim Periods Presented
The interim consolidated financial statements for the six months ended
June 30, 1995 and 1996 are unaudited. Accordingly, they do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1996, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
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).
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
and for the six months ended June 30, 1996
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
The following "unaudited" tabulation sets forth the operating results of
the GMMS for the years ended December 31, 1993, 1994 and 1995 and for the six
month period ended June 30, 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 related to
CMI.
<TABLE>
<CAPTION>
Year Ended
December 31,
1993
----------------------------------------------------
General
Medical Diagnostic Total
Unaudited: Services Imaging GMMS
------------- ------------ -------------
<S> <C> <C> <C>
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>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995
--------------------------------------------
General
Medical Diagnostic Total
Services Imaging GMMS
------------ ------------ -------------
<S> <C> <C> <C>
Unaudited:
Services rendered ................ $8,741,796 $3,325,959 $12,067,755
Contractual allowances ........... (681,848) (210,000) (891,848)
------------ ------------ -------------
Net medical service fees ......... 8,059,948 3,115,959 11,175,907
------------ ------------ -------------
Less expenses:
Medical personnel payroll ...... 761,400 218,564 979,964
Other .......................... 226,195 12,759 238,954
------------ ------------ -------------
Total expenses .............. 987,595 231,323 1,218,918
------------ ------------ -------------
Owner physician payroll and
entity income/(loss) ........ 682,379 -- 682,379
Management fee ................... $6,389,974 $2,884,636 $ 9,274,610
============ ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------
General
Medical Diagnostic Total
Services Imaging GMMS
------------ ------------ ------------
<S> <C> <C> <C>
Unaudited:
Services rendered ................ $9,789,949 $4,068,511 $13,858,460
Contractual allowances ........... (726,272) (236,820) (963,092)
------------ ------------ ------------
Net medical service fees ......... 9,063,677 3,831,691 12,895,368
------------ ------------ ------------
Less expenses:
Medical personnel payroll ...... 1,504,786 231,143 1,735,929
Other .......................... 429,921 63,188 493,109
------------ ------------ ------------
Total expenses .............. 1,934,707 294,331 2,229,038
------------ ------------ ------------
Owner physician payroll and
entity income/(loss) ........ (253,182) -- (253,182)
Management fee ................... $7,382,152 $3,537,360 $10,919,512
============ ============ ============
</TABLE>
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
and for the six months ended June 30, 1996
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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, and $12,067,755 and
$13,858,460 for the six month period ended June 30, 1995 and 1996,
respectively, have been allocated to the owner physician, medical personnel,
other medical expenses or management fee.
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.
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
and for the six months ended June 30, 1996
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
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 June 30,
1996 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,
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
and for the six months ended June 30, 1996
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
At June 30, 1996 Marketable Securities was comprised of securities
available-for-sale and those the Company intend to hold to maturity of
$4,140,075 and $11,705,775, respectively.
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.
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.
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
and for the six months ended June 30, 1996
3. ACCOUNTS RECEIVABLE - (Continued)
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 for the period of April 1, 1993 through
December 31, 1995; 8% per annum for the three month period ended March 31,
1996 (unaudited); 7 1/4 % for the three month period ended June 30, 1996
(unaudited). 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 Lenders, 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.
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
and for the six months ended June 30, 1996
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
--------------------------
1994 1995
---------- -----------
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
========== ===========
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
---------------------------
1994 1995
---------- -----------
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
========== ===========
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.
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
and for the six months ended June 30, 1996
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>
9. COST OF REVENUE
Cost of revenue consists of the following:
Period from
April 1, 1993 to Year Ended December 31,
December 31, ----------------------------
1993 1994 1995
---------------- ------------ ------------
Compensation/temporary help $ 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
================ ============ ============
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
and for the six months ended June 30, 1996
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 Year Ended
April 1, 1993 to 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 Year Ended December 31,
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>
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.
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
and for the six months ended June 30, 1996
10. INCOME TAXES - (Continued)
<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.
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>
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
and for the six months ended June 30, 1996
11. COMMITMENTS AND CONTINGENCIES - (Continued)
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 virtually 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.
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
F-17
<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
and for the six months ended June 30, 1996
13. SUBSEQUENT EVENTS - (Continued)
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 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.
F-18
<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
and for the six months ended June 30, 1996
15. UNAUDITED PRO FORMA FINANCIAL DATA
The following table summarizes selected unaudited pro forma financial data
for the six months ended June 30, 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>
Six months ended
June 30, 1995
-------------------------------------------- Pro forma Pro forma
CMI MMI Total Adjustments Total
------------ ------------ ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue .............................. $6,389,974 $3,617,367 $10,007,341 $ -- $10,007,341
Interest discount .................... (987,399) -- (987,399) (328,000) (1) 1,315,399)
------------ ------------ ------------- ----------------- --------------
Net revenue .......................... $5,402,575 $3,617,367 $ 9,019,942 $ (328,000) $8,691,942
============ ============ ============= ================= ==============
Net income before provision for income
taxes................................ $3,552,223 $1,265,339 $ 4,817,562 $ (1,066,000) (2) $3,751,562
Provision for income taxes ........... 1,664,000 553,000 2,217,000 (359,000) (3) 1,858,000
------------ ------------ ------------- ----------------- --------------
Net income ........................... $1,888,223 $ 712,339 $ 2,600,562 $ (707,000) $1,893,562
============ ============ ============= ================= ==============
Net income per share ................. $0.25
==============
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 ... $ (328,000)
==============
(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 .................................................................................. $(328,000)
(b) Reflects increased costs of employment agreements .............................................. (830,000)
(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 ................................... (217,000)
(d) Represents interest income earned as a result of the amortization over a two-year period of the
interest discount in (1) above ................................................................. 309,000
--------------
Total expense adjustments .......................................................................... $(1,066,000)
==============
(3) Assumes an effective tax rate after adjustments of 47% .............................................. $ (359,000)
</TABLE>
16. SIGNIFICANT EVENTS (UNAUDITED)
For the six months ended June 30, 1996 owner physician payroll and entity
income at GMMS showed a loss of $253,000, as compared to income of $682,000
in 1995. The Company believes that this loss principally results from an
increase of $756,000 in medical personnel payroll at GMMS as GMMS increased
its professional staff in expectation of future higher levels of operation. A
continuation of losses at GMMS, or its failure to operate successfully, could
jeopardize GMMS' ability to pay management fees to the Company.
On April 2, 1996, options for an aggregate of 925,000 shares, exercisable
at $8.375 price during a ten-year period were granted to 8 officers and 14
other employees and consultants of the Company. These options will be
exercisable at various dates from the date of the grant. 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 June 5, 1996, the Company completed a public offering of $40,250,000 of
Convertible Subordinated Debentures (the "Debentures") due 2003 at an
interest rate of 8% per annum, 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 $14 per share, subject to
adjustment in certain events. On June 5, 1996, the closing sale price for the
common shares on the American
F-19
<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
and for the six months ended June 30, 1996
16. SIGNIFICANT EVENTS (UNAUDITED) - (Continued)
Stock Exchange ("AMEX") was $12.75 per share. The debentures are listed on
the AMEX under the symbol "CMLA." The Debentures are redeemable, in whole or
in part on 45 days' prior written notice, at the option of the Company at a
redemption price equal to 100% of the principal amount, plus accrued
interest, at any time on or after June 5, 1999, provided that the closing
price of the Common Shares, during the 20 consecutive trading days prior to
the date of notice of such redemption, has equaled or exceeded $19.125,
subject to adjustment in certain events. The Debentures are subordinated to
all existing and future Senior Indebtedness and are effectively subordinated
to all indebtedness of the Company's subsidiaries. Net proceeds to the
Company after Underwriters Discount and debt issuance costs was $36,144,000.
Additionally, in connection with the Debentures offering, the Company issued
warrants to the representatives of its underwriters to purchase up to 250,000
additional Common Shares.
In July 1996, the Company acquired Intertech Corporation and Penta
Automation Resources, Inc., which are related medical billing and collection
companies located in the greater metropolitan area. The companies currently
serve more than 700 physicians and 20 hospitals. Revenues in 1995 were over
$3,000,000.
In August 1996, the Company purchased the assets of a physican practice
management company for a five physician multi-specialty community healthcare
practice located in Brooklyn, New York. The acquired assets include a 30-year
contract to manage the practice.
In October 1996, the Company acquired Advanced Alliance Management Corp.
("AAMC"). AAMC, located in New York's Hudson Valley Region, offers a variety
of practice management and other services to its hospital and physican-group
client base.
In October 1996, the Company entered into a non-binding letter-of-intent
to acquire Amedisys Inc. ("Amedisys"). Amedisys is based in Baton Rouge,
Louisiana , and was formed in 1982 to provide nursing services to medical
facilities. Currently, Amedisys also provides to its clients specialty home
care and practice management services and manages ambulatory surgical
centers.
In November 1996, the Company approved the filing of a registration
statement with the Securities and Exchange Commission to register
approximates $25,000,000 of Convertible Subordinated Debentures due December
15, 2003 and 2,500,000 shares of its common stock on Form S-1.
F-20
<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-21
<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-22
<PAGE>
MEDICAL MANAGEMENT, INC.
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995
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-23
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<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-24
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995
<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-25
<PAGE>
MEDICAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<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-26
<PAGE>
MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
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-27
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-28
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-29
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-30
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-31
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-32
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1995
---------- ------------
<S> <C> <C>
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
========== ============
</TABLE>
At December 31, 1995, future, principal payments for long-term debt and
obligations under capital leases were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1996 ......................................... $ 480,523
1997 ......................................... 536,912
1998 ......................................... 499,980
1999 ......................................... 454,336
2000 ......................................... 29,262
------------
$2,001,013
============
</TABLE>
(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-33
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
---------- ------------
<S> <C> <C>
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
========== ============
</TABLE>
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-34
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-35
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-36
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1996 ............................ $113,000
1997 ............................ 96,000
1998 ............................ 89,000
1999 ............................ 89,000
2000 ............................ 98,000
Thereafter minimum lease payments 216,000
----------
$701,000
==========
</TABLE>
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-37
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-38
<PAGE>
MEDICAL MANAGEMENT, INC.
Notes to Financial Statements for the years ended - (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-39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Advanced Alliance Management Corp.:
We have audited the accompanying balance sheets of Advanced Alliance
Management Corp. (a New York corporation) as of December 31, 1994 and 1995,
and the related 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 financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Alliance Management
Corp. as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 18, 1996
F-40
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
BALANCE SHEETS AS OF
DECEMBER 31, 1994, 1995 AND JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
------------------------- ------------
1994 1995 1996
---------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and Cash Equivalents (Note 2) ...................... $ -- $ 73,234 $ --
Accounts Receivable:
Others ............................................. 161,402 220,356 508,688
Related Parties .................................... 109,071 189,444 288,984
Note Receivable from Stockholder (Note 7) ............... -- 30,500 30,500
Prepaid Expenses ........................................ 17,500 8,108 11,972
---------- ----------- ------------
Total Current Assets .......................... 287,973 521,642 840,144
Note Receivable from Stockholder, less current portion .. -- 30,500 27,791
Property and Equipment (Note 3) ......................... 279,470 395,438 463,607
Less: Accumulated Depreciation .......................... (82,435) (157,619) (199,619)
---------- ----------- ------------
Property and Equipment, Net ................... 197,035 237,819 263,988
Other Assets ............................................ 9,972 9,972 8,107
TOTAL ASSETS .................................. $494,980 $ 799,933 $1,140,030
========== =========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts Payable:
Others ............................................. $ 37,537 $ 127,470 $ 318,056
Related Parties .................................... 37,689 14,489 --
Accrued Expenses ........................................ 93,702 43,875 76,801
Due to Related Parties .................................. -- -- 102,936
Note Payable to Stockholder (Note 6) .................... -- 40,664 --
Current Portion of Capital Lease Obligations (Note 4) ... 43,578 48,905 48,905
---------- ----------- ------------
Total Current Liabilities ..................... 212,506 275,403 546,698
Capital Lease Obligations, less current portion (Note 4) 129,766 80,861 56,409
---------- ----------- ------------
TOTAL LIABILITIES ............................. 342,272 356,264 603,107
Common Stock, no par value, 200 shares authorized, 40
shares issued and outstanding as of December 31, 1994;
and 45 shares issued and outstanding as of December 31,
1995 and June 30, 1996 (Unaudited) .................... 78,000 139,000 139,000
Retained Earnings ....................................... 74,708 365,669 397,923
---------- ----------- ------------
152,708 504,669 536,923
Less: Treasury Stock, at cost, 0 shares as of December
31, 1994; and 5 shares as of December 31, 1995; and 0
shares as of June 30, 1996 (Unaudited) (Note 6) ....... -- (61,000) --
---------- ----------- ------------
152,708 443,669 536,923
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................ $494,980 $ 799,933 $1,140,030
========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF INCOME FOR THE YEARS DECEMBER 31, 1994, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, Six Months Ended June 30,
---------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Others .......................... $1,869,759 $2,645,692 $2,038,733 $2,523,218
Related parties ................. 3,434,798 3,884,525 1,324,872 1,050,268
------------ ------------ ------------ ------------
5,304,557 6,530,217 3,363,605 3,573,486
------------ ------------ ------------ ------------
Cost of Revenue ...................... 3,442,932 3,905,168 1,898,418 2,497,975
General and Administrative expenses .. 1,632,777 2,128,860 1,325,858 963,626
Expenses paid to related parties ..... 174,356 193,880 40,937 73,209
------------ ------------ ------------ ------------
5,250,065 6,227,908 3,265,213 3,534,810
------------ ------------ ------------ ------------
Operating income ..................... 54,492 302,309 98,392 38,676
Other expense ........................ 15,368 -- -- --
Interest expense ..................... (14,009) (10,803) (6,032) (6,422)
------------ ------------ ------------ ------------
Income before provision of income tax 25,115 291,506 92,360 32,254
Provision of income tax .............. 492 545 -- --
------------ ------------ ------------ ------------
Net income ........................... $ 24,623 $ 290,961 $ 92,360 $ 32,254
============ ============ ============ ============
Net income per share ................. $ 456 $ 5,595 $ 1,847 $ 556
Weighted Average number of shares
outstanding ........................ 54 52 50 58
Pro forma information (unaudited):
Net income (historical) ......... $ 24,623 $ 290,961 $ 92,360 $ 32,254
Pro forma adjustments -- income
taxes ......................... 41,000 120,000 38,000 14,000
------------ ------------ ------------ ------------
Pro forma net (loss) income ..... $ (16,377) $ 170,961 $ 54,360 $ 18,254
============ ============ ============ ============
Pro forma (loss) earnings per
share ......................... $ (303) $ 3,287 $ 1,087 $ 315
Pro forma weighted average number
of shares outstanding ......... 54 52 50 58
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Number Number Retained
of Shares Amount of Shares Amount Earnings Total
----------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 40 $ 78,000 $ $ 50,085 $128,085
Net income for the year ended
December 31, 1994 .......... -- -- -- -- 24,623 24,623
----------- ---------- ----------- ----------- ---------- ----------
Balance at December 31, 1994 40 $ 78,000 -- -- 74,708 152,708
Purchase of Treasury Stock .. -- (5) (61,000) -- (61,000)
Issuance of Common Stock .... 5 61,000 -- -- -- 61,000
Net Income for the year ended
December 31, 1995 .......... -- -- -- -- 290,961 290,961
----------- ---------- ----------- ----------- ---------- ----------
Balance at December 31, 1995 45 $139,000 (5) $(61,000) $365,669 $443,669
Issuance of Common Stock
(Unaudited) ................ 5 61,000 -- -- -- 61,000
Retirement of Treasury Stock
(Unaudited)................. (5) (61,000) 5 61,000 -- --
Net income for the six months
ended June 30, 1996
(Unaudited)................. -- -- -- -- 32,254 32,254
----------- ---------- ----------- ----------- ---------- ----------
Balance at June 30, 1996
(Unaudited) ............... 45 $139,000 0 $ -- $397,923 $536,923
=========== ========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------- --------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net Income .............................. $ 24,623 $ 290,961 $ 92,360 $ 32,254
Adjustments to reconcile net income to
net cash provided operating activities:
Depreciation ....................... 34,063 75,184 35,000 42,000
Loss on sale of property ........... 15,368 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable .............. (16,473) (139,327) (176,517) (387,872)
Prepaid expenses ................. (17,500) 9,392 -- (3,864)
Other Assets ..................... (6,648) -- -- 1,865
Accounts payable ................. (11,446) 66,733 98,181 176,097
Accrued expenses ................. (666) (49,827) 15,851 32,926
Due to related parties ........... -- -- -- 102,936
---------- ----------- ----------- -----------
Net cash provided by operating activities 21,321 253,116 64,875 (3,658)
Investing activities
Purchases of property and equipment ..... -- (115,968) (19,310) (68,169)
Proceeds from note receivable ........... -- -- -- 23,045
---------- ----------- ----------- -----------
Net cash used in investing activities ... -- (115,968) (19,310) (45,124)
---------- ----------- ----------- -----------
Financing activities
Payment of note payable to a stockholder -- (20,336) (7,626) --
Principal payment under capital lease
obligations ........................... (22,792) (43,578) (37,939) (24,452)
---------- ----------- ----------- -----------
Net cash used in financing activities ... (22,792) (63,914) (45,565) (24,452)
---------- ----------- ----------- -----------
Net (decrease) increase in cash ......... (1,471) 73,234 -- (73,234)
Cash and cash equivalents at the
beginning of the period ............... 1,471 -- -- 73,234
Cash and cash equivalents at the end of
the period ............................ $ -- $ 73,234 $ -- --
========== =========== =========== ===========
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest .............................. $ 14,654 $ 13,868 $ 6,032 $ 6,422
Taxes ................................. 475 492 492 498
Noncash activities:
Investment in Capital Lease ........... $ 68,500 $ -- $ -- $ --
Note payable to stockholder ........... -- 61,000 61,000 --
Note receivable from stockholder ...... -- 61,000 -- 20,336
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Advanced Alliance Management Corp. ("AAMC" or the "Company") was
incorporated on July 15, 1988 in the state of New York. The Company was
formed for the purpose of offering practice management services to Northern
Metropolitan Radiology Associates, P.C. ("NMRA"), an entity under common
ownership, which provides expertise in various radiological subspecialties
including, but not limited to: neuroradiology, mammography, and
interventional, pediatric and nuclear radiology. Presently, the Company
offers a variety of practice management and other services to its hospital
and physician-group client base. These services include: billing and
collection, transcription, provision of ultrasound, x-ray and nuclear
medicine technicians, mobile x-ray services, non-medical personnel staffing,
OSHA compliance and credentialling.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized when services are rendered for all but billing and
collection services. Revenue earned from billing and collection services
rendered are recognized only upon the collection of the customers' accounts
receivable balance by AAMC.
Property and Equipment
Medical equipment, office furniture and computer equipment are depreciated
on the straight-line basis over the estimated useful lives of the assets
(generally 5 years).
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.
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 the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 financial reporting and tax basis
assets and liabilities.
Recently Issued Accounting Standards
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to Be
Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and
for long lived assets and certain identifiable intangibles to be disposed of.
SFAS 121 is effective for financial statements for fiscal years beginning
after December 15, 1995, although earlier application is encouraged. The
Company does not expect that the adoption of SFAS 121 will have a material
effect on its financial statements.
F-45
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements - (Continued)
for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1996 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Earnings Per Share
Earnings per share are computed using the weighted average number of
common shares outstanding.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Medical equipment ............. $270,898 $ 369,172
Office furniture .............. 1,506 15,375
Computer equipment ............ 7,066 10,891
---------- -----------
279,470 395,438
Less: accumulated depreciation (82,435) (157,619)
---------- -----------
Property and equipment, net .. $197,035 $ 237,819
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company leases medical and other equipment under capital leases
expiring through November 1998. At December 31, 1995, future minimum lease
payments including interest at 11% to 12% annually, were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
<S> <C>
1996 ......................... $ 61,248
1997 ......................... 61,248
1998 ......................... 26,288
----------
148,784
Less: Amount representing
interest ................... (19,018)
----------
$129,766
</TABLE>
5. OPERATING LEASE OBLIGATIONS
The Company leases medical and other equipment under operating leases on a
month-to-month basis. Medical and other equipment rental amounted to
approximately $161,943 and $78,338 for the years ended December 31, 1995 and
1994, respectively.
6. TREASURY STOCK/NOTE PAYABLE TO FORMER SHAREHOLDER
In March 1995, the Company purchased five shares of its previously issued
stock. The purchase price of $61,000, in the form of a note, is payable in 24
equal monthly installments commencing in April 1995. At December 31, 1995,
the balance due to the former shareholder was approximately $41,000. The
treasury shares were then retired by the Company.
Subsequent to year end, the former shareholder purchased five new shares
of the Company's previously unissued common stock. As consideration for these
shares, the balance of the note payable due to the shareholder was forgiven
and a note approximating $20,000 was provided to the Company.
7. NOTES RECEIVABLE FROM RELATED PARTY
In July 1995, five shares of the Company's unissued common stock was sold
to an unrelated party for $61,000. The consideration received for the shares
was in the form of a note due in 24 equal monthly payments commencing in July
1995. Subsequent to December 31, 1995, the repayment terms of the note were
modified to commence in January 1996. At December 31, 1995, the entire
$61,000 face amount of the note was due.
F-46
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements - (Continued)
for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1996 (unaudited)
8. PROFIT-SHARING PLAN
All eligible employees of the Company who meet certain requirements with
respect to age and years of service are covered under the NMRA Profit-Sharing
Plan and Trust. AAMC's contributions to the plan are determined annually by
the Board of Directors. The Company made no contributions and $56,702 to the
plan for the years ended December 31, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
Sales to NMRA and its divisions and subsidiaries under common ownership
totaled approximately $3,885,000 or 59% of total sales and approximately
$3,435,000 or 63% of total sales for the years ended December 31, 1995 and
1994, respectively.
The Company leases its office space, on a month-to-month basis, from
Northern Metropolitan Service Corporation ("NMSC"), a related party. During
the year ended December 31, 1994, the Company paid no rent expense to NMSC.
Rent expense for the year ended December 31, 1995 was approximately $82,000.
Certain operating expenses of the Company are paid to a related party.
Such operating expenses amounted to $193,880 and $174,356 for the years ended
December 31, 1995 and 1994, respectively.
As described in Note 8, the employees of the Company are covered under the
NMRA Profit Sharing Plan and Trust.
10. INCOME TAXES
Commencing July 15, 1988, the Company elected to be treated as a
Subchapter S Corporation and use the cash method of accounting under
applicable sections of the Internal Revenue Code for federal income tax
purposes. In addition, the Company elected to be treated for New York State
and New Jersey State income tax purposes as a Subchapter S Corporation. As
such, in lieu of corporate income taxes, the shareholders of the Company
report their proportionate share of the Company's income or loss on their
personal income tax returns. Consequently, no provision is made for federal
income taxes and a statutory minimum provision is made for state income
taxes.
Immediately after the transfer of ownership discussed in Note 12, the Company
will no longer be treated as a Subchapter S Corporation or be eligible to use
the cash method of accounting. The accompanying consolidated financial
statements reflect a provision for income taxes on a pro forma basis as if the
Company was liable for federal, state and local income taxes as an accrual basis
taxable corporate entity throughout the years presented. The proforma
adjustments reflected in the income statement for the year ended December 31,
1994 includes a $30,000 income tax liability which would have resulted due to
the change from the cash to the accrual method of accounting and from a
nontaxable to taxable entity as of January 1, 1994.
The pro forma income taxes represent the liability which would have
occurred if the Company was a taxable entity from January 1, 1994.
The following summarizes pro forma income taxes provision:
Pro forma income tax adjustment:
<TABLE>
<CAPTION>
For the year ended For the year ended
------------------ ------------------
1994 1995
------------------ ------------------
<S> <C> <C>
Current
Federal ............. $30,000 $ 89,000
State ............... 11,000 31,000
Total income tax provision $41,000 $120,000
</TABLE>
F-47
<PAGE>
ADVANCED ALLIANCE MANAGEMENT CORP.
Notes to Financial Statements - (Continued)
for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1996 (unaudited)
10. INCOME TAXES - (Continued)
The pro forma provision for income taxes differs from the amounts computed
by applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
For the year ended For the year ended
---------------------- ----------------------
1994 1995
---------------------- ----------------------
<S> <C> <C>
Pro forma provision computed at the federal
statutory rate ............................. 34.0% 34.0%
Pro forma state income taxes, net of federal
tax benefit ................................ 7.5% 7.5%
---- ----
Total ........................................ 41.5% 41.5%
</TABLE>
11. GOVERNMENT REGULATION
The healthcare 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".
12. SUBSEQUENT EVENTS
On October 2, 1996, the Company was acquired by Complete Management, Inc.
("CMI") for approximately $8.5 million of consideration (the "Acquisition").
CMI, a New York corporation, provides comprehensive management services
primarily to high volume medical practices in New York State. These 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. Directly prior to the Acquisition, in September 1996,
the Company issued 3.5 shares to each of four shareholders of NMRA for a nominal
amount, and, entered into a formal 30 year management agreement with NMRA. As a
result of these series of transactions, approximately $2.0 million has been
assigned to the management agreement and will be amortized over a period not to
exceed 20 years. The value assigned to the management agreement is based upon
the fair value per share of the Company's outstanding common stock based upon
the Acquisition price.
13. UNAUDITED INTERIM PERIODS PRESENTED
The interim consolidated financial statements for the six months periods
ended June 30, 1995 and 1996 are unaudited. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation have been included. Operating results for
the six months period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Amedisys, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Amedisys, Inc.
(a Delaware Corporation, formerly known as Analytical Nursing Management
Corporation) and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amedisys, Inc. and
Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP HANNIS T. BOURGEOIS & CO., LLP
March 15, 1996
F-49
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994, 1995 AND AS OF JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
June 30,
1994 1995 1996
------------ ------------- -------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash (Note 14) ............................................ $ 140,804 $ 870,004 $ 401,915
Accounts receivable, net of allowance for doubtful accounts
of $258,670 in 1995 and $277,845 in 1994 ............... 5,307,433 6,124,269 8,763,098
Prepaid expenses .......................................... 185,823 432,930 487,062
Inventory and other current assets ........................ 134,087 219,610 428,493
------------ ------------- -------------
Total current assets .................................... 5,768,147 7,646,813 10,080,568
NOTES RECEIVABLE FROM RELATED PARTIES (Note 10) ............. 362,621 402,736 277,010
OTHER N/R ................................................... 1,444
PROPERTY, PLANT AND EQUIPMENT, net (Notes 3 and 7) .......... 2,449,685 2,449,468 2,994,644
ASSETS HELD FOR SALE, net (Note 4) .......................... 101,940 76,456 68,268
DEFERRED TAX ASSET (Note 9) ................................. 46,500 208,000 --
OTHER ASSETS, net (Note 5) .................................. 431,302 753,254 1,149,618
------------ ------------- -------------
Total assets ............................................. $9,160,195 $11,536,727 $14,571,552
============ ============= =============
CURRENT LIABILITIES:
Accounts payable .......................................... $ 496,213 $ 402,140 $ 749,467
Accrued expenses:
Payroll and payroll taxes .............................. 443,616 862,498 887,339
Insurance (Note 12) .................................... 70,301 483,155 566,481
Income taxes (Note 9) .................................. 39,993 287,987 102,937
Other .................................................. 359,738 616,869 834,185
Notes payable (Note 6) .................................... 1,674,468 2,456,971 4,091,471
Current portion of notes payable to related
parties (Note 10) ...................................... 286,221 90,711 90,711
Current portion of long-term debt (Note 7) ................ 95,890 386,848 386,848
Current portion of obligations under capital leases (Note
8) ..................................................... 99,313 181,964 181,964
------------ ------------- -------------
Total current liabilities ............................... 3,565,753 5,769,143 7,891,403
LONG-TERM DEBT (Note 7) ..................................... 216,171 211,187 167,400
NOTES PAYABLE TO RELATED PARTIES
(Note 10) ................................................. 1,028,457 987,924 1,057,548
OBLIGATIONS UNDER CAPITAL LEASES
(Note 8) .................................................. 292,448 291,282 689,175
------------ ------------- -------------
Total liabilities ........................................ 5,102,829 7,259,536 9,805,526
------------ ------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 8, 12 and 14) ...................................... -- -- --
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES .............. 14,942 3,345 28,411
------------ ------------- -------------
STOCKHOLDER' EQUITY (Note 11):
Common stock ................................................ 2,547 2,584 2,656
Additional paid-in capital .................................. 1,652,630 1,976,593 1,983,721
Retained earnings ........................................... 2,494,381 2,378,636 2,824,992
Stock subscriptions receivable .............................. (107,134) (83,967) (73,754)
------------ ------------- -------------
Total stockholders' equity ............................... 4,042,424 4,273,846 4,737,615
------------ ------------- -------------
Total liabilities and stockholders' equity ............... $9,160,195 $11,536,727 $14,571,552
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Net service revenues ............... 22,445,026 $28,902,219 $37,589,088 $17,925,230 $21,885,452
Cost of service revenues ........... 14,673,624 16,996,011 22,424,192 11,085,585 12,326,822
------------ ------------- ------------- ------------- -------------
Gross margin .................... 7,771,402 11,906,208 15,164,896 6,839,645 9,558,630
------------ ------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and benefits .............. 3,667,373 4,863,770 6,732,356 2,951,074 4,628,737
Other .............................. 3,537,030 4,875,985 7,052,610 3,096,176 4,090,893
------------ ------------- ------------- ------------- -------------
Total general and
administrative expenses .. 7,204,403 9,739,755 13,784,966 6,047,250 8,719,630
------------ ------------- ------------- ------------- -------------
Operating income ............ 566,999 2,166,453 1,379,930 792,395 838,900
============ ============= ============= ============= =============
OTHER INCOME (EXPENSE):
Interest expense ................... (147,880) (270,764) (409,763) (189,125) (241,848)
Interest income .................... 53,405 66,510 71,969 48,382 32,339
Loss on investment in unconsolidated
subsidiary (Note 10) ............. (122,699) -- -- --
Miscellaneous ...................... 61,844 93,870 87,686 42,591 83,882
------------ ------------- ------------- ------------- -------------
Total other income (expense) .... (32,631) (233,083) (250,108) (98,152) (125,627)
------------ ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST ................ 534,368 1,933,370 1,129,822 694,243 713,372
INCOME TAX EXPENSE (Note 9) ........ 39,495 13,393 199,636 126,500 241,950
------------ ------------- ------------- ------------- -------------
Income before minority
interest in net income of
consolidated subsidiary .. 494,873 1,919,977 930,186 567,743 471,422
MINORITY INTEREST IN (INCOME) LOSS 7
OF CONSOLIDATED SUBSIDIARIES ..... -- (14,942) 11,597 4,687 (25,066)
------------ ------------- ------------- ------------- -------------
Net income ...................... 494,873 $1,905,035 $941,783 572,430 446,356
------------ ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE (Notes 1
and 2) ........................... $.22 $0.75 $0.37 $0.22 $0.17
------------ ------------- ------------- ------------- -------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ...................... 2,285,000 2,525,000 2,570,000 2,547,000 2,584,000
============ ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
PROFORMA INFORMATION (unaudited): Note 2)
<S> <C> <C> <C>
Net income (historical)............. $ 961,783 $ 1,905,035 $ 94,873
Proforma adjustments:
Income taxes on Surgicare results 190,760 645,682 154,950
--------- ------------ ---------
Proforma net income $ 751,073 $ 1,259,353 $ 339,923
--------- ------------ ---------
Proforma earnings per common shae $0.29 $0.50 $0.15
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
June 30, June 30,
1993 1994 1995 1995 1996
------ ---------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for acquisition
of Priority Home Care, Inc. ... $ -- $150,000 $ -- $ $ --
Acquisition of Health Care 24 Inc.
Value of stock issued in
exchange .................... $ -- $ -- $ 50,000 $ 50,000 $ --
Value of note payable issued in
exchange .................... -- -- 50,000 50,000 --
Working capital acquired net of
cash and cash equivalents ... -- -- -- -- --
Fair value of property and
equipment acquired .......... -- -- (15,000) (15,000) --
-------- ---------- ----------- ----------- ----------
Client lists acquired ......... $ -- $ -- $ 85,000 $ 85,000 --
======== ========== =========== =========== ==========
Acquisition of Home Care Plus,
Inc.
Value of stock issued in
exchange .................... -- -- 274,000 240,000 --
Cash acquired in exchange ..... -- -- (10,890) (10,890) --
Working capital acquired net of
cash and cash equivalents ... -- -- (150,659) (150,659) --
Fair value of property and
equipment acquired .......... -- -- (30,245) (30,245) --
Long-term debt assumed ........ -- -- 229,991 229,991 --
-------- ---------- ----------- ----------- ----------
Goodwill recorded in exchange .. $ -- $ -- $ 312,197 $ 278,197 $ --
-------- ---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1993 1994 1995 1995 1996
------------ ------------- ------------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 494,873 $ 1,905,035 $ 941,783 $ 572,430 $ 446,356
Adjustments to reconcile net income to net cash used
in operating activities --
Depreciation and amortization .................... 179,215 447,334 646,810 277,540 369,947
Provision for bad debts .......................... 96,241 342,722 482,706 197,476 347,973
(Gain) loss on disposal of property and equipment 18,017 -- 7,088 (1,899) (3,711)
Deferred income taxes (benefit) .................. (5,000) (26,600) (161,500) 0 0
Loss from unconsolidated subsidiaries ............ 15,960 122,699 -- 0 0
Minority interest ................................ -- 14,942 (11,597) (4,687) 25,066
Changes in assets and liabilities--
(Increase) decrease in accounts receivable .... (243,959) (1,713,397) (1,012,343) (503,554) (2,986,802)
(Increase) decrease in prepaid expenses ....... 9,497 (55,887) (247,107) (63,344) (54,132)
(Increase) decrease in inventory and other
current assets .............................. (21,689) (4,477) (83,240) (70,284) (208,883)
(Increase) decrease in other assets ........... (69,071) (194,699) (114,409) 21,231 (138,787)
Increase (decrease) in accounts payable ....... 135,632 54,433 (188,251) 36,205 347,327
Increase (decrease) in accrued expenses ....... (167,874) 246,995 1,292,246 494,270 140,434
------------ ------------- ------------- ----------- -------------
Net cash provided by operating activities ... 441,842 1,139,100 1,552,186 955,384 (1,715,211)
------------ ------------- ------------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in notes receivable -- related
party ............................................ 13,533 (321,022) 10,483 (5,613) (2,384)
Proceeds from sale of property, plant and equipment -- -- 42,000 51,197 156,388
Purchase of property, plant and equipment .......... (971,734) (1,573,525) (445,809) (238,203) (946,036)
Investment in unconsolidated subsidiaries .......... (87,580) (34,446) -- -- --
Decrease in note receivable -- other ............... -- -- -- 10,484 --
------------ ------------- ------------- ----------- -----------
Net cash (used by) investing activities ..... (1,045,781 (1,928,993) (393,326) (182,135) (792,032)
------------ ------------- ------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in purchase acquisitions ............. -- -- 10,890 10,890 --
Net borrowings on line of credit agreement ......... 325,948 299,359 782,503 464,432 1,634,501
Proceeds from issuance of notes payable and capital
leases ........................................... 705,702 647,009 661,389 197,262 874,143
Payments on notes payable and capital leases ....... (247,916) (824,887) (573,923) (469,702) (421,821)
Increase (decrease) in notes payable ............... (47,745) 1,265,964 (236,043) 8,639 (65,081)
(Increase) decrease in notes receivable -- related
parties .......................................... (119,868) 160,000 (40,115) -- --
Proceeds from issuance of stock .................... 1,524,558 132,577 -- -- 7,199
Payments received on stock subscriptions receivable -- -- 23,167 11,556 10,213
Distributions to previous members (Note 2) ......... (54,000) (2,068,883) (1,057,528) (948,531) --
Purchase of members' interest ...................... -- (147,000) -- -- --
Purchase of treasury stock ......................... (71,000) -- -- -- --
Proceeds for sale of treasury stock ................ 95,538 -- -- -- --
Offering costs ..................................... (283,853) -- -- -- --
------------ ------------- ------------- ----------- -----------
Net cash provided (used) by financing
activities ............................... 1,827,364 (535,861) (429,660) (725,454) 2,039,154
------------ ------------- ------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH .................... 1,223,425 (1,325,754 729,200 47,795 (468,090)
CASH AT BEGINNING OF YEAR .......................... 243,113 1,466,558 140,804 140,803 870,004
------------ ------------- ------------- ----------- -----------
CASH AT END OF YEAR ................................ 1,466,538 $ 140,804 $ 870,004 188,598 $ 401,915
------------ ------------- ------------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for--
Interest .......................................... 156,520 $ 204,424 $ 365,934 181,823 $ 92,004
------------ ------------- ------------- ----------- -----------
Income taxes (refunds) ............................ 209,287 $ (24,393) $ 36,000 82,155 $ 122,000
------------ ------------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF ORGANIZATION
Amedisys, Inc. (the Company--formerly known as Analytical Nursing
Management Corporation) was acquired on December 21, 1993 by M & N Capital
Corp. (M & N) which had been incorporated under the laws of the State of New
York on October 20, 1992 to serve as a vehicle to effect a combination with
an operating business. In connection with this transaction, 75,000 shares of
M & N common stock were issued as a finders fee to three individuals and the
former shareholders of the Company acquired approximately 73% of the issued
and outstanding capital stock of M & N. Prior to the acquisition, none of the
officers, directors or shareholders of M & N were affiliated with the
officers, directors or shareholders of the Company. This transaction was
accounted for as a reverse acquisition.
In July, 1994, Analytical Nursing Management Corporation (ANMC) was
reincorporated in the state of Delaware, and in August, 1994, M & N Capital
Corp. merged with and into ANMC, changing the name of the Company to
"Analytical Nursing Management Corporation." During 1995, the Company changed
its name and began doing business as Amedisys; the Company also acquired an
outpatient surgery center company in Texas and two home care companies (see
Note 2) in Louisiana. The Company provides a variety of supplemental
staffing, home health care, home care management, outpatient surgery and
primary care clinical services. The Company's home care division now services
all major metropolitan areas in the state of Louisiana as well as the areas
of Houston, Dallas and Beaumont in Texas. The outpatient surgery centers are
located in Houston, Texas.
NATURE OF OPERATIONS
The Company provides services through a network of subsidiaries which
include:
AMEDISYS Staffing Services, Inc. (AME) supplies highly trained critical
care registered nurses and licensed practical nurses to all types of health
care facilities. Independent contract nurses are utilized to meet the
staffing needs of client health care facilities.
AMEDISYS Nursing Services, Inc. (ASI) is an employee-based staffing agency
that provides a variety of relief personnel such as registered and licensed
practical nurses; and certified nurses' aides for staff relief in all types
of health care facilities.
Amerinurse, Inc. provides highly trained nurses who travel to client
health care facilities and work on a contract basis. Effective January 1,
1996, Amerinurse, Inc. was merged into ASI.
AMEDISYS Specialized Medical Services, Inc. (AMS), Amedisys Home Health,
Inc. and Amedisys Home Health, Inc. of Texas provide skilled nursing care,
home health aid, physical therapy, occupational therapy, speech therapy and
medical social workers to homebound patients. During 1994, IHS acquired a 60%
ownership interest in three rural health clinics located in Louisiana.
AMEDISYS Surgery Centers, L.C. (ASC) operates two outpatient surgery
centers in Houston, Texas.
AMEDISYS Physician Services, Inc. (APS) provides physician services in
rural areas through an internal medicine clinic. Its services have been
expanded to include a "walk-in" clinic and laboratory.
USE OF ESTIMATES
The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles. In preparing the
consolidated financial statements, the Company is required to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
F-54
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: - (Continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company;
and its wholly-owned subsidiaries (AME, ASI, AMS and ASC) and its 60%-owned
subsidiary (APS) and their wholly-owned and partially-owned subsidiaries
Analytical Nursing Management Corporation of Texas, a wholly-owned subsidiary
of AME; MedAmerica, Inc. of Texas and MedAmerica, Inc., 80%-owned
subsidiaries of AME; Amedisys Home Health, Inc. and Amedisys Home Health,
Inc. of Texas, both wholly-owned subsidiaries of ASM; and Jackson Rural
Health Clinic, Inc. (clinic closed February, 1996), Kentwood Rural Health
Clinic, Inc. (clinic closed in August, 1995), and Bastrop Rural Health
Clinic, Inc., all 60%-owned subsidiaries of ASM. All material intercompany
accounts and transactions have been eliminated in these financial statements.
Prior year financial statements have been restated to include the accounts
of business combinations accounted for as poolings-of-interests. Business
combinations accounted for as purchases are included from the respective
dates of acquisition. Certain prior years' amounts have been reclassified to
conform with current year financial statement presentation.
REVENUE RECOGNITION POLICY
Gross revenue is recorded on an accrual basis based upon the date of
service at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments
representing the difference between the established rates and the amounts
estimated to be paid by third parties are also recorded on an accrual basis
and deducted from gross revenue to determine net service revenues.
Reimbursement for home health care services to patients covered by the
Medicare program is based on cost reimbursement rates. Final reimbursement is
determined after submission of annual cost reports and audits thereof by the
fiscal intermediaries. Proposed legislation by the U.S. Congress may change
the payment methodology for home health care services to Medicare patients
from a cost based reimbursement system to a prospective payment system.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash includes certificates of
deposit and all highly liquid debt instruments with maturities of three
months or less when purchased. The carrying amount approximates fair value
because of the short maturity of those instruments.
INVENTORY
Inventories consist of medical supplies which are utilized in the
treatment and care of home health and outpatient surgery patients.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is generally carried at cost except for certain
property purchased from related parties (see Note 3). Additions and
improvements are capitalized, but ordinary maintenance and repair expenses
are charged to income as incurred. The cost of property sold or otherwise
disposed of and the accumulated depreciation thereon are eliminated from the
property and related accumulated depreciation accounts, and any gain or loss
is credited or charged to income.
F-55
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: - (Continued)
Included in property and equipment are capitalized leases which consist
primarily of computer equipment, phone systems, and vans used by the home
care divisions. Capital leases are recorded at the present value of the
future rentals at lease inception and are amortized over the lesser of the
applicable lease term or the useful life of the equipment.
For financial reporting purposes, depreciation and amortization of
property subject to capital leases ($468,000 in 1995 and $351,000 in 1994) is
included in other general and administrative expenses and is provided
utilizing the straight-line method basis upon the following estimated useful
service lives:
Buildings 40 years
Leasehold Improvements 5 years
Equipment and furniture 5-7 years
Vehicles 5 years
Computer software 5 years
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income (loss) by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The warrants discussed in Note 11
were not included in the computation of the earnings per common share because
the market value of the common stock was not in excess of the exercise price
through December 31, 1995 and 1994 and their inclusion would have an
anti-dilutive effect.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Additionally, long-lived assets and
certain identifiable intangible assets to be disposed of are required to be
reported at the lower of carrying amount or fair value less selling costs.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The adoption of this statement will not have a material impact on the
consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement provides accounting and reporting standards for
stock-based employee compensation plans and also applies to equity
instruments issued to acquire goods and services from nonemployees. SFAS No.
123 defines a fair value based method of accounting for employee stock
options or similiar equity instruments. Entities may either adopt that
accounting method or may elect to continue the accounting treatment outlined
in APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to continue following Opinion No. 25 are required to make pro forma
disclosures of net income and earning per share, as if the fair value based
method had been adopted. SFAS No. 123 is effective for fiscal years beginning
after December 25, 1995. The Company expects to continue following Opinion
No. 25. Adoption of this statement will not have a material impact on the
consolidated financial statements but will only require pro forma disclosure
in future years.
UNAUDITED FINANCIAL INFORMATION
The financial information as of June 30, 1995 and 1996, included herein is
unaudited; however, such information reflects, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) that are
necessary to present fairly the results of operations for such periods.
Results of operations for the interim periods are not necessarily indicative
of results of operations which will be realized for the year ending December
31, 1996.
F-56
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
2. ACQUISITIONS
On June 30, 1995, the Company acquired all issued and outstanding
membership interests in ASC in exchange for 1,000,000 shares of Company
common stock. ASC's assets on June 30, 1995 were approximately $3,000,000.
Upon closing of the transaction, the former members of ASC owned
approximately 40% of the issued and outstanding stock of the Company. This
transaction has been accounted for as a pooling of interests and accordingly
the financial statements have been restated to include the results of ASC for
all periods presented, as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ---------------------------------------
As Originally Reported As Restated As Originally Reported As Restated
---------------------- ------------- ---------------------- -------------
<S> <C> <C> <C> <C>
Operating revenues ...... $8,728 $11,906 $6,099 $7,771
Net income .............. 6 1,905 39 495
Earnings per common share 0.00 0.75 .03 .22
</TABLE>
Combined and separate results of the Company and Surgicare for the six
months ended June 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Combined
Amedisys Surgicare Total
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenue $5,722 $1,118 $6,840
---------- ----------- ----------
Net income ...... $ 11 $ 561 $ 572
---------- ----------- ----------
</TABLE>
ASC was a limited liability company and, accordingly, had no income tax
liabilities. The effect of providing for income taxes on results of ASC
operations prior to the 1995 acquisition are shown under "Proforma
Information" in the accompanying statements of income.
On May 31, 1995, the Company acquired all of the outstanding stock of Home
Care Plus, Inc. in exchange for 30,000 shares of its common stock value at
$274,000. The excess of the total acquisition cost over the fair value of the
net assets acquired of $312,197 is being amortized over seven years using the
straight-line method.
On March 19, 1995, the Company acquired all of the outstanding stock of
Health Care Services 24, Inc. in exchange for 7,143 shares of its common
stock and notes payable in the amount of $50,000, payable in monthly
installments through March, 1996. The remaining balance on these notes at
December 31, 1995 was approximately $8,500.
On April 28, 1994, the Company acquired all of the outstanding stock of
Priority Home Care, Inc. in exchange for 15,800 shares of its common stock
valued at $150,000. The excess of the total acquisition cost over the fair
value of the net assets acquired of $144,348 is being amortized over seven
years using the straight-line method.
F-57
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
2. ACQUISITIONS - (Continued)
The acquisitions of Home Care Plus, Inc., Health Care Services 24, Inc.
and Priority Home Care, Inc. were accounted for as purchases and as a result,
operations of these entities subsequent to the date of acquisition have been
included in the consolidated financial statements. Unaudited pro forma
consolidated results of operations for the years ended December 31, 1995, and
1994 (operations of these companies prior to 1994 were not significant) as
though these companies had been acquired as of Janaury 1, 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Net service revenues .... $38,108,293 $31,625,839
Net income .............. 850,874 1,750,446
Earnings per common share 0.33 0.68
</TABLE>
The above amounts reflect adjustments for amortization of goodwill.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Land ............................... $ 162,246 $ 162,246
Buildings and leasehold improvements 509,619 479,033
Equipment, furniture and vehicles .. 2,910,087 2,524,168
Computer software .................. 37,581 33,855
------------- ------------
Total ......................... 3,619,533 3,199,302
Accumulated depreciation ........... (1,170,065) (749,617)
------------- ------------
Net ........................... $ 2,449,468 $2,449,685
</TABLE>
During 1994, prior to acquisition, ASC purchased a building, land and
equipment from a real estate partnership whose owners were also owners of
ASC, and are now owners of the Company. The purchase price of this property
was $1.2 million and resulted in a gain to the seller of approximately
$475,000, which amount was offset against the allocated purchase price of the
property and treated as a distribution in the accompanying financial
statements. Lease payments on this property prior to purchase ($104,000 in
1994 and $489,000 in 1993) are included in other expenses.
During 1995, prior to acquisition, ASC also purchased certain other
equipment from owners of ASC. The sellers' basis in the equipment was
undeterminable and thus the entire purchase price of $115,000 was offset
against the recorded equipment balance and treated as a distribution in the
accompanying financial statements. Rental payments on this equipment were
approximately $75,000 in 1994 and are included in other expenses. No rental
payments were made on this equipment in 1995.
4. ASSETS HELD FOR SALE:
On April 1, 1991, Cajun-a-La-Carte, a 57.95%-owned subsidiary of AME in
the frozen seafood processing business, was merged into AME. Cajun-a-La-Carte
ceased operations in 1992 and its principal assets are being held for sale.
The Company has an agreement to lease these assets for a period of three
years beginning April 1, 1994 for monthly lease payments ($1,025) which are
sufficient to cover the monthly debt service on these assets. Management
believes that these assets will be sold at a price sufficient to realize the
carrying value of $76,456 as of December 31, 1995, which is net of
accumulated depreciation of $70,932.
F-58
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
5. OTHER ASSETS:
Other assets include the following for the years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
GOODWILL, net of accumulated amortization of $59,554
and $12,615 ....................................... $397,022 $131,763
START-UP COSTS, net of accumulated amortization of
$129,241 and $45,377 .............................. 104,608 188,472
CLIENT LISTS ACQUIRED, net of accumulated
amortization of $115,343 and $73,265 .............. 49,582 6,661
INVESTMENT IN A REAL ESTATE PARTNERSHIP ............ 50,174 42,585
OTHER .............................................. 151,868 61,821
---------- ----------
$753,254 $431,302
========== ==========
</TABLE>
The excess of the total acquisition costs over the fair value of the net
assets acquired (goodwill) in various acquisitions (see Note 2) is amortized
using the staight-line method over a seven-year period.
Costs incurred to establish regional offices of ASM prior to beginning
services are capitalized as Other Assets and amortized over a five-year
period.
In connection with the acquisition of various home health companies, ASM
purchased client lists whose cost is being amortized over a three-year
period.
Other assets also include an investment in a real estate partnership,
acquired in connection with the purchase of ASC (see Note 2), which has
certain partners who are also owners of the Company. The investment is
accounted for on the equity method.
Other assets also include deferred organizational costs, which are being
amortized over a five-year period, deposits on leased properties and workers'
compensation policy deposits.
6. NOTES PAYABLE:
Notes payable as of December 31, 1995 and 1994, consist primarily of
borrowings under a $3,500,000 revolving line of credit which matures on
August 7, 1996, bears interest at bank prime (10.25% at December 31, 1995),
and is secured by accounts receivable, life insurance on the major
stockholder and personal guarantees of several stockholders. Such borrowings
totaled $2,456,971 at December 31, 1995 ($1,666,993 at December 31, 1994) at
rates ranging from 8% to 10.25% (9% to 11% in 1994). As of December 31, 1995,
approximately $1,043,000 was unused under this line of credit. The weighted
average monthly interest rate on short-term borrowings was 10.67% and 10.04%
in 1995 and 1994, respectively.
The revolving line of credit is subject to certain covenants, including a
monthly borrowing base or margin requirement calculation, a debt service
coverage ratio and a leverage ratio. The Company was in default on one of the
covenants of these agreements at December 31, 1994, which default was waived
by the bank at that time. No such events of default existed at December 31,
1995. The Company expects to renew the line of credit prior to its
expiration.
F-59
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
7. LONG-TERM DEBT:
Long-term debt consists of notes payable to banks and other financial
institutions which are due in monthly installments through 2000:
<TABLE>
<CAPTION>
1995
------------------------------------------
Payee Interest Rate Current Long-term
- ----- --------------- ---------- ----------
<S> <C> <C> <C>
Notes payable to banks ......................... 7.75-14.39% $103,474 $208,164
Notes payable to finance and equipment companies 8.00-12.75% 283,374 3,023
---------- ----------
$386,848 $211,187
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------
Payee Interest Rate Current Long-term
- ----- --------------- ---------- -----------
<S> <C> <C> <C>
Notes payable to banks ......................... 7.00-11.99% $69,519 $189,358
Notes payable to finance and equipment companies 9.75-12.75% 26,371 26,813
---------- -----------
$95,890 $216,171
========== ===========
</TABLE>
The fair value of long-term debt as December 31, 1995, estimated based on
the Company's current borrowing rate of 10.25%, is approximately $546,000.
These borrowings are secured by equipment, vehicles and the personal
guarantee of a stockholder. Maturities of long-term debt as of December 31,
1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996 ............................................. $386,848
December 31, 1997 ............................................. 91,320
December 31, 1998 ............................................. 99,042
December 31, 1999 ............................................. 9,946
December 31, 2000 ............................................. 10,879
----------
$598,035
==========
</TABLE>
F-60
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
8. CAPITAL LEASES:
During 1995 and 1994, the Company acquired certain equipment under capital
leases. The related liabilities under these capital leases were recorded at
the present value of future minimum lease payments due under the leases.
The present minimum lease payments under the capital leases and the net
present value of future minimum lease payments are as follows:
December 31, 1996 .......................................... $ 234,205
December 31, 1997 .......................................... 166,214
December 31, 1998 .......................................... 123,952
December 31, 1999 .......................................... 60,452
December 31, 2000 .......................................... 2,365
-----------
Total future minimum payments .............................. 587,188
Amount representing interest ............................... (113,942)
-----------
Present value of future minimum lease
payments .............................. 473,246
Current portion .............................. 181,964
-----------
Long-term portion ............................ $ 291,282
===========
F-61
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
9. INCOME TAXES:
The Companies file consolidated federal income tax returns, including all
subsidiaries which are owed more than 80%. State income tax returns are filed
individually by the subsidiaries in accordance with state statutes.
The Company utilizes the liability approach to measuring deferred tax
assets and liabilities based on temporary differences existing at each
balance sheet date using currently enacted tax rates in accordance with FASB
Statement No. 109. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Current portion ......... $ 361,136 $ 51,893 $45,495
Deferred portion ........ (161,500) (38,500) (5,000)
----------- ---------- ---------
$ 199,636 $ 13,393 $39,495
=========== ========== =========
</TABLE>
Net deferred tax assets consist of the following components:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Receivable allowance ......... $ 97,000 $ 53,900
Self-insurance reserves ...... 106,000 --
Losses of consolidated
subsidiaries (not
consolidated for tax
purposes) .................. 54,000 67,700
Deferred tax liabilities:
Property and equipment .......... (49,000) (30,900)
---------- ----------
208,000 90,700
Less: Valuation allowance ......... -- (44,200)
---------- ----------
$208,000 $ 46,500
========== ==========
</TABLE>
Total tax expense (benefit) on income before taxes resulted in effective
tax rates that differed from the federal statutory income tax rate. A
reconciliation follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income taxes computed on federal statutory rate . 34.00% 34.00% 34.00%
State income taxes .............................. 2.00 0.39 2.91
ASC income prior to merger (Note 2) ............. (16.88) (33.40) (31.30)
Losses of unconsolidated subsidiaries ........... 8.33 (0.65) --
Write-off of notes receivable from unconsolidated
subsidiaries ................................... (14.39) -- --
Net operating losses utilized ................... -- (1.61) --
Nondeductible expenses and other ................ 4.60 1.96 1.78
--------- --------- ---------
Total ......................................... 17.66% 0.69% 7.39%
========= ========= =========
</TABLE>
F-62
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
10. RELATED PARTY TRANSACTIONS:
NOTES RECEIVABLE
Notes receivable from related parties consist of unsecured and noninterest
bearing notes from the President and certain stockholders of the Company
totaling approximately $18,000 at December 31, 1995 and 1994, receivables
from an internal medicine clinic (IMC) totaling approximately $256,000 and
$345,000 at December 31, 1995 and 1994, respectively, and a receivable from
the developer of an outpatient surgery center to be leased by the Company in
the future of approximately $127,000 at December 31, 1995. The fair value of
the notes receivable from related parties is equal to the recorded value due
to the short term nature of the notes from the President, stockholders, and
developer, and the effective date of January 1, 1996 of the IMC notes.
In March 1994, the Company entered into an agreement with IMC, an
unrelated party, to form a new corporation (APS) which is 60% owned by the
Company and 40% owned by the owners of IMC. APS acquired equipment and
personal property from IMC for approximately $340,000 and manages the
continuing operations of IMC. The Company loaned funds to APS to acquire the
assets of IMC and meet working capital requirements. This loan to APS, which
is to be repaid solely from the revenues of APS over a five-year period,
bears interest at a rate of prime plus 2% and is eliminated in consolidation.
APS recorded management fees of $541,449 in 1995 and $585,491 in 1994 from
IMC. As discussed above, the unpaid management fees are included in notes
receivable from related parties. Effective January 1, 1996, IMC issued new
notes to APS for the unpaid balance on this date. These notes bear interest
at 9%, require monthly principal and interest payments of $4,076 with the
balance due on maturity of January 1, 1999 and are secured by the accounts
receivable of IMC.
In accordance with the terms of the agreements with IMC, IMC has the right
and option to sell its stock back to APS at a price equal to 3.5 times the
earnings per share of APS attributable to each share of APS stock, to be
calculated based on the largest annual earnings per share amount during the
three-year period prior to the time such repurchase is requested by IMC. This
option is not exercisable until March 1, 1997 and, based on operations of APS
through December 31, 1995, would not have a material effect on the Company's
financial statements if exercised.
NOTES PAYABLE
Notes payable to related parties consist primarily of a note issued in
1994 in the original amount of $1,080,000, bearing interest at 9% (see Note
3). The note is secured by all real estate and personal property of one of
the surgical care centers. Maturities of this debt as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996 $ 40,533
December 31, 1997 44,335
December 31, 1998 48,894
December 31, 1999 410,295
December 31, 2000 91,531
Thereafter 392,869
-----------
$1,028,457
===========
</TABLE>
The fair value of this note at December 31, 1995, estimated based on the
Company's current borrowing rate of 10.25%, was approximately $987,624.
The remaining balance of notes payable to related parties ($50,178)
consists of unsecured notes to certain stockholders of the Company that are
due on demand and bear interest at rates from 0% - 12%. The fair value of
these notes is assumed to be equal to the recorded balance due to the
short-term nature of the notes.
F-63
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
10. RELATED PARTY TRANSACTIONS: - (Continued)
OTHER
Prior to acquisition by the Company, ASC engaged in the following
transactions with related parties during 1995 and 1994:
During 1993, the Company made payments totaling $169,500 to three
doctors who were members of ASC for services rendered in the capacity of
medical director (no such payments were made or required for 1994).
During 1993, ASC made payments to RPH, Inc., an entity whose primary
owners were also the controlling owners of ASC, aggregating approximately
$1,014,000 for leased employees. Terms of the contract covering this
transaction provided for ASC to pay RPH the salary costs of these
employees plus 30% for the term of the contract.
The Company made payments aggregating approximately $75,000 in 1994 and
$16,000 in 1993 for equipment rented from doctors who were members of ASC.
Payments totalling approximately $108,000 in 1995, $229,000 in 1994 and
$206,000 in 1993 were made to RPH, Inc. for anesthesia services. The
primary owners of RPH, Inc. were also controlling owners of ASC.
During 1994, the Company purchased the interest of two members
(totaling 7.6%) for $35,000 per percentage point, $252,000 in aggregate.
This purchase was effected through the issuance of notes payable. Of the
purchased interest, 3% was sold in 1994 for $35,000 per percentage point,
$105,000. The remaining repurchased interest of 4.6% has been reflected as
a reduction of retained earnings in the accompanying financial statements.
The Companies paid $18,935 for legal fees to a stockholder and director
(through July 1995) of the Company in 1995 and $21,000 in 1994 for legal fees
to a stockholder and director of the Company.
APS paid medical director fees of $24,000 to a stockholder of the Company
and a total of $24,000 to two of the owners of IMC.
The Company had an investment in Network Wellness Systems, Inc. (NWS), the
corporate general partner of Sports/Spa and Clinic, a Louisiana Partnership
In Commendata ("SSC"), which operated a health club, spa, salon and wellness
facility within the Sandestin Resort (the Resort) in Destin, Florida. SSC
began business in November, 1991, and subsequently was placed in Chapter 11
Reorganization on April 23, 1993. The bankruptcy proceeding was thereafter
converted to a Chapter 7 liquidation. The Company determined the unpaid
balance due from NWS ($99,487) to be uncollectible and charged it against
income in 1994. Two of the owners of IMC are also affiliated with NWS and
SSC.
11. CAPITAL STOCK:
Prior to its acquisition of ANMC, M & N completed its initial public
offering of 250,000 common shares for gross proceeds of $1,500,000 on August
26, 1993. In connection with the offering, M & N issued 25,000 warrants to
the Underwriter (the Underwriter's Warrants), which are exercisable at $7.20
per common share for a period of four years commencing April 28, 1994.
At December 31, 1993, there were 120,000,000 shares authorized of common
stock, $.001 par value per share, and 1,500,000 shares issued and
outstanding. Effective with the merger of M & N (merged corporation) with and
into ANMC (surviving corporation) in 1994 (see Note 1), each outstanding
share of common stock, $.001 par value per share, of the merged corporation
was converted into one share of common stock, $.001 par value per share, of
the surviving corporation. As a result of the merger and reincorporation of
ANMC in the state of Delaware, the number and class of authorized shares of
capital stock of the Company changed. As of Decem-
F-64
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
11. CAPITAL STOCK: - (Continued)
ber 31, 1994, there were 5,000,000 shares of common stock authorized, $.001
par value per share, and 5,000,000 shares of preferred stock authorized,
$.001 par value per share. As of December 31, 1995, there were 10,000,000
shares of common stock authorized, $.001 par value per share, and 2,500,000
shares of preferred stock authorized, $.001 per share.
STOCK OPTIONS
The Company's Board of Directors has approved a Statutory Stock Option
Plan providing incentive stock options to key employees. The Plan is to be
administered by a Compensation Committee (appointed by the Board) which is to
determine, within the provisions of the Plan, those eligible employees to
whom, and the times at which, options shall be granted. Each option granted
under the Plan is to be convertible into one (1) share of common stock,
unless adjusted in accordance with the provisions of the Plan. Options may be
granted for a number of shares not to exceed, in the aggregate, 500,000
shares of common stock at an option price per share of no less than 85% of
the fair market value of a share of common stock on the date the option is
granted. If the option is granted to any owner of 10% or more of the total
combined voting power of the Company and its subsidiaries, the option price
is to be at least 110% of the fair market value of a share of common stock on
the date the option is granted. Each option is to be fully exercisable when
granted and may be exercised during a period as determined by the
Compensation Committee, not to exceed 10 years from the date such option is
granted. The aggregate fair market value of common stock subject to an option
granted to a participant by the Committee in any calendar year shall not
exceed $100,000. As of December 31, 1994, no options had been granted under
this Plan. During 1995, the Company granted 27,650 options at an exercise
price of $7.00 per share (87.5% of the fair market value on date of grant).
These options expire April, 1998. No options were exercised during 1995.
On December 19, 1990, the Company granted an option to purchase 1,600
shares of its common stock at $5.00 per share to an employee under an
arrangement whereby share certificates were to be issued for all stock paid
for through December 31st of each year, for the years 1991, 1992 and 1993.
This option was later converted to an option to purchase 2,032 shares of
stock. This employee purchased 1,648 shares of stock during 1993 and 1,200
shares of stock during 1994.
All administrative employees were given the option to purchase 6,250
shares for $10,000 in September, 1992. Only one employee accepted this option
which was left open until March 31, 1993. This option to purchase 6,250
shares was later converted to an option to purchase 7,938 shares of stock.
During 1993, this employee purchased 7,300 shares of ANMC stock in connection
with this agreement.
An option to purchase shares of stock in a subsidiary was granted to an
employee in June 1992. This option was later converted to the right to
purchase 5,000 shares of the Company's stock for $6,300. During 1993, this
employee purchased 3,150 shares of stock in connection with this agreement.
STOCK PURCHASE AGREEMENTS
On March 21, 1994, the Company had a private placement stock offering of
45,000 units, consisting of one share of common stock and one common stock
purchase warrant (unit) for $7.86 per share based on 85% of the average of
the high and low bid price per share on the first day of the offering which
was March 21, 1994. The warrant included in the unit entitles the holder
thereof to purchase one share of common stock at a purchase price of $9.25
per share for a three-year period. The private placement resulted in a total
of 29,721 shares being sold for $233,607. A portion of the sale was financed
by the Company; actual cash received as of December 31, 1994, was $126,473.
The total amount of $233,607 was recorded as common stock and additional
paid-in capital. Equity has been reduced for these sales for which cash has
not been received as of December 31, 1994 and 1995.
F-65
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company and its subsidiaries have leased office space at various
locations under noncancelable agreements which expire between January, 1995,
and October, 2002, and require various minimum annual rentals. Total minimum
rental commitments at December 31, 1995, are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 781,756
1997 646,329
1998 570,163
1999 518,044
2000 473,746
Due thereafter 1,083,733
-----------
$4,073,771
===========
</TABLE>
SELF-FUNDED INSURANCE PLANS
During 1995, the Company became self-insured for workers' compensation
claims in the State of Louisiana up to certain policy limits. Claims in
excess of $200,000 per incident and $756,200 in the aggregate are insured by
third party reinsurers. The Company has accrued a liability for both
outstanding as well as incurred but not reported claims based on historical
experience. Such reserves totaled approximately $389,000 at December 31, 1995
and are included in accrued insurance in the accompanying financial
statements. In connection with the self insurance and as required by the
State of Louisiana, the Company issued a $175,000 letter of credit in favor
of the Louisiana Department of Labor, which expired February 17, 1996, and
was renewed to February 17, 1997.
PLANNED SURGICAL CARE CENTER
ASC plans to develop an additional surgical care operation in Hammond,
Louisiana in 1996. In connection with this development, ASC has committed to
purchase a 60% interest in Hammond Surgical Care Center, L.C., a limited
liability company (HSCC), for $960,000. HSCC is expected to operate the
surgical care facility which is to be leased from an unrelated entity who
plans to build the facility and lease it to HSCC.
OTHER
The Companies are subject to various types of claims and disputes arising
in the course of their businesses. While the resolution of such issues is not
presently determinable with certainty, management believes that the ultimate
resolution of such matters will not have a significant effect on the
Companies' financial position or results of operations.
13. PENSION PLAN:
The Company adopted a pension plan qualified under Internal Revenue Code
401(k) for all employees who are 21 years of age and have at least one year
of service. Under the plan, eligible employees may elect to defer a portion
of their compensation, subject to internal revenue service limits. The
Company may make matching contributions equal to a discretionary percentage
of the employee's salary reductions. No matching contributions were made for
the years ended December 31, 1995, 1994 and 1993.
F-66
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED
14. SUBSEQUENT EVENTS:
During 1995, the Company began a process to develop a health maintenance
organization (HMO). In January, 1996, the Company deposited $500,000 in
connection with the HMO licensing process. The Company's president acquired a
67% interest in the HMO, which is still unlicensed, in exchange for arranging
a $1,000,000 letter of credit for the HMO, secured by shares in the Company
owned by the president. Neither the Company nor the Company's president have
any further formal commitment in connection with the HMO and the future
development of the HMO is undeterminable at this time.
15. UNAUDITED INTERIM FINANCIAL STATEMENT INFORMATION:
CASH
Cash balance includes $500,000 held by an entity, 33% owned by the
Company, developing an HMO. The cash in the subsidiary is available to the
Company at any time.
INCOME TAXES
The subsidiaries in which the Company owns interests greater that 80% file
a consolidated federal income tax return. These subsidiaries include all
nursing services and SCC beginning on July 1, 1995. SCC is a limited
liability company and through June 30, 1995, the individual owners are
responsible for all income taxes. Therefore, no provision has been made for
income taxes recorded on the income statements of SCC for the periods prior
to July 1, 1995. The primary care subsidiaries file individual income tax
returns.
F-67
<PAGE>
=============================================================================
No Underwriter, 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 hereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby by
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
Page
--------
Prospectus Summary ............................. 3
Investment Considerations ...................... 10
Use of Proceeds ................................ 16
Recent Financings .............................. 17
Price Range For Common Shares .................. 18
Capitalization ................................. 18
Dividend Policy ................................ 19
Pro Forma Consolidated Financial Information ... 20
Selected Financial Data ........................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 25
Business ....................................... 32
Proposed Amedysis Merger ....................... 46
Management ..................................... 48
Principal and Selling Shareholders ............. 54
Description of Debentures ...................... 55
Income Tax Consequences ........................ 63
Description of Capital Stock ................... 65
Shares Eligible for Future Sale ................ 67
Underwriting ................................... 68
Legal Matters .................................. 69
Experts ........................................ 69
Available Information .......................... 69
Index to Financial Statements .................. F-1
------
Until , 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 obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
F-68
<PAGE>
=============================================================================
COMPLETE
MANAGEMENT, INC.
3,000,000 COMMON SHARES
AND
$25,000,000
[6 1/2 TO 8%] CONVERTIBLE
SUBORDINATED DEBENTURES DUE
[DECEMBER] 15, 2003
INTEREST PAYABLE [DECEMBER] 15
AND [MAY] 15
------
PROSPECTUS
------
NATIONAL SECURITIES
CORPORATION
COMMONWEALTH
ASSOCIATES
NOVEMBER , 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 ......................................... $ 27,896
NASD registration fee ........................................ 9,706
AMEX listing fee ............................................. 17,500
Printing expenses ............................................ 150,000
Accounting fees and expenses ................................. 150,000
Legal fees and expenses ...................................... 300,000
State securities law fees and expenses including fees of
counsel .................................................... 7,500
Transfer Agent and Registrar Fees ............................ 15,000
Stock Certificate Expenses ................................... 5,000
Miscellaneous expenses ....................................... 117,398
---------
Total ................................................... $800,000
---------
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
II-1
<PAGE>
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interest of the 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
II-2
<PAGE>
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,
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.
II-3
<PAGE>
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.
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. The transactions
described in sub-paragraph (5) were also exempt from registration by reason
of Regulation D under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [TO BE REVISED]
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement among Complete Management, Inc., National Securities
Corporation and Commonwealth Associates.
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).
2.2 Agreement and Plan of Merger dated as of September 19, 1996 among Advanced Alliance Management
Corp., (the "Seller") and the shareholders of the Seller set forth on Exhibit A thereto, and
AAMC Acquisition Corp. and Complete Management, Inc.(6)
3.1 Certificate of Incorporation of CMI.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1,
1995.(1)
3.3 By-Laws of CMI.(1)
4.1 Specimen Stock Certificate.(1)
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.
4.3 Form of Indenture.
4.4 Form of Debenture Certificate.+
4.5 Indenture, dated as of June 11, 1996 between Complete Management, Inc. and Chemical Bank covering
$40,250,000 aggregate amount Convertible Subordinated Debentures Due 2003.
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.+
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurology
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David
Jacaruso and Dennis Shields.(1)
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.(1)
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.(1)
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.(1)
10.6 1995 Stock Option Plan of the Company.(1)
10.13 Lease Agreement between JAF Associates and complete Management, Inc. for 1616 Voorhies Avenue
- Suite A.+
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.(1)
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.(1)
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc.
for 254 West 31st Street.(1)
10.19 Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
59th Street.(1)
10.20 Lease Agreement dated August 31st between Thirty-One, Co. and MRI Management Associates, Inc.
for 254 West 31st Street.(1)
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.(1)
10.22 Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space
at 254 West 31st Street.(2)
10.23 Agreement 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.(1)
10.24 Assignment of 118-21 Queen 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.(1)
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.(1)
10.27 Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
Services, P.C.(1)
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.(3)
10.29 Employment Agreement between the Company and Arthur Goldberg.(4)
10.30 Employment Agreement between the Company and Dennis W. Simmons.(4)
10.31 Employment Agreement between the Company and Robert Keating.(4)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ----------- --------
<S> <C> <C>
10.32 Employment Agreement between the Company and Joseph M. Scotti.(4)
10.33 Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
Hempstead, NY.(4)
10.34 Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
Newburgh, NY.(4)
10.35 Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
as exhibit thereto).(5)
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.(5)
10.37 Practice Management Services Agreement dated as of September 17, 1996 By and Between Northern
Metropolitan Radiology Associates, P.C., Northern Metropolitan Radiology Associates, P.A.,
Personal Breast Services and Ultrasound of Northern Westchester, P.C., NMRA of Connecticut,
P.C. and Northern Westchester Diagnostic Partners, P.C. and Advanced Alliance Management Corp.
10.38 Employment Agreement between the Company and William Fontanetta.
10.39 Employment Agreement between the Company and Gregory Heineman.
10.40 Employment Agreement between the Company and Dr. Kenneth Schwartz.
10.41 Employment Agreement between the Company and John T. Dooley.
10.42 Form of Employment Agreement between the Company and Harvey R. Hirschfeld.
10.43 Form of IPO Representative's Warrant Agreement(7)
10.44 First Series Debenture Offering Representative's Warrant Agreement (including form of Warrent)
12. Statement re Computation of Ratios.+
18. Preferability Letter.(5)
21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Hannis T. Bourgeois & Co., LLP.
23.4 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>
- ------
(1) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 33-97894.
(2) Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
(3) Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
(4) Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
(5) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 333-4262.
(6) Previously filed as a similarly numbered Exhibit to CMI 8-K dated October 1,
1996.
(7) Previously filed as Exhibit 4.2 to CMI Registration Statement No. 33-97894.
+ To be filed by amendment.
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-6
<PAGE>
(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-7
<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 November 4, 1996.
COMPLETE MANAGEMENT, INC.
by: /s/ Steven M. Rabinovici
-----------------------------
Steven M. Rabinovici,
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures appears
below constitutes and appoints Steven Rabinovici and Stephen A. Zelnick, and
each one of them individually, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this registration
statement, and any registration statement relating to the offering hereunder
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same with the Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done and about the premises,
as fully to all intents and purpose as he might or could do in person, hereby
ratifying and confirming all said attorneys-in-fact and agents or any of
them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirement of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
November 4, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Steven M. Rabinovici Chairman of the Board and Chief Executive Officer
- ------------------------------
Steven M. Rabinovici
/s/ Joseph M. Scotti Vice President, Chief Financial Officer, Treasurer, Secretary
- ------------------------------ and Director
Joseph M. Scotti
/s/ David Jacaruso Director
- ------------------------------
David Jacaruso
/s/ Dennis Shields Director
- ------------------------------
Dennis Shields
/s/ Richard DeMaio Director
- ------------------------------
Richard DeMaio
/s/ Steve Cohn Director
- ------------------------------
Steve Cohn
Director
- ------------------------------
Steven Hirsh
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement among Complete Management, Inc., National Securities
Corporation and Commonwealth Associates.
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).
2.2 Agreement and Plan of Merger dated as of September 19, 1996 among Advanced Alliance Management
Corp., (the "Seller") and the shareholders of the Seller set forth on Exhibit A thereto, and
AAMC Acquisition Corp. and Complete Management, Inc.(6)
3.1 Certificate of Incorporation of CMI.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation of CMI as filed on December 1,
1995.(1)
3.3 By-Laws of CMI.(1)
4.1 Specimen Stock Certificate.(1)
4.2 Form of Representatives' Warrant Agreement, including Form of Warrant.
4.3 Form of Indenture.
4.4 Form of Debenture Certificate.+
4.5 Indenture, dated as of June 11, 1996 between Complete Management, Inc. and Chemical Bank
covering $40,250,000 aggregate amount Convertible Subordinated Debentures Due 2003.
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP.+
10.1 Practice Management Services Agreement as of July 1, 1995 between Greater Metropolitan Neurology
Services, P.C. and Complete Management, Inc. and Agreement Addendum as of such date.(1)
10.2 Shareholders Agreement among Steven Rabinovici, Lawrence W. Shields, Marie Graziosi, David
Jacaruso and Dennis Shields.(1)
10.3 Revised Form of Employment Agreement between the Company and Steven Rabinovici.(1)
10.4 Revised Form of Employment Agreement between the Company and David Jacaruso.(1)
10.5 Revised Form of Employment Agreement between the Company and Dennis Shields.(1)
10.6 1995 Stock Option Plan of the Company.(1)
10.13 Lease Agreement between JAF Associates and complete Management, Inc. for 1616 Voorhies Avenue
- Suite A.+
10.14 Lease Agreement between Whitehall Terrace Associates and Complete Management of Queens, Inc.
for 118-21 Queens Boulevard, Forest Hills, New York.(1)
10.15 Lease Agreement dated December 1, 1992 between 865 Realty Corp. and Physicians Administration
Services, Inc. for 865 Walton Avenue.(1)
10.18 Lease Agreement dated March 12, 1993 between Thirty-One, Co. and Complete Management, Inc.
for 254 West 31st Street.(1)
10.19 Form of Lease Agreement between Park South Tower Associates and Urban Associates for 425 West
59th Street.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ----------- ----------- --------
<S> <C> <C>
10.20 Lease Agreement dated August 31st between Thirty-One, Co. and MRI Management Associates, Inc.
for 254 West 31st Street.(1)
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.(1)
10.22 Lease Agreement dated August 31, 1992 between MMI and Brause Realty, Inc. for office space
at 254 West 31st Street.(2)
10.23 Agreement 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.(1)
10.24 Assignment of 118-21 Queen 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.(1)
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.(1)
10.27 Sublease of 254 West 34th Street by Complete Management, Inc. to Greater Metropolitan Neurology
Services, P.C.(1)
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.(3)
10.29 Employment Agreement between the Company and Arthur Goldberg.(4)
10.30 Employment Agreement between the Company and Dennis W. Simmons.(4)
10.31 Employment Agreement between the Company and Robert Keating.(4)
10.32 Employment Agreement between the Company and Joseph M. Scotti.(4)
10.33 Lease Agreement dated September 19, 1995 between CMI and Parp Center, Inc. for 230 Hilton Ave,
Hempstead, NY.(4)
10.34 Lease Agreement dated September 1, 1995 between CMI and KABB, Inc. for 180 North Plank Road,
Newburgh, NY.(4)
10.35 Note Agreement dated as of March 20, 1996 and Form of 8% Convertible Subordinated Note (included
as exhibit thereto).(5)
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.(5)
10.37 Practice Management Services Agreement dated as of September 17, 1996 By and Between Northern
Metropolitan Radiology Associates, P.C., Northern Metropolitan Radiology Associates, P.A.,
Personal Breast Services and Ultrasound of Northern Westchester, P.C., NMRA of Connecticut,
P.C. and Northern Westchester Diagnostic Partners, P.C. and Advanced Alliance Management Corp.
10.38 Employment Agreement between the Company and William Fontanetta.
10.39 Employment Agreement between the Company and Gregory Heineman.
10.40 Employment Agreement between the Company and Dr. Kenneth Schwartz.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ----------- ----------- --------
<S> <C> <C>
10.41 Employment Agreement between the Company and John T. Dooley.
10.42 Form of Employment Agreement between the Company and Harvey R. Hirschfeld.
10.43 Form of IPO Representative's Warrant Agreement(7).
10.44 First Series Debenture Offering Representative's Warrant Agreement (including form of warrant).
12. Statement re Computation of Ratios.+
18. Preferability Letter.(5)
21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hannis T. Bourgeois & Co., LLP.
23.4 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>
- ------
(1) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 33-97894.
(2) Previously filed as Exhibit 10.4 to MMI S-1 Registration Statement No.
33-68458.
(3) Previously filed as Exhibit 10.11 to MMI S-1 Registration Statement No.
33-68458.
(4) Previously filed as a similarly numbered Exhibit to CMI 10-K for the
Fiscal Year Ended December 31, 1995, Commission File No. 0-27260.
(5) Previously filed as a similarly numbered Exhibit to CMI S-1 Registration
Statement No. 333-4262.
(6) Previously filed as a similarly numbered Exhibit to CMI 8-K dated October 1,
1996.
(7) Previously filed as Exhibit 4.2 to CMI Registration Statement No. 33-97894.
+ To be filed by amendment.
<PAGE>
Exhibit 1.1
DRAFT: 11/1/96
[6 1/2% to 8%] Convertible Subordinated Debentures Due 2003
COMPLETE MANAGEMENT, INC.
UNDERWRITING AGREEMENT
New York, New York
December _____, 1996
National Securities Corporation,
Commonwealth Associates
As Representatives 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")
Commonwealth Associates ("Commonwealth"), 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 National and Commonwealth are acting as representatives (in such capacity,
National and Commonwealth shall hereinafter be referred to as "you" or the
"Representatives") with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of $25,000,000 aggregate
principal amount of the Company's [6 - 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") and 3,000,000 shares of common
stock (the "Common Stock") of the Company. Such $25,000,000 aggregate principal
amount of Debentures and 3,000,000 Shares of Common Stock 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 $3,750,000
principal amount of Debentures and 450,000 Shares of Common Stock for the
purpose of covering over-allotments, if any. Such $3,750,000 principal amount of
Debentures and 450,000 Shares of Common Stock 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 Common
Stock issuable upon conversion of the Debentures are hereinafter referred to as
the "Underlying Stock." The Company also proposes to issue and sell to you
warrants (the "Representatives' Warrants") pursuant to the Representatives'
Warrant Agreement (the
<PAGE>
"Representatives' 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 Representatives' Warrants are hereinafter
referred to as the "Representatives' Securities." The Firm Securities, Option
Securities, the Representatives' Warrants, the Representatives' 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- ), including
any related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Securities, the Representatives' 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 Representatives'
Warrant Agreement and as described in the Prospectus. The Securities, the
Representatives' Warrants, the Representatives' 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 and the Common
Stock 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
Representatives' Warrants, the Representatives' 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
-4-
<PAGE>
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Representatives' Warrants,
the Representatives' Securities and the Underlying Stock has been duly and
validly taken; and the certificates representing the Securities, the
Representatives' Warrants, the Representatives' 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 Representatives' Warrant
Agreement of the Securities, the Representatives' Warrants and the
Representatives' Securities to be sold by the Company hereunder and thereunder,
the Underwriters or the Representatives; 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 Representatives in connection
with (i) the issuance by the Company of the Securities, the Representatives'
Warrants, the Representatives' Securities and the Underlying Stock, (ii) the
purchase by the Underwriters of the Securities from the Company and the purchase
by the Representatives of the Representatives' Warrants or the
Representatives'
-5-
<PAGE>
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, the Indenture or the Representatives' 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
Representatives' 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 Representatives' 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
Representatives' Warrants, the Representatives' Securities and the Underlying
Stock and to enter into this Agreement and the Representatives' Warrant
Agreement, and to consummate the transactions provided for in such agreements;
and this Agreement, the Indenture and the Representatives' Warrant Agreement
have each been duly and properly authorized, executed, and delivered by the
Company. Each of this Agreement, the Indenture and the Representatives' 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
-6-
<PAGE>
Company's issue and sale of the Securities, the Representatives' Warrants, the
Representatives' Securities and the Underlying Stock execution, delivery or
performance of this Agreement, the Indenture and the Representatives' 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 Representatives' 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
Representatives' 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
Representatives' purchase of the Representatives' 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
-7-
<PAGE>
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 Representatives'
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
-8-
<PAGE>
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 maintains, sponsors or contributes 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.
-9-
<PAGE>
(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
-10-
<PAGE>
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
-11-
<PAGE>
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
Representatives' 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 93% of the
principal amount thereof, plus accrued interest, if any, from _________________,
1996 to the Closing Date, subject to such adjustment as the Representatives 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 $3,750,000 aggregate principal amount of Debentures at a price equal
to 93% of the principal amount thereof and 450,000 shares of Common Stock. 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 Representatives 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
Representatives, 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 Representatives and the
Company. Nothing herein contained shall obligate the
-12-
<PAGE>
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
Representatives 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 Representatives 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 Representatives and the Company on each Option Closing
Date as specified in the notice from the Representatives 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 Representatives 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
Representatives at such office or such other place as the Representatives 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 Representatives Representatives' Warrants at a purchase price of [$
] per warrant, which warrants shall entitle the holders thereof to purchase the
Representatives' Securities. The Representatives' 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 Representatives' 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 Representatives' 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 Representatives deem advisable,
-13-
<PAGE>
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 Representatives 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 Representatives, 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 Representatives shall not previously
have been advised and furnished with a copy, or to which the Representatives
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 Representatives 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 Representatives) in accordance with the
requirements of the Act.
(d) The Company will give the Representatives notice of
its intention to file or prepare any amendment to the Registration Statement
-14-
<PAGE>
(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 Representatives 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
Representatives or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representatives, 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 Representatives
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 Representatives 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 Representatives 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
-15-
<PAGE>
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 Representatives,
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
Representatives:
(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
Representatives 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.
-16-
<PAGE>
(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 Representatives' Warrants.
(j) The Company will furnish to the Representatives or
on the Representatives' order, without charge, at such place as the
Representatives 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 Representatives 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 Representatives, 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.
-17-
<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 Representatives' 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
Representatives' 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 Representatives'
Securities and the Underlying Representatives 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
-18-
<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 Representatives' 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 Representatives' Warrants, (iv) the
qualification of the Securities, the Representatives' 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, (viii) experts and
(ix) the fees and expenses incurred in connection with the listing of the
Securities, the Representatives' Securities and the Underlying Stock on the
American Stock Exchange and any other market or exchange.
-19-
<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 Representatives 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 Representatives on the Closing Date by certified or bank cashier's check or,
at the election of the Representatives, 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
Representatives elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representatives on the
Option Closing Date (by certified or bank cashier's check or, at the
Representatives' 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 Representatives, 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 Representatives of such timely filing,
-20-
<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 Representatives shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material,
or omits to state a fact which, in the Representatives' 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 Representatives' reasonable
opinion, is material, or omits to state a fact which, in the Representatives'
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
Representatives' Warrants, the Registration Statement, the Prospectus and other
related matters as the Representatives 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;
-21-
<PAGE>
(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 Representatives' Warrant Agreement, and
as described in the Prospectus; the Securities, the
Indenture, the Representatives' Warrants, the
Representatives' 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 Representatives'
Warrants, the Representatives' Securities and the
Underlying Stock to be sold by the Company hereunder,
under the Indenture and under the Representatives'
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 Representatives' Warrants, the
Representatives' Securities and the Underlying Stock
has been duly and validly taken; the certificates
representing the Securities and the Representatives'
Warrants are in due and proper form; the
Representatives' Warrants constitute valid and binding
-22-
<PAGE>
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 Representatives'
Warrant Agreement of the Securities, the
Representatives' Warrants and the Representatives'
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 Representatives, 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
-23-
<PAGE>
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 Representatives'
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 Representatives'
Warrant Agreement or which in any manner draws into
question the validity or enforceability of this
Agreement, the Indenture or the Representatives'
Warrant Agreement;
(viii) the Company has the corporate power and
authority to enter into each of this Agreement, the
Indenture and the Representatives' Warrant Agreement
and to consummate the transactions provided for herein
and therein; and each of this Agreement, the Indenture
and the Representatives' Warrant Agreement has been
duly authorized, executed and delivered by the Company;
each of this Agreement, the Indenture and the
Representatives' 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 Representatives'
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
-24-
<PAGE>
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,
Representatives' Warrants, the Representatives'
Securities or the Underlying Stock as contemplated by
the Prospectus and the Registration Statement, the
performance of the Agreement, the Indenture and the
Representatives' 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;
-25-
<PAGE>
(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 Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, the opinion of
Epstein, Becker & Green 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
-26-
<PAGE>
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
-27-
<PAGE>
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 Representatives'
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
Representatives' Warrant Agreement, and that:
(i) The representations and warranties of the
Company in this Agreement, the Indenture and the
Representatives' 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 Representatives'
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,
-28-
<PAGE>
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;
-29-
<PAGE>
(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 Representatives 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
-30-
<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
Representatives 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 Representatives 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 Representatives 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 Representatives 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 Representatives, (i) the Representatives'
Warrant Agreement, substantially in the form filed as Exhibit 4.2, to the
Registration Statement, in final form and substance satisfactory to the
Representatives, and (ii) the Representatives' 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 Representatives may terminate
this Agreement or, if the Representatives so elects, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
-31-
<PAGE>
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 Representatives 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
-32-
<PAGE>
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 Representatives
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
-33-
<PAGE>
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
-34-
<PAGE>
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
Representatives, 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 Representatives of telegrams to
securities dealers releasing such Securities for offering or the release by the
Representatives 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
Representatives shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Representatives' 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
Representatives' 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 Representatives' 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
Representatives in accordance with any of the provisions of Section 6, Section
10(a) or Section 12, the Company shall promptly reimburse and indemnify the
-35-
<PAGE>
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
Representatives 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 Representatives 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 Representatives 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 Representatives' option, by notice from the
Representatives 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.
-36-
<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
Representatives, 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
Representatives' 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 Representatives
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:_____________________________________
-37-
<PAGE>
Name:
Title:
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:__________________________________
Name:
Title:
COMMONWEALTH ASSOCIATES
By:__________________________________
Name:
Title:
For themselves and as Representatives of the Underwriters named in Schedule A
hereto.
-38-
<PAGE>
SCHEDULE A
Number of
Firm Securities to be
Name of Underwriters Purchased
-------------------- ---------
National Securities Corporation
Commonwealth Associates
TOTAL.......................................................
EXH. A-1
<PAGE>
____________________________________
COMPLETE MANAGEMENT, INC.,
NATIONAL SECURITIES CORPORATION
AND
COMMONWEALTH ASSOCIATES
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of December __, 1996
____________________________________
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT dated as of December __,
1996, between COMPLETE MANAGEMENT, INC., a New York corporation (the "Company")
NATIONAL SECURITIES CORPORATION ("National") and Commonwealth Associates, a
limited partnership organized under the Laws of New York State, ("Commonwealth")
(Commonwealth and National are hereinafter referred to variously as "Holders" or
the "Representatives").
W I T N E S S E T H :
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Representatives 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 [6 1/2 to 8%]
Convertible Subordinated Debentures Due 2003 (the "Debentures") of $25,000,000
aggregate principal amount and 3,000,000 shares of common stock of the Company
(the "Common Stock").
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants ("Warrants") to the Representatives to purchase up to
an aggregate of ____ shares of Common Stock.
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Underwriters' compensation in connection with, the Representatives
acting as the representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment
by the Representatives to the Company of an aggregate ($_____), 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 Representatives are hereby granted the right to
purchase, at any time from December _____, 1996 until 5:30 p.m., New York time,
on December _____, 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 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
-2-
<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.
4.2 In addition to the method of payment set forth in Section
4.2 and in lieu of any cash payment required thereunder, the Warrantholder shall
have the right at any time and from time to time to exercise the Warrant(s) in
full or in part by surrendering the Warrant Certificate in the manner specified
herein in exchange for the number of shares of Common Stock equal to the
quotient derived from dividing the numerator (which shall be an amount equal to
the difference between (i) the number of shares of Common Stock or other
Securities as to which the Warrant is being exercised multiplied by the per
share Market Price, and (ii) the number of shares of Common Stock or other
Securities as to which the Warrant is being exercised multiplied by the Exercise
Price) by the denominator which shall be the per share Market Price of the
Common Stock. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 10 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
As used herein, the term "Market Price" at any date shall be
deemed to be, when referring to the Common Stock, 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 by the NASDAQ Stock Market ("NSM"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through 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 (using customary valuation methods) by resolution of the members of
the Board of Directors of the Company, based on the best information available
to it.
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.
-3-
<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
-4-
<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
-5-
<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.
-6-
<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
-8-
<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
-9-
<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
-10-
<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
-11-
<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
-12-
<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
-13-
<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:
-14-
<PAGE>
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
-15-
<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
-16-
<PAGE>
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:
COMMONWEALTH ASSOCIATES
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, DECEMBER , 2001
Warrant No.____
WARRANT CERTIFICATE
This Warrant Certificate certifies that ____________________,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from December __, 1997 until 5:30 p.m., New York time on
December , 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 December , 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.
$28,750,000
Convertible Subordinated Debentures
Due 2003
INDENTURE
Dated as of November , 1996
THE CHASE MANHATTAN BANK,
TRUSTEE
<PAGE>
COMPLETE MANAGEMENT, INC., AS ISSUER
Reconciliation and tie between Trust Indenture Act of 1939, as amended
and Indenture dated as of November , 1996
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- --------
<S> <C> <C>
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)
</TABLE>
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-i-
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- --------
<S> <C> <C>
(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
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
Closing Price............................................................................................3
Common Stock........................................................................................... 3
Company................................................................................................ 3
Company Request........................................................................................ 3
Company Order.......................................................................................... 3
Corporate Trust Office................................................................................. 3
Corporation............................................................................................ 3
Default................................................................................................ 3
Defaulted Interest..................................................................................... 3
Event of Default....................................................................................... 3
Exchange Act............................................................................................ 4
Holder................................................................................................. 4
Indenture.............................................................................................. 4
Interest Payment Date.................................................................................. 4
Junior Securities...................................................................................... 4
Maturity............................................................................................... 4
Officer................................................................................................ 4
Officers' Certificate.................................................................................. 4
Opinion of Counsel..................................................................................... 4
Outstanding............................................................................................ 4
Paying Agent.............................................................................................5
Person................................................................................................. 5
Predecessor Security................................................................................... 5
Redemption Date........................................................................................ 5
Redemption Price....................................................................................... 5
Regular Record Date..................................................................................... 5
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Responsible Officer..................................................................................... 6
Securities............................................................................................. 6
Security Register...................................................................................... 6
SEC.................................................................................................... 6
Securityholder......................................................................................... 6
Senior Indebtedness of the Company..................................................................... 6
Special Record Date..................................................................................... 7
Stated Maturity......................................................................................... 7
Subsidiary............................................................................................. 7
Trust Indenture Act.................................................................................... 7
Trading Day............................................................................................ 7
Trustee................................................................................................ 7
Underwriter..............................................................................................7
Vice President.......................................................................................... 7
Voting Stock............................................................................................ 8
SECTION 102. Compliance Certificates and Opinions..................................................... 8
SECTION 103. Form of Documents Delivered to Trustee.................................................... 9
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........................................................................... 12
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Form of Securities.............................................................................................. 12
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..................................................................... 20
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. ........................................................................... 24
SECTION 310. CUSIP Numbers............................................................................ 24
SECTION 311. Computation of Interest.................................................................. 24
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOUR
Satisfaction and Discharge...................................................................................... 25
SECTION 401. Satisfaction and Discharge of Indenture.................................................. 25
SECTION 402. Application of Trust Money............................................................... 26
SECTION 403. Reinstatement............................................................................ 26
ARTICLE FIVE
Remedies........................................................................................................ 27
SECTION 501. Events of Default........................................................................ 27
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
...................................................................................................... 29
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................................................................. 30
SECTION 504. Trustee May File Proofs of Claim......................................................... 31
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities............................................................................................. 31
SECTION 506. Application of Money Collected........................................................... 32
SECTION 507. Limitation on Suits...................................................................... 32
SECTION 508. Unconditional Right of Holders to Receive Principal
and Interest and to Convert............................................................................ 33
SECTION 509. Restoration of Rights and Remedies....................................................... 33
SECTION 510. Rights and Remedies Cumulative........................................................... 33
SECTION 511. Delay or Omission Not Waiver............................................................. 33
SECTION 512. Control by Holders....................................................................... 34
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 513. Waiver of Past Defaults.................................................................. 34
SECTION 514. Undertaking for Costs.................................................................... 34
SECTION 515. Waiver of Stay or Extension Laws......................................................... 35
ARTICLE SIX
The Trustee..................................................................................................... 35
SECTION 601. Certain Duties and Responsibilities...................................................... 35
SECTION 602. Notice of Defaults....................................................................... 36
SECTION 603. Certain Rights of Trustee................................................................ 37
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
...................................................................................................... 38
SECTION 605. May Hold Securities...................................................................... 38
SECTION 606. Money Held in Trust...................................................................... 38
SECTION 607. Compensation and Reimbursement........................................................... 38
SECTION 608. Disqualification; Conflicting Interests.................................................. 39
SECTION 609. Corporate Trustee Required; Eligibility.................................................. 39
SECTION 610. Resignation and Removal; Appointment of Successor.
...................................................................................................... 39
SECTION 611. Acceptance Of Appointment By Successor................................................... 41
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business............................................................................................... 41
SECTION 613. Appointment of Authenticating Agent...................................................... 41
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company............................................................... 43
</TABLE>
-vii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 701. Company To Furnish Trustee Names And Addresses
of Holders............................................................................................. 43
SECTION 702. Preservation Of Information; Communications To
Holders................................................................................................ 43
SECTION 703. Reports By Trustee. ..................................................................... 44
SECTION 704. Reports By Company. ..................................................................... 44
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease ........................................................... 45
SECTION 801. Company May Consolidate, Etc., Only On Certain
Terms. ................................................................................................ 45
SECTION 802. Successor Substituted. .................................................................. 46
SECTION 803. Mergers Into The Company................................................................. 46
ARTICLE NINE
Supplemental Indentures......................................................................................... 46
SECTION 901. Supplemental Indentures Without Consent of Holders.
...................................................................................................... 46
SECTION 902. Supplemental Indentures With Consent of Holders.......................................... 47
SECTION 903. Execution of Supplemental Indentures. ................................................... 48
SECTION 904. Effect of Supplemental Indentures........................................................ 48
SECTION 905. Conformity With Trust Indenture Act...................................................... 48
SECTION 906. Reference in Securities to Supplemental Indentures. ..................................... 48
ARTICLE TEN
Covenants....................................................................................................... 49
SECTION 1001. Payment of Principal and Interest....................................................... 49
</TABLE>
-viii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1002. Maintenance of Office or Agency......................................................... 49
SECTION 1003. Money for Security Payments to be Held in Trust......................................... 49
SECTION 1004. Statement by Officers as to Default..................................................... 50
SECTION 1005. Limitation on Dividends, Redemptions, Etc............................................... 51
SECTION 1006. Contingency for Sinking Fund............................................................ 51
SECTION 1007. Payment of Taxes and Other Claims....................................................... 52
ARTICLE ELEVEN
Redemption of Securities........................................................................................ 52
SECTION 1101. Right of Redemption..................................................................... 52
SECTION 1102. Applicability of Article................................................................ 52
SECTION 1103. Election to Redeem; Notice to Trustee................................................... 52
SECTION 1104. Selection by Trustee of Securities to be Redeemed....................................... 52
SECTION 1105. Notice of Redemption.................................................................... 54
SECTION 1106. Deposit of Redemption Price............................................................. 55
SECTION 1107. Securities Payable on Redemption Date................................................... 55
SECTION 1108. Securities Redeemed in Part............................................................. 55
SECTION 1109. Conversion Arrangements on Call for Redemption.......................................... 56
ARTICLE TWELVE
Conversion of Securities........................................................................................ 56
SECTION 1201. Conversion Privilege and Conversion Price............................................... 56
SECTION 1202. Exercise of Conversion Privilege........................................................ 57
</TABLE>
-ix-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1203. Fractions of Shares..................................................................... 58
SECTION 1204. Conversion Price Adjustments............................................................ 59
SECTION 1205. Notice of Adjustments of Conversion Price and
Minimum Closing Price ................................................................................. 64
SECTION 1206. Notice Of Certain Corporate Action. .................................................... 65
ARTICLE THIRTEEN
Subordination of Securities..................................................................................... 68
SECTION 1301. Agreements to Subordinate by Company.................................................... 68
SECTION 1302. Distribution on Dissolution, Liquidation and
Reorganization; Subrogation............................................................................ 68
SECTION 1303. No Payment in Event of Default on Senior
Indebtedness........................................................................................... 70
SECTION 1304. Payments Permitted...................................................................... 71
SECTION 1305. Authorization to Trustee to Effect Subordination........................................ 71
SECTION 1306. Notices to Trustee...................................................................... 71
SECTION 1307. Trustee as Holder of Senior Indebtedness of the
Company................................................................................................ 72
SECTION 1308. Modification of Terms of Senior Indebtedness of the
Company................................................................................................ 72
SECTION 1309. Certain Conversions Not Deemed Payment.................................................. 72
SECTION 1310. Article Applicable to Paying Agents..................................................... 73
ARTICLE FOURTEEN
Right to Require Repurchase..................................................................................... 73
SECTION 1401. Right to Require Repurchase............................................................. 73
</TABLE>
-x-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1402. Notice; Method of Exercising Repurchase Right........................................... 74
SECTION 1403. Deposit of Repurchased Price............................................................ 75
SECTION 1404. Securities Not Repurchased on Repurchase Date........................................... 75
SECTION 1405. Securities Repurchased in Part.......................................................... 75
SECTION 1406. Certain Definitions..................................................................... 75
</TABLE>
-xi-
<PAGE>
INDENTURE, dated as of November , 1996 between COMPLETE MANAGEMENT,
INC., a New York corporation (the "Company"), and THE CHASE MANHATTAN 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 [6 to
8]% 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 words in the singular include the
plural and words in the plural include 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;
-1-
<PAGE>
(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; and
(6) "including" means including, without limitation.
"Act" when used with respect to any Holder, has the meaning specified
in Section 104.
"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
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.
-2-
<PAGE>
"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
Chief Executive Officer, 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.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
-3-
<PAGE>
"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 Chief Executive Officer, the Chairman of the Board
of Directors, 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 Chief
Executive Officer, 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
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
-4-
<PAGE>
(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, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the [December] 1 or [May] 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
-5-
<PAGE>
"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
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
-6-
<PAGE>
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.
"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.
"Underwriters" has the meaning specified in "Underwriting" in the
Company's registration statement on Form S-1 No. 333- initially filed with
the Securities and Exchange Commission on November _, 1996 and in any amendments
thereto.
"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."
-7-
<PAGE>
"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.
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.
-8-
<PAGE>
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.
(c) The ownership of Securities shall be proved by the
Security Register.
-9-
<PAGE>
(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, 254 West 31st Street, New York, NY 10001, Attention: Joseph M.
Scotti, Secretary, 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.
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.
-10-
<PAGE>
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.
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
-11-
<PAGE>
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.
[6 to 8]% 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 [December] 15, 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
[December]15 and [May] 15 in each year, commencing [May] 15, 1997 at the rate of
[6to 8]% per annum, until the principal hereof
-12-
<PAGE>
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 [December] 1 or [May] 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:_____________________________
Name:
Title:
Attest:
-13-
<PAGE>
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its [6 to 8]% Convertible Subordinated Debentures Due 2003
(herein called the "Securities"), limited in aggregate principal amount to
$28,750,000.00 issued and to be issued under an Indenture, dated as of November
[ ], 1996, (herein called the "Indenture"), between the Company and The
Chase Manhattan 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 [December] 15,
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 $ 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
-14-
<PAGE>
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 per share 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.
If there is a Repurchase Event (as defined in the Indenture), the
Company will be required to offer to purchase all Securities outstanding on a
date 30 days after the Company gives notice of the Repurchase Event at a
purchase price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase.
In the event of redemption, conversion or repurchase of this Security
in part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased 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
-15-
<PAGE>
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.
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.
-16-
<PAGE>
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.
THE CHASE MANHATTAN 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 undersigned 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
integral multiple thereof):
$
Signature (for conversion only)
-17-
<PAGE>
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.
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) $25,000,000.00
and (b) such aggregate principal amount (which may not exceed $3,750,000.00
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 November , 1996 between the
Company and National Securities Corporation on behalf of the underwriters named
therein.
The Securities shall be known and designated as the "[6 to 8]%
Convertible Subordinated Debentures Due 2003" of the Company. Their Stated
Maturity shall be [December] 15, 2003, and they shall bear interest at the rate
of [6 to 8]% 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 [December] 15 and [May]15, commencing [May] 15, 1997
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.
The Securities shall be redeemable as provided in Article Eleven
hereof.
The Securities shall be convertible as provided in Article Twelve
hereof.
-18-
<PAGE>
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 of Directors, its Vice Chairman of the Board of Directors,
its Chief Executive Officer, 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.
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,
-19-
<PAGE>
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.
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
-20-
<PAGE>
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.
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
-21-
<PAGE>
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
-22-
<PAGE>
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(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 any
Security 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.
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
-23-
<PAGE>
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.
-24-
<PAGE>
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;
-25-
<PAGE>
(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.
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.
-26-
<PAGE>
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):
(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 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 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
-27-
<PAGE>
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
(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
-28-
<PAGE>
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.
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,
-29-
<PAGE>
(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.
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 payment 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
-30-
<PAGE>
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.
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.
-31-
<PAGE>
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.
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
-32-
<PAGE>
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.
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.
-33-
<PAGE>
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
(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
-34-
<PAGE>
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.
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.
-35-
<PAGE>
(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 person 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
(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
-36-
<PAGE>
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:
(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
-37-
<PAGE>
(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.
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 pledgee 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
-38-
<PAGE>
(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.
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.
-39-
<PAGE>
(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:
(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.
-40-
<PAGE>
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
-41-
<PAGE>
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.
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:
-42-
<PAGE>
This is one of the Securities referred to in the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By:__________________________________
As Authenticating Agent
By:
Authorized Officer
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) semiannually, 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
-43-
<PAGE>
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.
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;
-44-
<PAGE>
(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.
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.
-45-
<PAGE>
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.
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
-46-
<PAGE>
(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
(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
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
-47-
<PAGE>
(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.
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.
-48-
<PAGE>
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.
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
-49-
<PAGE>
(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.
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
-50-
<PAGE>
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
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 reasonably
administratively acceptable to the Trustee, be the same as those applicable to
the relevant indebtedness. The redemption price of the Securities in
-51-
<PAGE>
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
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
-52-
<PAGE>
consecutive Trading Days immediately preceding the date on which notice of the
Redemption Date is given, the Closing Price per share of the Common Stock has
equaled or exceeded $ , (the "Minimum Closing 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.
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.
-53-
<PAGE>
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.
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 pursuant to the contingent 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.
-54-
<PAGE>
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.
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.
-55-
<PAGE>
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
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
-56-
<PAGE>
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
[December] 15, 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.
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 adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e) and (f) 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 (a) or (d) of Section
1204 which does not give rise to a conversion price adjustment pursuant to
paragraphs (a) or (d) 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 shall 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 form set forth on the reverse of the Securities) at such office or
agency
-57-
<PAGE>
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.
Securities shall be deemed to have been converted immediately prior to
the close of business on the last day prior to the 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).
-58-
<PAGE>
SECTION 1204. Conversion Price Adjustments.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall declare a dividend or make a distribution
on the outstanding shares of its Common Stock in shares of its Common Stock or
shall declare or make a dividend or other distribution on any other class of
capital stock of the Company or any Subsidiary not wholly owned by the Company
which dividend or distribution includes Common Stock the conversion price in
effect at the time of the record date for such dividend or distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the record date for such dividend or distribution and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such adjustment to
become effective immediately after the record date for such dividend. 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 (c) and (d) below. For the purposes of
this subsection (a), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company shall not pay any dividend or
make any distribution on shares of Common Stock of the Company held in the
treasury of the Company. In the event that any such dividend or distribution is
not paid or made, the conversion price then in effect shall be readjusted,
effective as of the date when the Board of Directors determines not to pay or
make such dividend or distribution, 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 outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the conversion price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(c) 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
-59-
<PAGE>
conversion price per share) less than the Current Market Price (as defined in
subsection (h) 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). For the purposes
of this subsection (c), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. 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.
(d) In case the Company shall fix a record date for making a
distribution by dividend or otherwise to holders of shares of its Common Stock
or holders (other than the Company or Whole Subsidiaries) of capital stock of
any Subsidiary, (i) of evidences of indebtedness of the Company or any
Subsidiary of the Company, (ii) of assets (including shares of any class of
capital stock, cash or other securities, but excluding any rights or warrants
referred to in subsection (c) or securities referred to in subsection (e),
excluding any dividend or distribution referred to in subsection (a) and
excluding any dividend or distribution paid exclusively in cash out of retained
or current earnings) or (iii) of rights or warrants entitling the holders
thereof to receive upon payment of the consideration set forth therein shares of
capital stock of the Company (excluding those referred to in subsection (c)
above), in each such case the conversion price shall be adjusted 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 Board Resolution) on the date of the
effectiveness of such conversion price adjustment of said shares or evidences of
indebtedness or 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 reduction to become effective immediately prior to the opening of
business on the day following the later of (a) the date fixed for the payment of
such distribution and (b) the date 20 days after the notice relating to such
distribution is given pursuant to Section 1206(a). If the Board of Directors
determines the fair market value of any distribution
-60-
<PAGE>
for purposes of this subsection (d) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in computing the
Current Market Price per share pursuant to subsection (h) of this Section.
(e) In case the Company shall issue or distribute 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 described in subsection (f)
below, (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 1204(e), (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 stockholders 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(e) (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 10% 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 (j) of
this Section 1204) with respect to the transaction giving rise to such rights
(provided, however, that in the case of any event described in Subsections (v)
through (viii) above, the Board of Directors has determined that the
consideration received for such shares of Common Stock equals the current Market
Price of such Common Shares on the date of their issuance), 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(h) below) 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, 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 (g)
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. For the purposes of this subsection (e), the number
of shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued
-61-
<PAGE>
in lieu of fractions of shares of Common Stock. Such adjustment shall be made
successively whenever such an issuance is made and shall become effective
immediately after such issuance.
(f) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in subsections (c) and (d) 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 (g) 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 (g) 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. For the purposes of this
subsection (f), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. 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 (g) below) for such
securities.
(g) For purposes of any computation respecting consideration received
pursuant to subsections (e) and (f) 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 deductionsbe made for any
commissions, discounts or other expenses incurred by the Company for
any underwriting of the issue or otherwise in connection therewith;
(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
-62-
<PAGE>
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive, and described in a Board Resolution; 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 the consideration
received by the Company for the isuance 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 (g)).
(h) For the purpose of any computation under subsections (c), (d), (e)
and (f) 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.
(i) 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 1203; 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.
(j) No adjustment in the conversion price need be made unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any such adjustment which is not
required to be made by reason of this subsection (j) shall be carried forward
and taken into account in any subsequent adjustment.
(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.
(l) Notwithstanding any other provision of this Section 1204, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock other than in connection with one or more reverse stock splits or
(ii) that would or does result in any adjustment in the conversion price that,
if made without giving effect to the previous sentence, would cause the
conversion price to be less than the then par value share of the Common Stock;
provided, however, that the covenant in this sentence shall be
-63-
<PAGE>
suspended if within 10 days of determining in good faith that such action would
result in such adjustment (but no later than the Business Day following the
effectiveness of such adjustment), the Company gives a notice under Section 1103
and effects the redemption referred to in such notice on the Redemption Date
referred to herein, but shall be retroactively reinstated if such notice or
redemption does not occur.
SECTION 1205. Notice of Adjustments of Conversion Price and Minimum Closing
Price.
Whenever the conversion price is adjusted as provided in this Section
1204 or the Minimum Closing Price is adjusted as provided in Sections 1101 and
1204 or the Holders become entitled to receive evidences of indebtedness, shares
of capital stock, cash or assets in connection with the conversion of the
Securities in accordance with the third paragraph of Section 1201 (an
"Entitlement"), 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, in
the case of any other adjustment or an Entitlement, which Officers' Certificate
and certificate of independent public accountants shall conform to the
provisions of Section 102, in each case setting forth the conversion price and
Minimum Closing Price after such adjustment or the amount and nature of such
Entitlement and setting forth a brief statement of the facts requiring such
adjustment or Entitlement and the computation thereof, which Officers'
Certificate and certificate of the firm of independent public accountants shall
be conclusive evidence of the correctness of any such adjustment or Entitlement,
and promptly after such filing the Company shall mail or cause to be mailed a
notice of such adjustment or Entitlement 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 Officers' Certificate or certificate except to exhibit the same to any
Holder of Securities desiring inspection thereof.
SECTION 1206. Notice Of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than exclusively in
cash; 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
-64-
<PAGE>
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.
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) or (b) 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.
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 deliverable upon the conversion of all outstanding Securities.
All shares of Common Stock which shall be so deliverable shall be duely and
validly issued and fully paid and nonassessable.
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.
-65-
<PAGE>
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
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
-66-
<PAGE>
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 Minimum
Closing 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.
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.
-67-
<PAGE>
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
(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
-68-
<PAGE>
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.
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 apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
-69-
<PAGE>
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.
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
-70-
<PAGE>
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.
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.
-71-
<PAGE>
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.
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
-72-
<PAGE>
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.
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.
-73-
<PAGE>
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.
SECTION 1403. Deposit of Repurchased Price.
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.
-74-
<PAGE>
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.
(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
-75-
<PAGE>
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.
-76-
<PAGE>
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.
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:
THE CHASE MANHATTAN BANK
By:_________________________
Name:_______________________
Title:______________________
Attest:
-77-
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the day of June, 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 June, 1996, before me personally came , to me known, who,
being by me duly sworn, did depose and say that he/she is the
of THE CHASE MANHATTAN 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
-78-
<PAGE>
COMPLETE MANAGEMENT, INC.
$40,250,000
Convertible Subordinated Debentures
Due 2003
INDENTURE
Dated as of June 11, 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 June 11, 1996
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- --------
<S> <C> <C>
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)
</TABLE>
- --------
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-i-
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- --------
<S> <C> <C>
(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
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
Closing Price............................................................................................3
Common Stock........................................................................................... 3
Company................................................................................................ 3
Company Request........................................................................................ 3
Company Order.......................................................................................... 3
Corporate Trust Office................................................................................. 3
Corporation............................................................................................ 3
Default................................................................................................ 3
Defaulted Interest..................................................................................... 3
Event of Default....................................................................................... 3
Exchange Act............................................................................................ 4
Holder................................................................................................. 4
Indenture.............................................................................................. 4
Interest Payment Date.................................................................................. 4
Junior Securities...................................................................................... 4
Maturity............................................................................................... 4
Officer................................................................................................ 4
Officers' Certificate.................................................................................. 4
Opinion of Counsel..................................................................................... 4
Outstanding............................................................................................ 4
Paying Agent.............................................................................................5
Person................................................................................................. 5
Predecessor Security................................................................................... 5
Redemption Date........................................................................................ 5
Redemption Price....................................................................................... 5
Regular Record Date..................................................................................... 5
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Responsible Officer..................................................................................... 6
Securities............................................................................................. 6
Security Register...................................................................................... 6
SEC.................................................................................................... 6
Securityholder......................................................................................... 6
Senior Indebtedness of the Company..................................................................... 6
Special Record Date..................................................................................... 7
Stated Maturity......................................................................................... 7
Subsidiary............................................................................................. 7
Trust Indenture Act.................................................................................... 7
Trading Day............................................................................................ 7
Trustee................................................................................................ 7
Underwriter..............................................................................................7
Vice President.......................................................................................... 7
Voting Stock............................................................................................ 8
SECTION 102. Compliance Certificates and Opinions..................................................... 8
SECTION 103. Form of Documents Delivered to Trustee.................................................... 9
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........................................................................... 12
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Form of Securities.............................................................................................. 12
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..................................................................... 20
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. ........................................................................... 24
SECTION 310. CUSIP Numbers............................................................................ 24
SECTION 311. Computation of Interest.................................................................. 24
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOUR
Satisfaction and Discharge...................................................................................... 25
SECTION 401. Satisfaction and Discharge of Indenture.................................................. 25
SECTION 402. Application of Trust Money............................................................... 26
SECTION 403. Reinstatement............................................................................ 26
ARTICLE FIVE
Remedies........................................................................................................ 27
SECTION 501. Events of Default........................................................................ 27
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
...................................................................................................... 29
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................................................................. 30
SECTION 504. Trustee May File Proofs of Claim......................................................... 31
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities............................................................................................. 31
SECTION 506. Application of Money Collected........................................................... 32
SECTION 507. Limitation on Suits...................................................................... 32
SECTION 508. Unconditional Right of Holders to Receive Principal
and Interest and to Convert............................................................................ 33
SECTION 509. Restoration of Rights and Remedies....................................................... 33
SECTION 510. Rights and Remedies Cumulative........................................................... 33
SECTION 511. Delay or Omission Not Waiver............................................................. 33
SECTION 512. Control by Holders....................................................................... 34
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 513. Waiver of Past Defaults.................................................................. 34
SECTION 514. Undertaking for Costs.................................................................... 34
SECTION 515. Waiver of Stay or Extension Laws......................................................... 35
ARTICLE SIX
The Trustee..................................................................................................... 35
SECTION 601. Certain Duties and Responsibilities...................................................... 35
SECTION 602. Notice of Defaults....................................................................... 36
SECTION 603. Certain Rights of Trustee................................................................ 37
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
...................................................................................................... 38
SECTION 605. May Hold Securities...................................................................... 38
SECTION 606. Money Held in Trust...................................................................... 38
SECTION 607. Compensation and Reimbursement........................................................... 38
SECTION 608. Disqualification; Conflicting Interests.................................................. 39
SECTION 609. Corporate Trustee Required; Eligibility.................................................. 39
SECTION 610. Resignation and Removal; Appointment of Successor.
...................................................................................................... 39
SECTION 611. Acceptance Of Appointment By Successor................................................... 41
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business............................................................................................... 41
SECTION 613. Appointment of Authenticating Agent...................................................... 41
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company............................................................... 43
</TABLE>
-vii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 701. Company To Furnish Trustee Names And Addresses
of Holders............................................................................................. 43
SECTION 702. Preservation Of Information; Communications To
Holders................................................................................................ 43
SECTION 703. Reports By Trustee. ..................................................................... 44
SECTION 704. Reports By Company. ..................................................................... 44
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease ........................................................... 45
SECTION 801. Company May Consolidate, Etc., Only On Certain
Terms. ................................................................................................ 45
SECTION 802. Successor Substituted. .................................................................. 46
SECTION 803. Mergers Into The Company................................................................. 46
ARTICLE NINE
Supplemental Indentures......................................................................................... 46
SECTION 901. Supplemental Indentures Without Consent of Holders.
...................................................................................................... 46
SECTION 902. Supplemental Indentures With Consent of Holders.......................................... 47
SECTION 903. Execution of Supplemental Indentures. ................................................... 48
SECTION 904. Effect of Supplemental Indentures........................................................ 48
SECTION 905. Conformity With Trust Indenture Act...................................................... 48
SECTION 906. Reference in Securities to Supplemental Indentures. ..................................... 48
ARTICLE TEN
Covenants....................................................................................................... 49
SECTION 1001. Payment of Principal and Interest....................................................... 49
</TABLE>
-viii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1002. Maintenance of Office or Agency......................................................... 49
SECTION 1003. Money for Security Payments to be Held in Trust......................................... 49
SECTION 1004. Statement by Officers as to Default..................................................... 50
SECTION 1005. Limitation on Dividends, Redemptions, Etc............................................... 51
SECTION 1006. Contingency for Sinking Fund............................................................ 51
SECTION 1007. Payment of Taxes and Other Claims....................................................... 52
ARTICLE ELEVEN
Redemption of Securities........................................................................................ 52
SECTION 1101. Right of Redemption..................................................................... 52
SECTION 1102. Applicability of Article................................................................ 52
SECTION 1103. Election to Redeem; Notice to Trustee................................................... 52
SECTION 1104. Selection by Trustee of Securities to be Redeemed....................................... 52
SECTION 1105. Notice of Redemption.................................................................... 54
SECTION 1106. Deposit of Redemption Price............................................................. 55
SECTION 1107. Securities Payable on Redemption Date................................................... 55
SECTION 1108. Securities Redeemed in Part............................................................. 55
SECTION 1109. Conversion Arrangements on Call for Redemption.......................................... 56
ARTICLE TWELVE
Conversion of Securities........................................................................................ 56
SECTION 1201. Conversion Privilege and Conversion Price............................................... 56
SECTION 1202. Exercise of Conversion Privilege........................................................ 57
</TABLE>
-ix-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1203. Fractions of Shares..................................................................... 58
SECTION 1204. Conversion Price Adjustments............................................................ 59
SECTION 1205. Notice of Adjustments of Conversion Price and
Minimum Closing Price ................................................................................. 64
SECTION 1206. Notice Of Certain Corporate Action. .................................................... 65
ARTICLE THIRTEEN
Subordination of Securities..................................................................................... 68
SECTION 1301. Agreements to Subordinate by Company.................................................... 68
SECTION 1302. Distribution on Dissolution, Liquidation and
Reorganization; Subrogation............................................................................ 68
SECTION 1303. No Payment in Event of Default on Senior
Indebtedness........................................................................................... 70
SECTION 1304. Payments Permitted...................................................................... 71
SECTION 1305. Authorization to Trustee to Effect Subordination........................................ 71
SECTION 1306. Notices to Trustee...................................................................... 71
SECTION 1307. Trustee as Holder of Senior Indebtedness of the
Company................................................................................................ 72
SECTION 1308. Modification of Terms of Senior Indebtedness of the
Company................................................................................................ 72
SECTION 1309. Certain Conversions Not Deemed Payment.................................................. 72
SECTION 1310. Article Applicable to Paying Agents..................................................... 73
ARTICLE FOURTEEN
Right to Require Repurchase..................................................................................... 73
SECTION 1401. Right to Require Repurchase............................................................. 73
</TABLE>
-x-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1402. Notice; Method of Exercising Repurchase Right........................................... 74
SECTION 1403. Deposit of Repurchased Price............................................................ 75
SECTION 1404. Securities Not Repurchased on Repurchase Date........................................... 75
SECTION 1405. Securities Repurchased in Part.......................................................... 75
SECTION 1406. Certain Definitions..................................................................... 75
</TABLE>
-xi-
<PAGE>
INDENTURE, dated as of June 11, 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 8%
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 words in the singular include the
plural and words in the plural include 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;
-1-
<PAGE>
(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; and
(6) "including" means including, without limitation.
"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
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.
-2-
<PAGE>
"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
Chief Executive Officer, 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.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
-3-
<PAGE>
"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 Chief Executive Officer, 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 Chief
Executive Officer, 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
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
-4-
<PAGE>
(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, means the price at which it is to be redeemed pursuant to this
Indenture.
"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.
-5-
<PAGE>
"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
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
-6-
<PAGE>
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.
"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.
"Underwriters" has the meaning specified in "Underwriting" in the
Company's registration statement on Form S-1 No. 333-4262 initially filed with
the Securities and Exchange Commission on May 1, 1996 and in any amendments
thereto.
"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."
-7-
<PAGE>
"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.
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.
-8-
<PAGE>
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.
(c) The ownership of Securities shall be proved by the
Security Register.
-9-
<PAGE>
(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, 254 West 31st Street, New York, NY 10001, Attention: Joseph M.
Scotti, Secretary, 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.
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.
-10-
<PAGE>
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.
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
-11-
<PAGE>
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.
8% 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 August 15, 2003, and to pay
interest thereon from June 11, 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 8% per annum, until the principal hereof
-12-
<PAGE>
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:_____________________________
Name:
Title:
Attest:
-13-
<PAGE>
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 8% Convertible Subordinated Debentures Due 2003
(herein called the "Securities"), limited in aggregate principal amount to
$40,250,000.00 issued and to be issued under an Indenture, dated as of June 11,
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 August 15, 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 $14.00 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
-14-
<PAGE>
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 June 5, 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 per share of the Common Stock has equaled or exceeded $19.125,
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.
If there is a Repurchase Event (as defined in the Indenture), the
Company will be required to offer to purchase all Securities outstanding on a
date 30 days after the Company gives notice of the Repurchase Event at a
purchase price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of purchase.
In the event of redemption, conversion or repurchase of this Security
in part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased 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
-15-
<PAGE>
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.
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.
-16-
<PAGE>
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 undersigned 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
integral multiple thereof):
$
Signature (for conversion only)
-17-
<PAGE>
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.
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) $35,000,000.00
and (b) such aggregate principal amount (which may not exceed $5,250,000.00
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 June 5, 1996 between the
Company and National Securities Corporation on behalf of the underwriters named
therein.
The Securities shall be known and designated as the "8% Convertible
Subordinated Debentures Due 2003" of the Company. Their Stated Maturity shall be
August 15, 2003, and they shall bear interest at the rate of 8% per annum, from
June 11, 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.
The Securities shall be redeemable as provided in Article Eleven
hereof.
The Securities shall be convertible as provided in Article Twelve
hereof.
-18-
<PAGE>
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 Chief Executive
Officer, 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.
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,
-19-
<PAGE>
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.
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
-20-
<PAGE>
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.
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
-21-
<PAGE>
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
-22-
<PAGE>
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(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 any
Security 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.
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
-23-
<PAGE>
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.
-24-
<PAGE>
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;
-25-
<PAGE>
(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.
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.
-26-
<PAGE>
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):
(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 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 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
-27-
<PAGE>
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
(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
-28-
<PAGE>
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.
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,
-29-
<PAGE>
(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.
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 payment 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
-30-
<PAGE>
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.
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.
-31-
<PAGE>
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.
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
-32-
<PAGE>
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.
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.
-33-
<PAGE>
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
(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
-34-
<PAGE>
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.
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.
-35-
<PAGE>
(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 person 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
(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
-36-
<PAGE>
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:
(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
-37-
<PAGE>
(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.
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 pledgee 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
-38-
<PAGE>
(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.
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.
-39-
<PAGE>
(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:
(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.
-40-
<PAGE>
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
-41-
<PAGE>
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.
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:
-42-
<PAGE>
This is one of the Securities referred to in the within-mentioned
Indenture.
CHEMICAL BANK,
as Trustee
By:__________________________________
As Authenticating Agent
By:
Authorized Officer
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) semiannually, 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
-43-
<PAGE>
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.
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;
-44-
<PAGE>
(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.
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.
-45-
<PAGE>
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.
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
-46-
<PAGE>
(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
(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
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
-47-
<PAGE>
(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.
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.
-48-
<PAGE>
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.
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
-49-
<PAGE>
(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.
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
-50-
<PAGE>
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
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 reasonably
administratively acceptable to the Trustee, be the same as those applicable to
the relevant indebtedness. The redemption price of the Securities in
-51-
<PAGE>
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
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 June 5, 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
-52-
<PAGE>
consecutive Trading Days immediately preceding the date on which notice of the
Redemption Date is given, the Closing Price per share of the Common Stock has
equaled or exceeded $19.125, (the "Minimum Closing 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.
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.
-53-
<PAGE>
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.
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 pursuant to the contingent 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.
-54-
<PAGE>
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.
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.
-55-
<PAGE>
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
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
-56-
<PAGE>
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
August 15, 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.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $14.00 per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e) and (f) 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 (a) or (d) of Section
1204 which does not give rise to a conversion price adjustment pursuant to
paragraphs (a) or (d) 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 shall 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 form set forth on the reverse of the Securities) at such office or
agency
-57-
<PAGE>
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.
Securities shall be deemed to have been converted immediately prior to
the close of business on the last day prior to the 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).
-58-
<PAGE>
SECTION 1204. Conversion Price Adjustments.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall declare a dividend or make a distribution
on the outstanding shares of its Common Stock in shares of its Common Stock or
shall declare or make a dividend or other distribution on any other class of
capital stock of the Company or any Subsidiary not wholly owned by the Company
which dividend or distribution includes Common Stock the conversion price in
effect at the time of the record date for such dividend or distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the record date for such dividend or distribution and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such adjustment to
become effective immediately after the record date for such dividend. 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 (c) and (d) below. For the purposes of
this subsection (a), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company shall not pay any dividend or
make any distribution on shares of Common Stock of the Company held in the
treasury of the Company. In the event that any such dividend or distribution is
not paid or made, the conversion price then in effect shall be readjusted,
effective as of the date when the Board of Directors determines not to pay or
make such dividend or distribution, 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 outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the conversion price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(c) 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
-59-
<PAGE>
conversion price per share) less than the Current Market Price (as defined in
subsection (h) 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). For the purposes
of this subsection (c), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. 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.
(d) In case the Company shall fix a record date for making a
distribution by dividend or otherwise to holders of shares of its Common Stock
or holders (other than the Company or Whole Subsidiaries) of capital stock of
any Subsidiary, (i) of evidences of indebtedness of the Company or any
Subsidiary of the Company, (ii) of assets (including shares of any class of
capital stock, cash or other securities, but excluding any rights or warrants
referred to in subsection (c) or securities referred to in subsection (e),
excluding any dividend or distribution referred to in subsection (a) and
excluding any dividend or distribution paid exclusively in cash out of retained
or current earnings) or (iii) of rights or warrants entitling the holders
thereof to receive upon payment of the consideration set forth therein shares of
capital stock of the Company (excluding those referred to in subsection (c)
above), in each such case the conversion price shall be adjusted 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 Board Resolution) on the date of the
effectiveness of such conversion price adjustment of said shares or evidences of
indebtedness or 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 reduction to become effective immediately prior to the opening of
business on the day following the later of (a) the date fixed for the payment of
such distribution and (b) the date 20 days after the notice relating to such
distribution is given pursuant to Section 1206(a). If the Board of Directors
determines the fair market value of any distribution
-60-
<PAGE>
for purposes of this subsection (d) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in computing the
Current Market Price per share pursuant to subsection (h) of this Section.
(e) In case the Company shall issue or distribute 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 described in subsection (f)
below, (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 1204(e), (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 stockholders 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 10% 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 (j) of
this Section 1204) with respect to the transaction giving rise to such rights
(provided, however, that in the case of any event described in Subsections (v)
through (viii) above, the Board of Directors has determined that the
consideration received for such shares of Common Stock equals the current Market
Price of such Common Shares on the date of their issuance), 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(h) below) 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, 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 (g)
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. For the purposes of this subsection (e), the number
of shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued
-61-
<PAGE>
in lieu of fractions of shares of Common Stock. Such adjustment shall be made
successively whenever such an issuance is made and shall become effective
immediately after such issuance.
(f) 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 (c) and (d) 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 (g) 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 (g)
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. For the
purposes of this subsection (f), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. 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 (g) below) for such
securities.
(g) For purposes of any computation respecting consideration received
pursuant to subsections (e) and (f) above, the following shall apply:
(i) in the case of the issuance of hsares of Common Stock of the
Company for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deductionsbe made for any
commissions, discounts or other expenses incurred by the Company for
any underwriting of the issue or otherwise in connection therewith;
(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
-62-
<PAGE>
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive, and described in a Board Resolution; 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 the consideration
received by the Company for the isuance 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 (g)).
(f) For the purpose of any computation under subsections (c), (d), (e)
and (f) 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.
(i) 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 1203; 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.
(j) No adjustment in the conversion price need be made unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any such adjustment which is not
required to be made by reason of this subsection (j) shall be carried forward
and taken into account in any subsequent adjustment.
(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.
(l) Notwithstanding any other provision of this Section 1204, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock other than in connection with one or more reverse stock splits or
(ii) that would or does result in any adjustment in the conversion price that,
if made without giving effect to the previous sentence, would cause the
conversion price to be less than the then par value share of the Common Stock;
provided, however, that the covenant in this sentence shall be
-63-
<PAGE>
suspended if within 10 days of determining in good faith that such action would
result in such adjustment (but no later than the Business Day following the
effectiveness of such adjustment), the Company gives a notice under Section 1103
and effects the redemption referred to in such notice on the Redemption Date
referred to herein, but shall be retroactively reinstated if such notice or
redemption does not occur.
SECTION 1205. Notice of Adjustments of Conversion Price and Minimum Closing
Price.
Whenever the conversion price is adjusted as provided in this Section
1204 or the Minimum Closing Price is adjusted as provided in Sections 1101 and
1204 or the Holders become entitled to receive evidences of indebtedness, shares
of capital stock, cash or assets in connection with the conversion of the
Securities in accordance with the third paragraph of Section 1201 (an
"Entitlement"), 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, in
the case of any other adjustment or an Entitlement, which Officers' Certificate
and certificate of independent public accountants shall conform to the
provisions of Section 102, in each case setting forth the conversion price and
Minimum Closing Price after such adjustment or the amount and nature of such
Entitlement and setting forth a brief statement of the facts requiring such
adjustment or Entitlement and the computation thereof, which Officers'
Certificate and certificate of the firm of independent public accountants shall
be conclusive evidence of the correctness of any such adjustment or Entitlement,
and promptly after such filing the Company shall mail or cause to be mailed a
notice of such adjustment or Entitlement 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 Officers' Certificate or certificate except to exhibit the same to any
Holder of Securities desiring inspection thereof.
SECTION 1206. Notice Of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than exclusively in
cash; 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
-64-
<PAGE>
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.
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) or (b) 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.
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 deliverable upon the conversion of all outstanding Securities.
All shares of Common Stock which shall be so deliverable shall be duely and
validly issued and fully paid and nonassessable.
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.
-65-
<PAGE>
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
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
-66-
<PAGE>
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 Minimum
Closing 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.
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.
-67-
<PAGE>
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
(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
-68-
<PAGE>
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.
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 apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
-69-
<PAGE>
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.
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
-70-
<PAGE>
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.
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.
-71-
<PAGE>
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.
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
-72-
<PAGE>
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.
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.
-73-
<PAGE>
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.
SECTION 1403. Deposit of Repurchased Price.
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.
-74-
<PAGE>
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.
(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
-75-
<PAGE>
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.
-76-
<PAGE>
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.
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:
-77-
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the day of June, 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 June, 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
-78-
<PAGE>
PRACTICE MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NORTHERN METROPOLITAN RADIOLOGY ASSOCIATES, P.C.,
NORTHERN METROPOLITAN RADIOLOGY ASSOCIATES, P.A.,
PERSONAL BREAST SERVICES AND ULTRASOUND OF NORTHERN
WESTCHESTER, P.C.,
NMRA OF CONNECTICUT, P.C.,
JEFFERSON VALLEY DIAGNOSTIC IMAGING, P.C.,
AND
NORTHERN WESTCHESTER DIAGNOSTIC PARTNERS, P.C.
AND
ADVANCED ALLIANCE MANAGEMENT CORP.
DATED AS OF SEPTEMBER 17, 1996
<PAGE>
PRACTICE MANAGEMENT SERVICES AGREEMENT
AGREEMENT, made as of September 17, 1996, by and between NORTHERN
METROPOLITAN RADIOLOGY ASSOCIATES, P.C., a professional corporation organized
under the laws of the State of New York ("NMRA"), NORTHERN METROPOLITAN
RADIOLOGY ASSOCIATES, P.A., a professional corporation organized under the laws
of the State of New Jersey, PERSONAL BREAST SERVICES AND ULTRASOUND OF NORTHERN
WESTCHESTER, P.C., a professional corporation organized under the laws of the
State of New York, NMRA OF CONNECTICUT, P.C., a professional corporation
organized under the laws of the State of Connecticut, JEFFERSON VALLEY
DIAGNOSTIC IMAGING, P.C., a professional corporation organized under the laws of
the State of New York, and NORTHERN WESTCHESTER DIAGNOSTIC PARTNERS, P.C., a
professional corporation organized under the laws of the State of New York (each
individually hereinafter called a "P.C." and collectively the "P.C.s")) and
ADVANCED ALLIANCE MANAGEMENT CORP., a New York corporation, (hereinafter the
"Company").
RECITALS
WHEREAS, the P.C.s are under common control and have heretofore operated as
a combined business entity; and
2
<PAGE>
WHEREAS, the Company has heretofore provided certain management services to
the P.C.s and from and after the date hereof wishes to provide comprehensive
medical practice management services, including the leasing or subleasing of
space and equipment, consulting, billing, collection and related services
(collectively, the "Practice Management Services") and financial services to the
P.C.s; and
WHEREAS, the P.C.s desire to retain the Company to provide Practice
Management Services and financial services to the P.C.s.
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration contained herein, the parties agree as follows:
1. RECITALS
1.1 The Recitals set forth above are incorporated herein as though set
forth in their entirety.
2. COMPREHENSIVE PRACTICE MANAGEMENT SERVICES
During the term of this Agreement, the Company will provide to the P.C. a
comprehensive range of non-medical Practice Management Services, all as
described in this Agreement, which the parties agree are sufficient to enable
the P.C. to conduct their medical practice (hereinafter the "P.C.s' Practice")
and the P.C. shall retain the Company on an exclusive basis (exclusive as to the
P.C. themselves as well as to any other person or entity) to provide such
services. For purposes of clarification, it is understood that all services, of
any nature whatsoever including, without limitation, the providing of clerical,
managerial, consulting and receivables processing services, that
3
<PAGE>
are to be provided by the Company to the P.C., whether or not specifically
described in this Agreement, shall not include services which relate to the
providing of medical services.
2.1 Office Space
(a) The P.C.s and the Company acknowledge that as of the date of this
Agreement, each P.C. is leasing medical office space at such location or
locations as is set forth next to such P.C.'s name on Exhibit A annexed hereto
(each a "P.C. Office" and collectively the "P.C. Offices") each pursuant to the
terms of a lease, a copy of each of which has previously been delivered to the
Company (individually an "Existing Lease" and collectively the "Existing
Leases").
(b) Each P.C. agrees that, at the request of the Company, it will seek to
obtain the consent of the lessor under its Existing Lease to the assignment of
such Existing Lease to the Company for the purposes of the Company providing
such P.C. Office to the P.C.s.
(c) To the extent that the Company should at any time in the future provide
the P.C.s with office space (including, without limitation, any P.C. Office)
which is available to the Company as owner, lessee, sublessee or assignee, for
use by the P.C.s as a medical office (all such office space being hereinafter
called "Licensed Office Space"), the P.C.s agree that all of the obligations
contained in each such lease, sublease or assignment (an "Overlease") which are
imposed upon the Company will be assumed by the P.C.s which hereby agree to
assume the same. The P.C.s covenant and agree to fully and faithfully perform
the terms and conditions of the Overleases and
4
<PAGE>
this Agreement. The P.C.s shall not do or cause to be done or suffer or permit
any act to be done which would or might cause any of the Overleases or the
rights of the Company, as lessee, sub-lessee or assignee, as the case may be,
under the Overleases, to be endangered, canceled, terminated, forfeited,
amended, modified or surrendered, or which would or might cause the Company to
be in default thereunder or liable for any damage, claim or penalty. The Company
shall have no obligation to take any action to enforce or compel performance by
any of its landlords and/or lessors and/or assignors of any provision of any
Overlease or other agreement and the Company shall not be liable to the P.C.s in
the event of its landlords' or lessors' or assignors' default or failure to
perform any obligations. The P.C.s agree that if there is any conflict between
any of the Overleases and the provisions of this Agreement which would permit
the P.C.s to do or cause to be done or suffer or permit any act or thing to be
done which is-prohibited by any of the Overleases, then the provisions of the
respective Overlease shall prevail.
(d) Upon the termination of any Existing Lease, the Company will either (i)
advise the P.C.s that it will not provide such space to the P.C.s, in which
event the P.C.s shall be free to enter into such office space leases as they, in
their sole discretion, shall determine or (ii) advise the P.C.s that it will
provide space to the P.C.s in which event the Company will either provide the
P.C.s with the office space now provided under such Existing Lease or select and
provide to the P.C.s comparable Licensed Office Space at a comparable location.
5
<PAGE>
(e) The Company's provision of Licensed Office Space to the P.C.s, if any,
shall include:
(i) electricity and water for typical medical office requirements;
(ii) heat or air conditioning, during the appropriate seasons, in
conformity with any local, state or federal regulations; and
(ii) janitorial services as is customary in the location of each such
Licensed Office Space.
(f) The Company agrees that notwithstanding anything contained in
sub-paragraph (c) and (d) above, the P.C.s shall not be required to accept any
Licensed Office Space from the Company if the rental to be charged to the P.C.
for such Licensed Office Space, as provided in this Agreement, is in excess of
the then prevailing market rental for substantially similar office space in the
area in which such proposed Licensed Office Space is located.
2.2 Furnishings and Equipment.
(a) The Company will provide the P.C.s, at the P.C. Offices, with the use
of such office furniture and fixtures as have heretofore been provided to the
P.C.s, which furniture and fixtures are customary in medical practices similar
to that conducted by the P.C.s as the same may hereafter be altered from time to
time (the "Furnishings");
(b) The Furnishings provided by the Company to the P.C.s at the P.C.
Offices shall remain at all times the property of the Company whether owned or
leased by the Company and the P.C.s shall not pledge, lend, create a security
interest in,
6
<PAGE>
assign, sublease or part with possession of the Furnishings or any part thereof
or attempt in any other manner to altar, modify, dispose of the Furnishings or
remove the Furnishings or any part thereof from the P.C. Offices, without the
Company's prior written consent, or take any other action which would adversely
affect the Company's title to or interest in the Furnishings. The P.C.s will
promptly discharge, at theirs own expense, any lien or encumbrance on the
Furnishings which shall arise, unless same shall have been created by the
Company. The P.C.s agree to sign a UCC Form 1 Financing Statement and any
applicable future continuation statements to reflect that the Furnishings are
the property of the Company and also authorizes the Company to file such
statements without its signature.
(c) The Company will provide the P.C.s at the P.C. Offices with use of such
equipment as has heretofore been provided to the P.C.s, which equipment is
customary in medical practices similar to that conducted by the P.C.s as the
same may hereafter be altered from time to time (the "Equipment").
(d) The Equipment provided by the Company to the P.C.s at the P.C. Offices
shall remain at all times the property of the Company even if installed in or
attached to real property and whether owned or leased by the Company. The P.C.s
shall not pledge, lend, create a security interest in, assign, sublease or part
with possession of, the Equipment or any part thereof or attempt in any other
manner to alter, modify, dispose of or remove the Equipment or any part thereof
from the P.C. Offices, without the Company's prior written consent, or take any
other action which would adversely affect the Company's title to or interest in
the Equipment. The P.C.s
7
<PAGE>
shall promptly discharge, at its own expense, any lien or encumbrance on the
Equipment which shall arise, unless the same shall have been created by the
Company. The P.C.s agree to sign a UCC Form 1 Financing Statement and any
applicable future continuation statements to reflect that the Equipment is the
property of the Company.
(e) The P.C.s shall cause the Equipment to be operated in accordance with
any applicable manufacturer's manual of instructions and only by competent and
qualified personnel.
(f) THE COMPANY HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE EQUIPMENT, AND THE FURNISHINGS, EXPRESS, IMPLIED OR OTHERWISE,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(g) The P.C.s agree to use the Furnishings and Equipment only for the
purposes described in this Agreement and in accordance with applicable laws and
regulations.
(h) The Company shall be responsible, at its expense, to repair and/or
maintain the Furnishings and Equipment in good working order except for repairs
caused by the willful misconduct, negligence or misuse of the Furnishings or
Equipment by the P.C.s or their agents or subcontractors. All such repairs and
maintenance shall be provided by the Company, by its own employees, agents or
subcontractors, upon the request of the P.C.s.
8
<PAGE>
2.3 Supplies
The Company will provide the P.C.s with such medical and office supplies
(hereinafter the "Supplies") that are reasonably necessary for the day-to-day
operation of the P.C.s.
2.4 Personnel Services
(a) The Company will provide the P.C.s with such clerical personnel and
other non-medical personnel such as, for example, secretaries, receptionists,
file clerks, administrators, etc. ("Non-Medical Personnel") as may be reasonably
required to perform necessary services for the P.C.s.
(b) Non-Medical Personnel will be selected and assigned to the P.C.s on an
as-needed basis as reasonably agreed to by the parties.
(c) The Company will be responsible for the salary, withholding taxes,
compensation insurance, disability insurance, medical/health insurance and other
fringe benefits of the Non-Medical Personnel provided by the Company to the
P.C.s.
(d) The P.C.s acknowledge that the Non-Medical Personnel provided by the
Company under this Agreement may, from time to time, perform services for other
clients of the Company. Nothing in this Agreement, express or implied, shall
prevent the Company from providing the services of such personnel to its other
present or future clients or using them for its own purposes.
(e) The Company will not provide Non-Medical Personnel on the holidays
listed below and also reserves the right to modify or substitute on five (5)
days notice the list of holidays on which services will not be provided:
9
<PAGE>
1. New Year's Day 6. Independence Day
2. Martin Luther King Day 7. Labor Day
3. President's Day . 8. Yom Kippur
4. Good Friday 9. Thanksgiving Day
5. Memorial Day 10. Christmas Day
Should the P.C.s require Non-Medical Personnel on any of the 10 holidays
set forth above, it shall notify the Company in writing seven (7) business days
in advance of the P.C.s' clerical needs. In such event, the Company will use its
best efforts to supply holiday Non-Medical Personnel as requested by the P.C.s.
2.5 Managerial and Administrative Services.
Unless otherwise set forth in this Agreement, the Company will provide all
non-medical managerial and administrative services as may be reasonably required
by the P.C.s such as, for example, office administrative services, general
administrative services and fiscal management services.
3. CONSULTING SERVICES
3.1 The Company may provide to the P.C.s the following services
("Consulting Services") as may be agreed to in the future by the parties:
(a) review and analysis of available health insurance plans with special
emphasis on managed care/self insurance plans (hereinafter "Managed Care") which
can utilize the services of a P.C. as a provider;
(b) personal contact with representatives of Managed Care payors to advise
them of the expertise and quality of a P.C.'s Practice;
10
<PAGE>
(c) preparation of a P.C.'s applications to the Managed Care and Indemnity
payers including preparation of such P.C.'s clinical outcome data needed by
payers to determine whether to contract with such P.C.;
(d) consultation with the P.C.s regarding the fees the P.C.s should accept
from Managed Care, Indemnity and capitated payors; and, subject to the P.C.s'
approval, negotiation of such reimbursement rates;
(e) assistance to a P.C. in negotiation of Managed Care and Indemnity
Provider Agreements;
(f) assistance to the P.C.s in evaluating potential additional sources of
patients;
(g) assistance to the P.C.s in evaluating and developing areas in which the
P.C.s can expand the P.C. s' Practice;
(h) evaluation of new technologies, methods and equipment;
(i) assistance in developing Quality Assurance and Utilization Review
programs;
(j) development of programs, including, but not limited to, the formulation
and production of seminars and/or lectures, whereby the expertise of the P.C.'s
physicians and its quality practice can be made known to the medical professions
and the communities in which the P.C. practices;
(k) consultation with the P.C.s concerning the feasibility/profitability of
establishing new office locations for the P.C.s and assistance in (i)
identifying suitable
11
<PAGE>
locations; (ii) negotiating purchase contracts or leases; (iii) supervising
renovations/constructions; and (iv) integrating new offices into the P.C.'s
operation;
(l) consultation with the P.C.s regarding practice acquisition targets
including (i) identification of medical practices available for purchase; (ii)
due diligence reviews; (iii) negotiation of the purchase contract; and (iv)
assistance in the integration of the acquired practice;
(m) production of strategic business plans for the P.C.s; and
(n) assistance in the development of community service programs.
4. BILLING AND COLLECTION AND ARBITRATION SERVICES
4.1 The Company will provide the P.C.s with billing and collection services
for all medical services rendered by the P.C.s.
(a) The P.C.s agree that during the term of this Agreement, they will
provide the Company with billing and collection information relevant to all
claims and/or billings for all medical services rendered by the P.C.s (the
"Claims").
(b) The Company will be responsible for the complete processing of all
Claims in connection with the P.C. s' Practice. Where appropriate, the Company
shall establish internal procedures at the P.C. Offices for the purpose of
assuring the accurate and timely gathering of billable information.
(c) The Company agrees, in a manner consistent with industry practices, to
render bills on behalf of the P.C.s and thereafter seek to collect said
accounts, exercising due care, skill and ability. The Company will also bill and
use appropriate efforts to collect all patient deductibles and co-payment
amounts.
12
<PAGE>
(d) The Company shall maintain accurate records of all transactions which
will be available during normal business hours for inspection by the P.C.s or
its duly authorized representative upon reasonable notice to the Company.
(e) The Company shall at all times conform with all applicable federal,
state and local laws, rules and regulations and shall modify its service in the
event of any change in such laws, rules and regulations.
(f) The Company agrees to keep all information obtained from the P.C.s
concerning identifiable patients and their diagnosis/treatment/evaluation
confidential except for disclosures required for billing purposes or where
required by law or subpoena.
(g) All Claims submitted by the Company will be in the name of a P.C. The
P.C.s agree that remittances and all other proceeds of accounts receivable
generated by the P.C.s shall be remitted to a post office box maintained by the
Company on behalf of the P.C.s or to such other address as the parties may
hereafter agree upon. All monies and instruments collected by the Company on
behalf of the P.C.s will be deposited into a segregated operating account for
the P.C.s (the "Segregated Account") (it being understood that a separate
account may be required for each P.C. (a "Separate Account") in which case the
funds deposited in each such account will be immediately transferred to the
Segregated Account); and in connection therewith, the P.C.s hereby authorize the
Company to endorse all such checks with the appropriate P.C. name for deposit to
the Segregated Account (or, if required, a Separate Account). In the event any
payment, proceed or instrument in payment of
13
<PAGE>
services or accounts receivable related to the P.C.s' Practice is received
directly by the P.C.s, the same shall be immediately remitted to the Company for
deposit into the Segregated Account.
(h) The P.C.s agree that the Company may designate two individuals who will
have signature authority over the Segregated Account and the P.C.s further agree
that the Company may make payments on behalf of the P.C.s from the Segregated
Account for obligations of the P.C.s, which obligations shall include the fees
to be paid to the Company pursuant to this Agreement.
(i) The Company hereby agrees with the P.C.s that, to the extent that at
any time the cash in the Segregated Account is insufficient to pay the currently
due obligations of the P.C.s, the Company will pay such obligations in the
following order: (1) all operating expenses of the P.C.s (including, without
limitation salaries of non-shareholders employees of the P.C.s, malpractice
insurance, and the amount due to the Company pursuant to Section 6.1(a) hereof)
and all debt obligations to third parties, (2) the salaries and benefits due to
those employees of the P.C.s who are also shareholders of the P.C.s (the
"Shareholder Employees") but only up to the amount due to such Shareholder
Employees pursuant to the employment agreements between NMRA and such
Shareholder Employees, copies of which are annexed hereto, (3) the Initial Fee
or the New Fee, as the case may be, due to the Company, and (4) all other
obligations, if any, of the P.C.s. Notwithstanding the foregoing, the obligation
of the P.C.s to pay to the Company any and all fees due to the Company pursuant
to this
14
<PAGE>
Agreement, including, without limitation, the Initial Fee and/or the New Fee,
shall remain an obligation of the P.C.s until paid.
4.2 The Company shall, at the request of the P.C.s, submit claims of the
P.C.s for payment of its services to arbitration, prepare all documents
necessary in connection therewith and interface on behalf of the P.C.s with
counsel if same is retained in connection with any such arbitration.
5. WORKING CAPITAL ADVANCE
5.1 Upon written request of the P.C.s, the Company may, in its sole
discretion, advance monies to the P.C.s for purposes of working capital (the
"Working Capital Advance").
5.2 Upon written request for the Working Capital Advance, the P.C.s will
provide the Company with:
(a) a statement that the proceeds of the Working Capital Advance will be
used solely by the P.C.s for their medical practice; and
(b) a statement as to the exact use of the Working Capital Advance.
5.3 Upon review of a request for a Working Capital Advance and the
financial records and reports of the P.C.s, the Company will determine whether
and upon what terms it will approve such Working Capital Advance. The Company's
determination to make the Working Capital Advance requested will be based upon
such factors as it determines are reasonable and appropriate, including but not
limited to, the following: (i) the purpose of the request; (ii) the financial
condition of the P.C.s at the time of the request; (iii) the prevailing economic
conditions; (iv) interest rates; (v) the
15
<PAGE>
availability of capital to the Company on reasonable terms and (vi) a business
plan and budget of the P.C.s for the following calendar year. If the request for
the Working Capital Advance is granted, the parties agree to negotiate in good
faith mutually agreeable terms for the repayment of the Working Capital Advance
and the P.C.s agree to execute such documents as are customary to document such
transaction. If the request for a Working Capital Advance is denied, such denial
will not constitute a breach of this Agreement. The repayment of a Working
Capital Advance will be in addition to any fees due the Company pursuant to
Paragraph 6 of this Agreement.
6. COMPENSATION
6.1 For the services to be provided by the Company to the P.C.s pursuant to
Sections 2 and 4 of this Agreement at, or in respect of, the operation of the
P.C. Office, the P.C.s will pay to the Company (a) on a weekly basis, in
arrears, an amount equal to the actual cost to the Company of providing all such
services to the P.C.s, which costs shall include, without limitation, the
salaries and benefits of the Non-Medical Personnel, the cost of Supplies, the
rent payable for Licensed Office Space if any, etc. plus (b) on a monthly basis
in advance $133,000 per month (such $133,000 being hereinafter called the
"Initial Fee").
6.2 The parties agree that the Initial Fee has been determined based upon
the management services required by the current operations of the P.C.s and,
therefore, the parties agree that the Initial Fee shall be subject to adjustment
on each January 1st during the term of this Agreement beginning on January 1,
1998. In contemplation thereof, the parties agree that at least thirty (30) days
prior to each January 1st during
16
<PAGE>
the term of this Agreement (beginning with January 1, 1998) the P.C.s and the
Company shall meet for the purposes of agreeing upon a new Initial Fee for the
ensuing calendar year (the "New Fee"). If the P.C.s and the Company cannot agree
on a New Fee then, and in such event, the Initial Fee or the New Fee, as the
case may be, then being charged by the Company to the P.C.s shall be increased
for the following year by the greater of (a) 15% or (b) the cost of living
adjustment as determined by the U.S. Labor Department, Bureau of Labor
Statistics for All Urban Consumers for the New York Metropolitan Area for
"Medical Care" for the previous calendar year.
6.3 If any of the P.C.s should open an additional office and if the P.C.s
and the Company shall not have previously agreed to amend this Agreement to
cover the providing of Practice Management Services to the P.C.s at such office,
then, and in such event, the Company may, at its sole discretion, advise the
P.C.s that it has elected to provide to the P.C.s those Practice Management
Services which the Company is then providing to the P.C.s and the P.C.s shall
pay to the Company for the provision of such Practice Management Services the
actual cost to the Company for the providing of such services plus 20%.
6.4 In connection with the Company providing to the P.C.s Consulting
Services pursuant to Section 3 of this Agreement, the parties agree that the
P.C.s will pay the Company the amount which has been agreed upon by the P.C.s
and the Company with respect to the provision of any such Consulting Services
within ten (10) days of the Company rendering an invoice to the P.C.s. with
respect thereto; it being understood that if the P.C.s and the Company cannot
agree on the amount to be paid by
17
<PAGE>
the P.C.s for the provision of any of such Consulting Services, then the Company
shall not be obligated to provide such Consulting Services to the P.C.s.
7. TERM
This Agreement shall be effective for a term of thirty (30) years,
commencing the 1st day of September, 1996 and ending the 31st day of August,
2026, unless earlier terminated in accordance with this Agreement.
8. TERMINATION BY THE COMPANY
8.1 Notwithstanding Paragraph 7 above and subject to the notice and cure
provisions of sub-paragraph (k) hereof, the Company has the option to terminate
this Agreement upon or following the occurrence of any of the following events:
(a) the failure of the P.C.s to make timely payment of any Fee due the
Company as set forth in Paragraph 6;
(b) the failure of the P.C.s to make timely repayment of the Working
Capital Advances as set forth in Paragraph 7.3;
(c) failure of the P.C.s to maintain professional liability insurance as
provided in Paragraphs 19.4, l9.5 and 19.6 of this Agreement;
(d) final action by the New York State Board of Regents resulting in the
revocation or suspension of the license to practice medicine in New York of a
majority of the shareholders of NMRA;
(e) the surrender of license to practice medicine in New York by all
shareholders of NMRA.;
(f) the death of all shareholders of NMRA;
18
<PAGE>
(g) the failure of NMRA to practice medicine for a period of ten (10)
consecutive business days;
(h) the dissolution of NMRA;
(i) the bankruptcy or insolvency of NMRA;
(j) assignment other than as permitted by Paragraph 30.1;
(k) material breach of this Agreement by the P.C.s with such breach
continuing for forty-five (45) days after written notice to the P.C.s by or on
behalf of the Company stating the nature of the breach, provided however, that
if the breach is not capable of cure within said forty-five (45) day period,
then the P.C.s shall have such time as is reasonably necessary to cure such
breach provided that the P.C.s commence action to cure the breach within the
forty-five (45) day notice period and continues diligently to attempt to cure
such breach.
9. DAMAGES
If any act described in Paragraph 8 above shall occur and if the same shall
result in the Company terminating this Agreement, the P.C.s shall (a) be liable
to the Company in an amount equal to the sum of all amounts which remain payable
by the Company for any contractual obligations which the Company incurred or for
which it may remain liable in order to meet the Company's performance
obligations under this contract and (b) pay the Company liquidated damages in
the agreed upon amount of (i) $5,950,000 if the termination occurs prior to
September 1, 1997, (ii) $5,100,000 if the termination occurs on or after
September 1, 1997 and prior to September 1, 1998, (iii) $4,250,000 if the
termination occurs on or after September 1, 1998 and prior to
19
<PAGE>
September 1, 1999, (iv) $3,400,000 if the termination occurs on or after
September 1, 1999 and prior to September 1, 2000; (v) $2,550,000 if the
termination occurs on or after September 1, 2000 and prior to September 1, 2001,
(vi) $1,700,000 if the termination occurs on or after September 1, 2001 and
prior to September 1, 2002, and (vii) $850,000 if the termination occurs on or
after September 1, 2002 and prior to September 1, 2003. The liquidated damages
are predicated upon (i) the initial significant investment made by the Company
in staffing and providing the services described in this Agreement; (ii) the
loss of future profits; (iii) the loss of other corporate opportunity; and (iv)
shall in no event be deemed to be a penalty.
10. RIGHTS UPON TERMINATION
10.1 Upon termination or non-renewal of this Agreement, the P.C.s shall:
(a) quit and peacefully vacate all Licensed Office Space and surrender to
the Company any and all Furnishings, Equipment, or other items provided by the
Company in good order and condition (reasonable wear and tear resulting from
their proper use alone excluded). Upon or at any time after any such termination
or non-renewal, the Company may, without further notice, enter upon and re-enter
all Licensed Office Space and possess and repossess itself thereof, by force,
summary proceedings, ejectment or otherwise, and may dispossess and remove the
P.C.s, their property and personnel and all other persons and property from the
Licensed Office Space. The P.C.s. hereby expressly waive, so far as permitted by
law, the service of any notice of intention to re-enter provided for in any
statute, or of the institution of legal proceedings to that end.
20
<PAGE>
(b) cease and desist from all use of the Company's logo and Confidential
Information (as defined in paragraph 16.1) in any way, and deliver to the
Company, or its duly authorized representatives, all materials and papers which
may contain the Company's logo or constitute the Company's Confidential
Information.
(c) refrain from using, without the Company's prior written consent, the
Company logo, or name or any word or mark which is likely to be similar to or
confusing with the Company's logo or name.
10.2 The P.C.s agree that continued use of the Company's logo or the use by
the P.C.s of the Company's Confidential Information at the termination or
expiration of this Agreement will result in immediate and irreparable damage to
the Company and to the rights of other clients of the Company for which there is
no adequate remedy at law. In this regard, the P.C.s agree that the Company
shall be entitled to equitable relief by way of injunction and such other relief
any court with jurisdiction may deem just and proper. Additionally, the P.C.s
agree that pending such a hearing and the decision on the application for such
permanent injunctive relief, the Company shall be entitled to a temporary
restraining order, without prejudice to any other remedy available to the
Company. Furthermore, all such remedies hereunder shall be at the expense of the
P.C.s.
10.3 The parties agree that subsequent to the termination of this Agreement
and until all sums due to the Company from the P.C.s have been paid in full, the
Company shall have the option to collect the P.C.s' outstanding receivables up
to the amount due and payable to the Company by the P.C.s and to apply the
proceeds thereof
21
<PAGE>
to the payment of all sums due to the Company from the P.C.s. Upon such payment
in full, the Company shall terminate its security interest in the remaining
accounts receivable of the P.C.s.
10.4 The provisions of this Paragraph 10 shall survive termination of this
Agreement and shall in no event be construed to be an exclusive remedy of the
Company and such remedy shall be held and construed to be cumulative and not
exclusive of any rights or remedies, whether in law or in equity, otherwise
available under the terms of this Agreement or under federal, state and local
statutes, rules and regulations.
11. SECURITY INTEREST
11.1 As security for the full and timely payment of all amounts which may
at any time and from time to time be owed by the P.C.s to the Company pursuant
to this Agreement or otherwise, the P.C.s hereby grant to the Company (a) a
first senior and continuing security interest in all of the P.C.s' past, present
and future accounts, accounts receivable, contract rights and reimbursement
rights (the "General Receivables and Rights") and (b) the proceeds thereof. The
General Receivables and Rights are collectively referred to herein as the
"Collateral." In order to implement the foregoing, the P.C.s agrees to sign a
UCC Form 1 Financing Statement and any future updates and/or continuation
statements and also authorizes the Company to file such instruments without its
signature.
22
<PAGE>
11.2 The P.C.s shall at all times keep the Collateral free and clear of all
liens and encumbrances except liens created by the Company's security interest
in the General Receivables and Rights.
11.3 The P.C.s agree from time to time, at the sole expense of the P.C.s,
to promptly execute and deliver all further instruments and documents, and take
all further action that may be necessary, or that the Company may request, in
order to perfect any security interest granted by the P.C.s herein or to enable
the Company to exercise and enforce its rights and remedies hereunder with
respect to the Collateral. Without limiting the generality of the foregoing, the
P.C.s shall execute and file such security agreements, financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Company may request, in order to perfect
and preserve the security interests granted herein by the P.C.s to the Company.
Notwithstanding the foregoing, the P.C.s also authorize the Company to file any
such instruments without their signature.
11.4 The occurrence of any of the events set forth in Paragraph 10 which
gives rise to the Company's right to terminate this Agreement, shall constitute
a default hereunder (a "Default"). So long as no Default has occurred, the P.C.s
shall be entitled to receive all proceeds received in respect to the Collateral.
Upon the occurrence of a Default, all rights of the P.C.s with the respect to
the Collateral shall cease and the Company shall have the exclusive right and
authority to receive all amounts paid in respect of the Collateral. In
connection therewith, the P.C. irrevocably
23
<PAGE>
authorizes the Company to notify any or all of the P.C.s' obligors (including,
but not limited to, patients and third-party payers) to make payment directly to
the Company.
11.5 Upon Default, in addition to all rights and remedies set forth in this
Agreement, the Company may exercise from time to time any rights and remedies
available to it by law or in equity, including the rights and remedies set forth
in the Uniform Commercial Code as in effect from time to time in New York.
11.6 In the event of Default, the Company shall have the right, in the
name, place and stead of the P.C.s, to execute the necessary endorsements,
assignments or other instruments of conveyance or transfer with respect to all
or any of the Collateral and the proceeds thereof. The foregoing grant of
authority is irrevocable and coupled with an interest.
11.7 If the Company and the P.C.s should reasonably determine that the
P.C.s require a loan for the purposes of working capital (a "Working Capital
Loan") and if the Company shall have elected not to provide the P.C.s with a
Working Capital Advance, then, and in such event, as long as no Default shall
have occurred and then be continuing, the Company agrees with the P.C.s that the
Company will subordinate its security interest in the Collateral to any person
or entity which provides the P.C.s with a Working Capital Loan.
12. MEDICAL RECORDS
12.1 The P.C.s will maintain medical records regarding all patients of the
P.C.s' Practice as required by the laws of the State of New York and by the
rules and regulations of third-party payers, commercial insurers, health care
plans or
24
<PAGE>
organizations and in accordance with good medical practice. All records at the
P.C. Offices relating to the P.C.s' practice and its patients shall remain the
sole property of the P.C.s. All records relating to the services of the Company
which are created and maintained by the Company, shall remain the sole property
of the Company. The parties shall permit each other access during normal
business hours to such books and records upon reasonable notice.
13. FISCAL MATTERS
13.1 The P.C.s shall have no responsibility or liability for any taxes or
governmental obligations imposed upon the Company, which shall be the sole
obligation of the Company.
13.2 The Company shall have no responsibility or liability for any taxes or
governmental obligations imposed upon the P.C.s, which shall be the sole
obligation of the P.C.s.
14. INDEPENDENT CONTRACTOR
14.1 The Company and the P.C.s acknowledge that the relationship between
them is that of independent contracting parties whereby the P.C.s are purchasers
and the Company is an independent contractor engaged in the business of selling
non-medical, practice management and financial services. Nothing contained
herein shall be construed to create an employer-employee or master-servant
relationship.
14.2 The P.C.s acknowledge that the Company has the right as an independent
contractor to affiliate or contract with any other person or entity and nothing
contained herein shall be construed as limiting that right.
25
<PAGE>
15. INTENT OF THE PARTIES; CHANGE IN LAW
15.1 Neither the Company nor any of its personnel shall undertake or be
deemed to undertake the practice of medicine or provide medical services or
medical advice to the P.C.s or their patients in the performance of services and
other obligations under this Agreement. The Company is not authorized to engage
in any activity which may be construed or deemed under any existing or future
law or regulation to constitute the practice of medicine, the ownership or
operation of a medical practice, or the operation of a health care facility. To
the extent that any acts of the Company required by any provision of this
Agreement shall be construed or deemed to constitute the practice of medicine,
the ownership or operation of a medical practice, or the operation of a health
care facility or if any acts of the P.C.s under any provision of this Agreement
shall be construed or deemed to involve an act or service which may only be
performed by a clinic, diagnostic and treatment center or other health facility,
said provision shall be void ab initio or from the date of adoption of such law
or regulation, as the case may be, and the performance of said act or service
shall be deemed waived.
15.2 The P.C.s shall be solely responsible for: (a) all aspects of the
medical care delivered by the P.C.s; (b) the selection, supervision, direction,
contracting and employment, hiring and firing of health care professionals,
including all physicians, licensed or certified technicians and providers of
medical or nursing services (hereinafter, collectively the "Health
Professionals"); (c) establishing general operating policies and procedures of
the P.C.s; and (d) all professional and ethical affairs of the
26
<PAGE>
P.C. Practice. The P.C.s shall be solely responsible for the determination and
payment of compensation and fringe benefits to Health Professionals who are its
employees or independent contractors. The P.C.s agree to hire or engage only
duly licensed and qualified Health Professionals.
15.3 If in the opinion of counsel to the Company this Agreement, in whole
or in part, is deemed to be in violation of any future federal, state or local
statute, rule or regulation, the Company may, without electing an exclusive
remedy, (i) terminate this Agreement upon written notice which sets forth
counsel's opinion as to the effect of any newly enacted statute, rule or
regulation upon this Agreement and that the Agreement, in whole or in part,
violates such statute, rule or regulation; or (ii) demand that the Agreement be
re-negotiated in order to conform to any newly enacted statute, rule or
regulation.
16. CONFIDENTIALITY/NON-SOLICITATION/NONDISCLOSURE
16.1 The P.C.s recognize and acknowledge that the methods, techniques,
controls, programs, management and financial strategies utilized by the Company
constitutes proprietary information of the Company (and not already in the
public domain) and is hereinafter referred to as Confidential Information.
16.2 The P.C.s agree that without the prior written approval of the
Company, the P.C.s. will not at any time, whether during or after the
termination of this Agreement, disclose to any person or use for its own
benefit, except in the course of duties as contemplated by this Agreement, such
Confidential Information or use or permit any person to examine, copy or
duplicate any Confidential Information
27
<PAGE>
furnished to the P.C.s by the Company and at the request of the Company and in
any event upon the termination of this Agreement, the P.C.s will return to the
Company all Confidential Information, as well as any copies or information
derived therefrom. This provision shall survive the termination of this
Agreement.
16.3 During the term of this Agreement and for one (1) year after its
termination for any reason, any person who has been a shareholder any of the
P.C.s at any time during such period shall not, directly or indirectly, induce,
attempt to induce, or aid others in inducing, any person in the employ of the
Company to leave the Company's employment. The P.C.s also agree not to employ or
affiliate or contract with, or enter into any business or financial agreement
with, any employee of the Company during the period which such person is
employed by the Company and for a period of one (1) year following said
employee's termination of employment with the Company. This provision shall
survive the termination of this Agreement.
16.4 The Company agrees that it will not disclose the treatment and/or
diagnosis of any identifiable patient of the P.C.s to any third person except in
the course of its duties or where required by law and the Company agrees to
similarly instruct its employees.
16.5 The parties acknowledge that disclosure of any Confidential
Information or breach of any part of this Paragraph will give rise to
irreparable injury which will be inadequately compensable in damages.
Accordingly, either party may seek and obtain injunctive relief against the
breach or threatened breach of this Paragraph in addition to any and all other
legal remedies that may be available. In addition to any other relief or
28
<PAGE>
damages to which a party may be entitled, the successful party shall be entitled
to recoup the expenses of reasonable legal fees in any action brought to enforce
any provision of this Paragraph.
16.6 If any provision contained in this Paragraph or anywhere in this
Agreement shall be deemed by any court of competent jurisdiction to be invalid,
illegal or unenforceable, then such provision shall be modified so as to make it
valid, legal and enforceable to the fullest extent permitted by law, and the
parties agree that such paragraph or provision shall be enforceable to such
extent.
17. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE P.C.s
The P.C.s represent, warrant and covenant to the Company that:
17.1 Each P.C is a professional corporation duly organized, validly
existing and in good standing under the laws of the State of its organization
and duly authorized to practice medicine. The following persons are the only
persons who own shares in any of the P.C.s: Joseph Zipparo, Louis Germaine, Marc
Hertz, Stephen H. Robinson, Michael Mechlin, Bob Greenwald, Sam Mayerfield, Carl
Tack, Robert Diamond, Allan R. Keil, Peter Waxman, and Rafael Vazquez (the "P.C.
Shareholders").
17.2 The execution and delivery of this Agreement by the P.C.s and the
performance of their duties hereunder (a) have been duly authorized by all
necessary corporate action, and this Agreement constitutes the valid and binding
obligation of the P.C.s, enforceable against the P.C.s in accordance with its
terms and (b) will not
29
<PAGE>
violate or conflict with the Certificate of Incorporation or By-laws of any of
the P.C.s and will not result in a breach of or constitute a default under any
agreement or instrument to which the P.C.s or any of their officers, directors
or shareholders may be a party or by which any of them may be bound or affected.
17.3 The P.C.s, their employees and professional subcontractors, if any,
shall, at all times during the term of this Agreement, be duly licensed as
required by the State of New York and comply with all applicable laws and
regulations relating to the operation of its medical practice.
17.4 The P.C.s agree and covenant to maintain, at its sole cost and
expense, medical malpractice insurance in the minimum amount of $1 million per
occurrence and $3 million in the aggregate during the term of this Agreement or
if such insurance is not readily available, the P.C. Shareholders shall name the
P.C.s on their individual malpractice policies as an additional insured. The
P.C.s shall provide the Company with a copy of such policy or policies. The
policy shall provide for at least thirty (30) days advance written notice from
the insurer to the Company of any alteration, cancellation or termination of the
foregoing coverage.
17.5 The P.C. covenant and agree to require all physicians hired or
contracted by it and who perform services for the P.C.s, at their own cost and
expense or at the cost and expense of the P.C., to maintain malpractice
insurance in the minimum amount of $1 million per occurrence and $3 million in
the aggregate. The P.C.s shall require that the malpractice policies maintained
by its physicians provide for thirty (30) days advance written notice to the
P.C.s from the insurer of any
30
<PAGE>
alteration, cancellation or termination of the foregoing coverage. In the event
of receipt of such notice, the P.C.s shall immediately advise the Company of any
such alteration, cancellation or termination of malpractice coverage.
17.6 The P.C.s covenant and agree to require all Health Professionals,
other than physicians hired by the P.C.s to perform services for the P.C. to
maintain (at their own cost and expense or at the cost and expense of the P.C.)
professional liability insurance as is customary in the Westchester County area.
The P.C.s shall require that the professional liability insurance policies
maintained by Health Professionals provide for thirty (30) days advance written
notice to the P.C.s from the insurer of any alteration, cancellation or
termination of the foregoing coverage. In the event of receipt of such notice,
the P.C.s shall immediately advise the Company of any such alteration,
cancellation or termination of malpractice coverage.
17.7 The P.C.s covenant and agree to maintain at its expense general
casualty and liability insurance in amounts customary for medical practices such
as the P.C.s which shall cover all risks of physical loss or damage to Licensed
Office Space, Furnishings and Equipment and all risks of liability for bodily
injury and property damage resulting from the operation of any Equipment at the
P.C. Offices and of damages, destruction and loss of use of property of third
parties resulting therefrom and all risks of liability for bodily injury and
property damage from any condition of the Licensed Office Space. The casualty
and liability insurance shall specify the Company as a named insured and provide
for thirty (30) days advance written notice to the Company from the insurer of
any alteration, cancellation or termination of the
31
<PAGE>
foregoing insurance coverage. In the event of receipt of such notice, the P.C.s
shall immediately advise the Company of such alteration, cancellation or
termination.
17.8 The P.C.s agree and covenant to comply with all OSHA, New York State
Department of Health and other applicable governmental regulations as pertain to
a medical practice.
17.9 The P.C.s agree and covenant to have all patients assign the right of
collection from carriers and participating health care organizations, where
appropriate, to the P.C.s or their agent.
18. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents, warrants and covenants to the P.C.s that:
18.1 The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York.
18.2 The execution and delivery of this Agreement by the Company and the
performance of its duties hereunder: (a) have been duly authorized by all
necessary corporate action, and this Agreement constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms and (b) will not violate or conflict with any provision of law or of
the Company's Certificate of Incorporation or By-laws and will not result in a
breach of or constitute a default under any agreement or instrument to which the
Company or any of its officers, directors or shareholders may be a party or by
which any of them may be bound or affected.
32
<PAGE>
18.3 The Company agrees to maintain or cause to be maintained in the name
of the Company at its expense insurance covering: (a) all risks of physical loss
or damage to the Furnishings and Equipment; (b) liability for bodily injury and
property damage resulting from the operation of any of the Equipment at the P.C.
Offices and for damage, destruction and loss of use of property of third parties
resulting therefrom; and (c) all risks of liability for bodily injury and
property damage from any condition of the Licensed Office Space with such
insurance companies and in such amounts as the Company shall deem appropriate,
naming the appropriate P.C.s as additional insured and furnishing such P.C. with
a Certificate of Insurance upon such P.C. s' request.
18.4 The Company agrees to maintain the Licensed Office Space, Furnishings
and Equipment in good condition and repair, reasonable wear and tear from normal
use excepted. Whenever possible, the Company shall arrange for routine
maintenance, on seven (7) days advance notice to the P.C.s and at a time and
manner that is not disruptive to the P.C.s' Practice, all repairs of Equipment
other than those necessitated by the P.C. s willful misconduct or misuse of the
Equipment will be performed as soon as practicable. The Company shall arrange
for emergency repairs to be performed as promptly as practicable.
19. INDEMNIFICATION
19.1 The P.C.s shall indemnify, protect and hold harmless the Company, its
shareholders, officers, directors, employees, agents, successors, subsidiaries,
affiliates and assigns from and against the defense and any and all losses,
including legal expenses, damages (direct and consequential), injuries, claims,
demands, costs and
33
<PAGE>
expenses, including legal expenses, of whatsoever nature, arising out of or in
connection with or incidental to: (a) the conduct of its medical practice, (b)
any breach of this Agreement by the P.C.s or any of its shareholders, and (c)
the use or operation by the P.C.s' employees, agents, patients or invitees of
any item of Equipment, Furnishings or supplies and its use and occupancy of the
Licensed Office Space regardless of where, how and by whom used or operated.
19.2 The Company will indemnify and hold the P.C.s and their shareholders
harmless from and against any and all losses, including legal expenses, damages,
injures, claims, demands, costs and expenses of whatsoever nature arising out of
or in connection with (a) any breach of this Agreement by the Company; and (b)
any gross negligence or willful misconduct of the Company in the performance of
its obligations under this Agreement.
19.3 The provisions contained in this Paragraph shall survive the
termination of this Agreement.
20. NON-COMPETITION AND RESTRICTIVE COVENANT
20.1 Throughout the term of this Agreement including any renewal or other
extension thereof, and for an additional period of three (3) years following
termination of this Agreement for any reason except with the prior written
consent of the Company, neither the P.C.s nor the P.C. Shareholders will
directly or indirectly own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or have an interest in or a
financial relationship with, or be connected in
34
<PAGE>
any manner with any business which is directly or indirectly competitive with
the business of the Company.
20.2 The provisions of Paragraph 20.1 shall not apply if the Company
terminates this Agreement, other than as a result of a breach by the P.C.s.
20.3 In order to give the language in Paragraph 20.1 effect, the P.C.s
agree to place the restrictions contained in Paragraph 20.1 in all contracts and
agreements with the P.C. Shareholders, including, without limitation, any
employment agreements with such P.C. Shareholders.
20.4 The P.C.s agree that it will not issue any shares of its capital stock
to any person unless such person agrees, in writing, with the Company, to be
bound by those provisions of this Agreement which are binding upon the P.C.
Shareholders.
20.5 The parties agree that the provisions of this Paragraph 20 are
necessary and reasonable to protect the Company in the conduct of its business.
The P.C.s agree that any remedy at law for any breach of the foregoing covenants
may be inadequate and that the Company will be entitled, at its election, to
injunctive relief to enjoin any violation, threatened or actual, of this
Paragraph 20.
20.6 The parties agree that if any restriction contained in this Paragraph
20 shall be deemed to be invalid, illegal or unenforceable by reason of the
extent, duration, geographical scope, or other provisions hereof' the court
shall reduce same only to the extent necessary in order for same to be
enforceable, and in its reduced form, such restriction shall then be enforceable
in the manner contemplated hereby.
35
<PAGE>
20.7 The provisions contained in this Paragraph 20 shall survive
termination of this Agreement for a period of three (3) years following such
termination.
21. FORCE MAJEURE
Neither party shall be liable for or deemed to be in default for any delay
or failure to perform any act under this Agreement (other than the payment of
money) resulting, directly or indirectly, from Acts of God, civil or military
authority, acts of public enemy, war, accidents fires, explosions, earthquake,
flood, failure of transportation, strikes or other work stoppages by either
party's employees, or any other cause beyond the reasonable control of such
party.
22. REMEDIES OF THE P.C.s
(a) All services provided by the Company pursuant to this Agreement are
furnished without warranty. The P.C.s' sole monetary remedy, and the Company's
sole monetary obligation, for any failure to render any service, or any error or
omission or any delay or interruption with respect thereto, is limited to an
adjustment to the P.C.s of the fee otherwise payable hereunder in an amount
equal to the fair market value of such services for the period during which the
failure, delay or interruption occurred. With the sole exception of the remedy
set forth in the immediately preceding sentence, the P.C.s expressly waive, and
agree not to make any claim for, any damages, direct or consequential, arising
out of any failure to furnish any such services, any error or omission with
respect thereto, or any delay or interruption of the same. In no event shall
there by any adjustment to the fee payable hereunder if the P.C.s are in default
under the Agreement at such time.
36
<PAGE>
(b) The P.C. may only terminate this Agreement upon a substantial, material
and continued breach by the Company of its obligations to the P.C. hereunder (a
"Material Breach"). A Material Breach shall only be deemed to have occurred
under the following circumstances:
(i) The P.C. shall deliver to the Company a written notice which
notice shall provide in detail the alleged Material Breach.
(ii) The Company shall have a period of 120 days in which to cure such
alleged Material Breach. If after the expiration of such 120 day period the
P.C. believes that such alleged Material Breach has not been cured, the
P.C. shall send to the Company a further notice specifying in detail why it
believes that the alleged Material Breach has not been cured.
(iii) The Company shall then have a period of an additional 60 days in
which to cure such alleged Material Breach.
(iv) If after the expiration of such additional period, the P.C. shall
continue to maintain such alleged Material Breach shall not have been
cured, it shall send the Company a notice that it has elected to terminate
this Agreement on account of such alleged Material Breach (a "PC
Termination Notice").
(v) If the Company shall dispute the PC Termination Notice then this
Agreement shall not terminate unless and until a final determination by a
court of competent jurisdiction has determined that such Material Breach
has, in fact, occurred.
37
<PAGE>
Notwithstanding anything to the contrary that may be contained herein, if a
Material Breach shall have occurred with respect to a specific service to be
rendered to the Company by the P.C.s hereunder, this Agreement shall only
terminate with respect to such service in which event the Initial Fee or the New
Fee, as the case may be, then in effect shall be proportionately reduced.
23. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding between the parties
hereto and supersedes all other prior agreements between the parties. Each party
to this Agreement acknowledges that no representations, inducements, promises or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, that are not embodied in this Agreement, and that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding as between the P.C.s and the Company.
24. ARBITRATION
Any controversy or claim arising out of or relating to this contract, or
the breach thereof shall be settled by three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any Court
having jurisdiction thereof. Arbitration will be conducted in New York County,
New York. This paragraph shall not apply to relief sought under Paragraphs 10,
20 or 22 of this Agreement nor shall it restrict the right of either party to
institute proceeding to enable such party to obtain provisional injunctive
relief during the pendency of an arbitration.
38
<PAGE>
25. COMPANY'S OPTION TO PURCHASE
In the event that the State of New York in the future permits the corporate
practice of medicine without need to resort to a Certificate of Need, or if, in
the opinion of counsel to the Company, it otherwise becomes lawful in New York
State for the Company to acquire and operate the medical practice of the P.C.s,
the Company shall have the right to purchase the medical practice of the P.C.s
and the P.C.s agree to sell the medical practice of the P.C.s to the Company.
The purchase price shall be $100. In order to make meaningful the foregoing
right, the P.C.s agree that any purchaser of the P.C.s or transferee or other
recipient of shares thereof and any successor P.C.s and shareholders thereof
shall be bound by the provisions of this Paragraph and no sale of the P.C.s or
transfer of any shares of any P.C. shall be effective unless the purchaser or
transferee acknowledges in writing his agreement to the provisions of this
Paragraph.
26. MODIFICATION
This Agreement may not be orally changed or modified. All changes or
modifications to this Agreement shall be in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
27. WAIVER
No delay or failure to exercise any remedy or right occurring upon any
breach or default shall be construed as a waiver of such remedy or right, nor
shall it affect any subsequent default of a same or different nature.
39
<PAGE>
28. ASSIGNMENT
28.1 The P.C.s shall not assign this Agreement or any of their rights or
obligations under this Agreement without the prior written consent of the
Company. Any transfer of the profits, losses or cash flow of the P.C.s shall
also constitute an assignment hereunder and constitute a material breach. The
Company shall have a right to assign this Agreement in connection with a
transfer of all or substantially all of the Company's business whether by sale,
merger or otherwise.
28.2 The P.C.s specifically agree that the Company shall have the right to
perform the services to be provided hereunder through any parent, subsidiary,
division or affiliate of the Company without consent from the P.C.s.
29. SUCCESSORS AND ASSIGNS
All of the provisions herein contained shall be binding upon and inure to
the benefit of the respective successors and permitted assigns of the parties
hereto to the same extent as if such successors and permitted assigns were in
each case named as a party to this Agreement.
30. EFFECT OF INVALIDITY
Should any part of this Agreement for any reason be declared invalid, such
decision shall not affect the validity of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been executed
with the invalid parties thereof eliminated.
40
<PAGE>
31. NOTICES
Any notice or communications required or permitted hereunder shall be
deemed to have been sufficiently given or served for all purposes if in writing
and delivered personally to the party or to an officer of the party, or sent by
registered or certified mail, postage and charges prepaid, return receipt
requested to the parties' addresses as set forth below:
To the P.C.s: Northern Metropolitan Radiology Associates, P.C.
3630 Hill Boulevard
Jefferson Valley, New York 10535
Attn: President
To the Company: Advanced Alliance Management Corp.
3630 Hill Boulevard
Jefferson Valley, New York 10535
Attn: President
or such other address as may subsequently be provided to the other party in
writing. Unless otherwise expressly set forth in this Agreement, any such notice
shall be deemed to be given on the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as above.
32. FURTHER ACTIONS
At any time and from time to time, each party agrees, without further
consideration, to take such actions and to execute and deliver such documents as
may be necessary to effectuate the purposes of this Agreement.
41
<PAGE>
33. CAPTIONS
The paragraph captions contained in this Agreement are inserted only as a
matter of convenience and reference, and in no way define, limit or describe the
scope of this Agreement, nor the intent of any provision thereof.
34. NO PARTNERSHIP/JOINT VENTURE
Nothing contained in this Agreement shall be deemed or construed as
creating a partnership or joint venture between the Company and the P.C.s or
between the Company and any other person, nor cause the Company or the P.C.s to
be responsible in any way for debts or obligations of the other or any person
whomsoever.
35. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but which, taken together, shall constitute one
Agreement.
36. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
37. JOINTLY AND SEVERAL LIABILITY
The P.C.s understand, agree and acknowledge that they are jointly and
severally liable for all of the obligations of any of the P.C.s hereunder.
38. APPOINTMENT
Each of the P.C.s hereby appoints NMRA as its agent to deal with the
Company in connection with any of the rights of obligations of each such P.C.
pursuant to this Agreement including, without limitation, agreeing to (i) an
adjustment to
42
<PAGE>
the Initial Fee or the New Fee, as the case may be, or (ii) any modifications,
waivers or amendments to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NORTHERN METROPOLITAN
RADIOLOGY ASSOCIATES, P.C.
By: /s/ Marc Hertz
-------------------------------------
NORTHERN METROPOLITAN
RADIOLOGY ASSOCIATES, P.A.,
By: /s/ Marc Hertz
-------------------------------------
PERSONAL BREAST SERVICES AND
ULTRASOUND OF NORTHERN WESTCHESTER, P.C.
By: /s/ Marc Hertz
-------------------------------------
NMRA OF CONNECTICUT, P.C.
By: /s/ Marc Hertz
-------------------------------------
JEFFERSON VALLEY DIAGNOSTIC IMAGING, P.C.
By: /s/ Marc Hertz
-------------------------------------
NORTHERN WESTCHESTER DIAGNOSTIC
PARTNERS, P.C.
By: /s/ Marc Hertz
-------------------------------------
ADVANCED ALLIANCE MANAGEMENT CORP.
By: /s/ Kenneth Schwartz
-------------------------------------
43
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 22, 1996, among William Fontanetta
(the "Executive") and INTERTECH/PENTA GROUP, INC. (formerly known as PIC
Acquisition Corp.), a New York corporation (the "Company") and Complete
Management,Inc.("Complete").
WHEREAS, the Executive is presently the Co-President of the businesses
acquired by the Company in connection with a merger all pursuant to those
certain agreements of merger dated of even date herewith, (the "Acquisition
Agreements"); and
WHEREAS, the Company is a wholly-owned subsidiary of COMPLETE MANAGEMENT,
INC., a New York corporation ("Complete"), and
WHEREAS, the Company desires to assure itself of the benefit of the
Executive's services and experience for a period of time; and
WHEREAS, the Executive is willing to enter into an agreement to that end
with the Company upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of employment of the Executive under this Employment Agreement shall be for the
period commencing on the date hereof and terminating on December 31, 2000. (Such
term of employment is herein sometimes called the "Employment Term").
2. Services to be Rendered. The Company hereby agrees to employ the
Executive as Chief Executive Officer of the Company, subject to the terms,
conditions
<PAGE>
and provisions of this Employment Agreement and consistent with the terms of the
Acquisition Agreement. The Executive hereby accepts such employment and agrees
to devote his full time and attention to rendering services to the Company under
this Employment Agreement and consistent with the terms of the Acquisition
Agreement. The Company acknowledges that the Executive has entered into this
Employment Agreement in reliance on the Company's representation that, and the
Company agrees that, he will have authority over and responsibility for the
day-to-day operations as set forth in Section 7A of the Acquisition Agreement.
Except for routine travel incidental to the business of the Company, Executive's
services shall be performed at the primary premises of the Company at 209
Lafayette Drive, Syosset, N.Y.
3. Compensation.
(a) In payment for services rendered to the Company under this Employment
Agreement, the Company shall pay the Executive a salary of $160,000 per year
during the term of this Agreement. Such salary shall be paid in accordance with
Complete's normal practice for its executives (but in no event less frequently
than on the 1st and 16th day of each month).
(b) Commencing on July 1, 1997 and on July 1 of each of each succeeding
year during the Employment Term, the Executive's salary for the immediate
succeeding twelve month period shall be increased by a percentage equal to the
percentage, if any, that the CPI (as hereinafter defined) shall have increased
during the 12 months ending on the May 31 immediately preceding such year (i.e.,
on July 1, 1997 Executive's salary shall be multiplied by a fraction the
numerator of which shall be the CPI for May 1997 and the denominator of which
shall be the CPI for May 1996;
2
<PAGE>
provided that such computations shall not result in a salary decrease). The
salary so adjusted will prevail for the immediately succeeding employment year.
CPI shall mean the Consumer Price Index for Urban Consumers, All Items
(1982-84=100) for New York, Northern New Jersey and Long Island as published
monthly by the United States Bureau of Labor Statistics.
(c) Except as otherwise provided herein, the Executive shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company consistent with the past
practices of Intertech Corporation and Penta Automation Resources, Inc., upon
such terms and conditions as are made available to executives of the Company,
generally. The Executive shall also be entitled to those benefits set forth on
Schedule A hereto.
(d) The Executive shall be entitled to reimbursement of all reasonable,
ordinary and necessary business related expenses incurred by him in the course
of his duties as set forth on Schedule A.
(e) The Executive shall be entitled to 6 full weeks of paid vacation during
each calendar year which shall be taken in accordance with the procedures of the
Company in effect from time to time.
(f) As soon as practicable after the date hereof, Complete will grant to
the Executive options to purchase 20,000 shares of its Common Stock, exercisable
at the market price of such shares on the date of grant, subject to shareholder
approval of an amendment of the Complete Management, Inc. 1995 Stock Option Plan
increasing the number of shares for which Complete may grant options thereunder
(the "Amendment") The options granted under this paragraph will
3
<PAGE>
be "incentive stock options" to the maximum extent permitted by the Internal
Revenue Code. Complete will submit the Amendment to its shareholders for
approval at the first shareholders meeting held after the date hereof but in no
event later than May 31, 1997.
4. Termination.
(a) This Agreement shall terminate upon the happening of any of the
following events:
(i) the death of the Executive.
(ii) In the event the Executive suffers a mental or physical illness,
injury, incapacity or other disability of such nature or character so that
the Executive is unable to substantially perform the duties required of him
hereunder for a period of more than ninety (90) days within a period of one
hundred and eighty (180) consecutive days (the expiration of the 180 day
period being the date of disability).
(iii) The Company may terminate the Executive's employment for Cause
(as defined in subparagraph (b) below) upon compliance with the provisions
of subparagraph (c).
(iv) The Executive may terminate his employment for "Good Reason" (a)
if the Company or Complete, as applicable, materially breaches any material
provision of this Agreement which causes or may cause harm to the Executive
or (b) if the Company or Complete, as applicable, breaches any material
provision of the Acquisition Agreement or the Registration Rights Agreement
or if the Billing and Collection
4
<PAGE>
Agreement between the Company and Complete is terminated for reasons other
than a default by the Company.
(b) "Cause" shall mean (i) if the Executive engages in an act of theft,
fraud, embezzlement or other similar intentional act against the Company (ii)
the Executive's material breach of any material term of this Employment
Agreement which causes or may cause harm that is materially injurous to the
Company or (iii) the Executive's willful and repeated misconduct or gross and
repeated negligence which is materially injurious to the Company, monetarily or
otherwise.
(c) Termination for Cause shall be effected by the Company only if the
Company has delivered to the Executive a notice of termination which specifies
such Cause in reasonable detail and which gives the Executive at least thirty
(30) days to cure the circumstances giving rise to such notice of termination
and if, in the reasonable opinion of the Board of Directors of the Company, such
non-compliance has not been cured, Executive's employment with the Company shall
be deemed terminated as of the date notifies Executive in writing of its
determination.
(d) Termination for Good Reason shall be effected by the Executive only if
the Executive has delivered to the Company a notice of termination which
specifies such Good Reason in reasonable detail and which gives the Company at
least thirty (30) days to cure the circumstances giving rise to such notice of
termination and if, such non-compliance has not been cured Executive's
employment with the Company shall be deemed terminated as of expiration of the
notice period.
(e) (i) In the event of termination of the Executive's employment pursuant
to Section 4(a) (i) or (ii), the Executive shall be paid his base salary through
the date of death or disability, as applicable. In addition, the Executive, or
his estate,
5
<PAGE>
as applicable, shall (A) continue to be paid (in accordance with the terms of
each of the Acquisition Agreements, as applicable), the Additional Consideration
(as defined in, and pursuant to each of the Acquisition Agreements); and (B)
shall receive the benefits set forth on Schedule A.
(ii) In the event of termination of the Executive's employment pursuant to
Section 4(a) (iii), the Executive shall be paid his base salary calculated as if
the Executive's employment had not terminated through the last day of the year
in which such termination occurs. In addition, the Executive shall be paid (in
accordance with the terms of each of the Acquisition Agreements, as applicable),
the Additional Consideration, (as defined in and pursuant to each of the
Acquisition Agreements) through the last day of the year in which such
termination occurs.
(iii) In the event of termination of the Executive's employment pursuant to
Section 4(a) (iv), the Executive shall be paid the full amount of his base
salary calculated as if the Executive's employment had not terminated and this
Agreement was performed through its term. In addition, the Executive shall be
paid (in accordance with the terms of each of the Acquisition Agreements, as
applicable), the Additional Consideration in full (i.e. $5,000,000 less prior
payments) as defined in and pursuant to each of the Acquisition Agreements), and
shall receive full medical coverage, for himself and his family (on such terms
as are in effect directly prior to such termination), at the Company's sole
expense, for the period of time between the date of termination through December
31, 2000.
In addition, in the event of termination of the Executive's employment for
any reason whatsoever, the provisions of Section 3(f) shall survive such
termination.
6
<PAGE>
5. Covenant Not to Compete.
(a) For the period beginning on the Closing Date (as defined in the
Acquisition Agreements) and ending December 31, 2000 unless earlier terminated
pursuant to the provisions hereof or in the Acquisition Agreements (the
"Non-Compete Period"), the Executive hereby covenants and agrees with the
Company that, unless acting as an officer, employee or consultant to the
Company, or an affiliate of the Company, or with the Company's prior written
consent, such Executive will not anywhere (i) compete, directly or indirectly,
with the Company or any of its affiliates in the business or activities in which
the Company is engaged during his employment with the Company (the "Company's
Business") in any state which the Company is then doing business; (ii) directly
or indirectly, on his own behalf or in behalf of or as an employee or agent of
any other person or entity, contact or approach any person or business, wherever
located, for the purpose of competing with the Company in the Company's
Business; (iii) participate as a director, officer, consultant, or partner of,
or have any other direct or indirect financial interest in, any enterprise which
engages in the Company's Business; provided, however, that the Executive may own
up to two (2%) percent of the capital stock of any corporation (except that
Excutive may own more than 2% of complete) required to file reports pursuant to
the Securities Exchange Act of 1934 that is in competition with the Company's
Business; or (iv) participate as an employee, agent, representative or
consultant in, or render any services to, any enterprise in which he has
responsibilities for activities which compete, directly or indirectly, with the
Company's Business.
7
<PAGE>
(b) For a period of one year after the Non Compete Period Executive will
not (i), directly or indirectly, hire, solicit or encourage to leave the
employment of Complete or any of its affiliates, any employee of Complete or any
of its affiliates who work in or perform services for the Company's Business,
including any person who has left the employment of Complete or any of its
affiliates during the six months preceding the end of the Non Compete Period, or
(ii) solicit business from or provide billing and collection services to any
entity that was a customer of the Company during the Non Compete Period.
(c) Notwithstanding the foregoing, if during the Employment Term, the
Executive is terminated by the Company other than for Cause, or if this
Agreement is terminated by the Executive for Good Reason the covenants set forth
in this Sections 5 (a) and (b) and 7 and the covenants set forth in Sections
7.03 and 7.05 each of of the Acquisition Agreement shall from and after the date
of such termination be of no further force and effect; provided, however, that
the Company shall still have rights against the Executive for any violation of
such covenants prior to such date.
6. Confidential Information. Such Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of itself or others, all
confidential matters relating to the Company's Business, including, without
limitation, customer lists, operational methods and other business affairs
relating to the Company's Business known by the Executive and, except as
otherwise required by law, shall not disclose them to anyone, except with
Complete's express prior written consent.
7. Employees of Complete. Such Executive shall not at any time during the
Non-Compete Period, directly or indirectly, hire, solicit or encourage to leave
the
8
<PAGE>
employment of the Company, any employee of the Company, or hire any such
employee who has left the employment of the Company within nine months of the
termination of such employee's employment.
8. Acknowledgment; Severability. The Executive acknowledges that the
restrictions contained in Sections 6, 7 and 8 are reasonable and necessary to
protect the business and interests of the Company and that any violation of
these restrictions will cause substantial and irreparable injury to the Company.
Therefore, the Executive agrees that the Company is entitled, in addition to any
other remedies, to preliminary and permanent injunctive relief to secure
specific performance, and to prevent a breach or contemplated breach, of
Sections 6, 7 and 8. The restrictions set forth herein shall be construed as
independent covenants, and the existence of any claim or cause of action against
the Company, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the restrictions
contained in Sections 6, 7 and 8. In the event that the provisions of Sections
6, 7 and 8 should ever be deemed to exceed the time or geographic limitations or
any other limitations permitted under applicable laws, then such provisions
shall be deemed reformed to the maximum extent permitted by applicable laws.
9. Non-Assignability. Except as otherwise provided herein, this Employment
Agreement may not be assigned by either the Company or the Executive.
10. Notices. All notices, requests, demands and other communications which
are required to be or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when (a) delivered in person, (b) the
day following dispatch by an overnight courier service (such as Federal Express
or UPS,
9
<PAGE>
etc.) or (c) five (5) days after dispatch by certified or registered first class
mail, postage prepaid, return receipt requested, to the party to whom the same
is so given or made:
If to the Company: Intertech/Penta Group, Inc.
c/o Complete Management, Inc.
254 West 31st Street
New York, New York 10011
Attn: Steven Rabinovici, Chairman of the Board
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: George Lander, Esq.
If to the Executive
with a copy to:
11. Governmental Regulation. Nothing contained in this Employment Agreement
shall be construed so as to require the commission of any act contrary to law,
and wherever there is any conflict between any provision of this Employment
Agreement and any statute, law, ordinance, order or regulation, the latter shall
prevail, but in such event any such provision of this Employment Agreement shall
be curtailed and limited only to the extent necessary to bring it within the
legal requirements.
12. Governing Law. This Employment Agreement shall be governed by and
construed in accordance with the laws of New York.
13. Entire Agreement; Amendment. This Employment Agreement together with
the Acquisition Agreements sets forth the entire understanding of the parties in
respect of the subject matter contained herein and supersedes all prior
agreements, arrangements and understanding relating to the subject matter
hereof. This Agreement may only be amended by a written agreement signed by both
parties hereto or their duly authorized representatives.
10
<PAGE>
14. Guaranty. Complete hereby guarantees all of the obligations of the
Company under this Employment Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.
INTERTECH/PENTA GROUP, INC.
By: /s/ Gregory Heineman
-------------------------------------
Gregory Heineman, President
/s/ William Fontanetta
-------------------------------------
William Fontanetta
COMPLETE MANAGEMENT, INC.
By: /s/ Arthur Goldberg
-------------------------------------
A. Goldberg,
COO
12
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 22, 1996, among Gregory Heineman
(the "Executive") and INTERTECH/PENTA GROUP, INC. (formerly known as PIC
Acquisition Corp.), a New York corporation (the "Company") and Complete
Management,Inc.("Complete").
WHEREAS, the Executive is presently the Co-President of the business
acquired by the Company in connection with a merger all pursuant to an agreement
dated even date herewith, (the "Acquisition Agreement"); and
WHEREAS, the Company is a wholly-owned subsidiary of COMPLETE MANAGEMENT,
INC., a New York corporation ("Complete"), and
WHEREAS, the Company desires to assure itself of the benefit of the
Executive's services and experience for a period of time; and
WHEREAS, the Executive is willing to enter into an agreement to that end
with the Company upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of employment of the Executive under this Employment Agreement shall be for the
period commencing on the date hereof and terminating on December 31, 2000. (Such
term of employment is herein sometimes called the "Employment Term").
2. Services to be Rendered. The Company hereby agrees to employ the
Executive as Chief Executive Officer of the Company, subject to the terms,
conditions and provisions of this Employment Agreement and consistent with the
terms of the Acquisition
<PAGE>
Agreement. The Executive hereby accepts such employment and agrees to devote his
full time and attention to rendering services to the Company under this
Employment Agreement and consistent with the terms of the Acquisition Agreement.
The Company acknowledges that the Executive has entered into this Employment
Agreement in reliance on the Company's representation that, and the Company
agrees that, he will have authority over and responsibility for the day-to-day
operations as set forth in Section 7A of the Acquisition Agreement. Except for
routine travel incidental to the business of the Company, Executive's services
shall be performed at the primary premises of the Company at 209 Lafayette
Drive, Syosset, N.Y.
3. Compensation.
(a) In payment for services rendered to the Company under this Employment
Agreement, the Company shall pay the Executive a salary of $160,000 per year
during the term of this Agreement. Such salary shall be paid in accordance with
Complete's normal practice for its executives (but in no event less frequently
than on the 1st and 16th day of each month).
(b) Commencing on July 1, 1997 and on July 1 of each of each succeeding
year during the Employment Term, the Executive's salary for the immediate
succeeding twelve month period shall be increased by a percentage equal to the
percentage, if any, that the CPI (as hereinafter defined) shall have increased
during the 12 months ending on the May 31 immediately preceding such year (i.e.,
on July 1, 1997 Executive's salary shall be multiplied by a fraction the
numerator of which shall be the CPI for May 1997 and the denominator of which
shall be the CPI for May 1996; provided that such computations shall not result
in a salary decrease). The salary so adjusted will prevail for the immediately
succeeding employment year.
2
<PAGE>
CPI shall mean the Consumer Price Index for Urban Consumers, All Items
(1982-84=100) for New York, Northern New Jersey and Long Island as published
monthly by the United States Bureau of Labor Statistics.
(c) Except as otherwise provided herein, the Executive shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company consistent with the past
practices of Intertech Corporation and Penta Automation Resources, Inc., upon
such terms and conditions as are made available to executives of the Company,
generally. The Executive shall also be entitled to those benefits set forth on
Schedule A hereto.
(d) The Executive shall be entitled to reimbursement of all reasonable,
ordinary and necessary business related expenses incurred by him in the course
of his duties as set forth on Schedule A.
(e) The Executive shall be entitled to 6 full weeks of paid vacation during
each calendar year which shall be taken in accordance with the procedures of the
Company in effect from time to time.
(f) As soon as practicable after the date hereof, Complete will grant to
the Executive options to purchase 20,000 shares of its Common Stock, exercisable
at the market price of such shares on the date of grant and permitting
"cashless" exercise, subject to shareholder approval of an amendment of the
Complete Management, Inc. 1995 Stock Option Plan increasing the number of shares
for which Complete may grant options thereunder (the "Amendment") The options
granted under this paragraph will be "incentive stock options" to the maximum
extent permitted by the Internal Revenue Code. Complete will submit the
Amendment to its shareholders for approval at the
3
<PAGE>
first shareholders meeting held after the date hereof but in no event later than
May 31, 1997.
4. Termination.
(a) This Agreement shall terminate upon the happening of any of the
following events:
(i) the death of the Executive.
(ii) In the event the Executive suffers a mental or physical illness,
injury, incapacity or other disability of such nature or character so
that the Executive is unable to substantially perform the duties
required of him hereunder for a period of more than ninety (90) days
within a period of one hundred and eighty (180) consecutive days (the
expiration of the 180 day period being the date of disability).
(iii) The Company may terminate the Executive's employment for Cause
(as defined in subparagraph (b) below) upon compliance with the
provisions of subparagraph (c).
(iv) The Executive may terminate his employment for "Good Reason" (a)
if the Company or Complete, as applicable, materially breaches any
material provision of this Agreement which causes or may cause harm to
the Executive or (b) if the Company or Complete, as applicable,
breaches any material provision of the Acquisition Agreement or the
Registration Rights Agreement or if the Billing and Collection
Agreement between the Company and Complete is terminated for reasons
other than a default by the Company.
4
<PAGE>
(b) "Cause" shall mean (i) if the Executive engages in an act of theft,
fraud, embezzlement or other similar intentional act against the Company (ii)
the Executive's material breach of any material term of this Employment
Agreement which causes or may cause harm that is materially injurous to the
Company or (iii) the Executive's willful and repeated misconduct or gross and
repeated negligence which is materially injurious to the Company, monetarily or
otherwise.
(c) Termination for Cause shall be effected by the Company only if the
Company has delivered to the Executive a notice of termination which specifies
such Cause in reasonable detail and which gives the Executive at least thirty
(30) days to cure the circumstances giving rise to such notice of termination
and if, in the reasonable opinion of the Board of Directors of the Company, such
non-compliance has not been cured, Executive's employment with the Company shall
be deemed terminated as of the date notifies Executive in writing of its
determination.
(d) Termination for Good Reasons shall be effected by the Executive only if
the Executive has delivered to the Company a notice of termination which
specifies such Good Reason in reasonable detail and which gives the Company at
least thirty (30) days to cure the circumstances giving rise to such notice of
termination and if, such non-compliance has not been cured Executive's
employment with the Company shall be deemed terminated as of expiration of the
notice period.
(e) (i) In the event of termination of the Executive's employment pursuant
to Section 4(a) (i) or (ii), the Executive shall be paid his base salary through
the date of death or disability, as applicable. In addition, the Executive, or
his estate, as applicable, shall (A) continue to be paid (in accordance with the
terms of each of the Acquisition Agreements), the Additional Consideration (as
defined in and
5
<PAGE>
pursuant to each of the Acquisition Agreements); and (B) shall receive the
benefits set forth on Schedule A.
(ii) In the event of termination of the Executive's employment pursuant to
Section 4(a) (iii), the Executive shall be paid his base salary calculated as if
the Executive's employment had not terminated through the last day of the year
in which such termination occurs. In addition, the Executive shall be paid (in
accordance with the terms of each of the Acquisition Agreements as applicable),
the Additional Consideration as defined in and pursuant to each of the
Acquisition Agreements earned through the last day of the year in which such
termination occurs.
(iii) In the event of termination of the Executive's employment pursuant to
Section 4(a) (iv), the Executive shall be paid the full amount of his base
salary calculated as if the Executive's employment had not terminated and this
Agreement was performed through its term. In addition, the Executive shall be
paid (in accordance with the terms of each of the Acquisition Agreements as
applicable), dentire amount of the Additional Consideration in full (i.e.
$5,000,000 less prior payments as defined in the Acquisition Agreement), and
shall receive full medical coverage, for himself and his family (on such terms
as are in effect directly prior to such termination), at the Company's sole
expense, for the period of time between the date of termination through December
31, 2000.
In addition, in the event of termination of the Executive's employment for
any reason whatsoever, the provisions of Section 3(f) shall survive such
termination.
5. Covenant Not to Compete.
(a) For the period beginning on the Closing Date (as defined in the
Acquisition Agreement) and ending December 31, 2000 unless earlier terminated
6
<PAGE>
pursuant to the provisions hereof or in the Acquisition Agreements (the
"Non-Compete Period"), the Executive hereby covenants and agrees with the
Company that, unless acting as an officer, employee or consultant to the
Company, or an affiliate of the Company, or with the Company's prior written
consent, such Executive will not anywhere (i) compete, directly or indirectly,
with the Company or any of its affiliates in the business or activities in which
the Company is engaged during his employment with the Company (the "Company's
Business") in any state in which the Company is then doing business; (ii)
directly or indirectly, on his own behalf or in behalf of or as an employee or
agent of any other person or entity, contact or approach any person or business,
wherever located, for the purpose of competing with the Company in the Company's
Business; (iii) participate as a director, officer, consultant, or partner of,
or have any other direct or indirect financial interest in, any enterprise which
engages in the Company's Business; provided, however, that the Executive may own
up to two (2%) percent of the capital stock of any corporation except that
Executive may oun up to two (2%) of complete required to file reports pursuant
to the Securities Exchange Act of 1934 that is in competition with the Company's
Business; or (iv) participate as an employee, agent, representative or
consultant in, or render any services to, any enterprise in which he has
responsibilities for activities which compete, directly or indirectly, with the
Company's Business.
(b) For a period of one year after the Non Compete Period Executive will
not (i), directly or indirectly, hire, solicit or encourage to leave the
employment of Complete or any of its affiliates, any employee of Complete or any
of its affiliates who work in or perform services for the Company's Business,
including any person who has left the employment of Complete or any of its
affiliates during the six months
7
<PAGE>
preceding the end of the Non Compete Period, or (ii) solicit business from or
provide billing and collection services to any entity that was a customer of the
Company during the Non Compete Period.
(c) Notwithstanding the foregoing, if during the Employment Term, the
Executive is terminated by the Company other than for Cause, or is terminated by
the Executive for Good Reason the covenants set forth in this Sections 5(a) and
(b) and 7 and the covenants set forth in Sections 7.03 and 7.05 of the
Acquisition Agreements shall from and after the date of such termination be of
no further force and effect; provided, however, that the Company shall still
have rights against the Executive for any violation of such covenants prior to
such date.
6. Confidential Information. Such Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of itself or others, all
confidential matters relating to the Company's Business, including, without
limitation, customer lists, operational methods and other business affairs
relating to the Company's Business known by the Executive and, except as
otherwise required by law, shall not disclose them to anyone, except with
Complete's express prior written consent.
7. Employees of Complete. Such Executive shall not at any time during the
Non-Compete Period, directly or indirectly, hire, solicit or encourage to leave
the employment of the Company, any employee of the Company, or hire any such
employee who has left the employment of the Company within nine months of the
termination of such employee's employment.
8. Acknowledgment; Severability. The Executive acknowledges that the
restrictions contained in Sections 6, 7 and 8 are reasonable and necessary to
protect the
8
<PAGE>
business and interests of the Company and that any violation of these
restrictions will cause substantial and irreparable injury to the Company.
Therefore, the Executive agrees that the Company is entitled, in addition to any
other remedies, to preliminary and permanent injunctive relief to secure
specific performance, and to prevent a breach or contemplated breach, of
Sections 6, 7 and 8. The restrictions set forth herein shall be construed as
independent covenants, and the existence of any claim or cause of action against
the Company, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the restrictions
contained in Sections 6, 7 and 8. In the event that the provisions of Sections
6, 7 and 8 should ever be deemed to exceed the time or geographic limitations or
any other limitations permitted under applicable laws, then such provisions
shall be deemed reformed to the maximum extent permitted by applicable laws.
9. Non-Assignability. Except as otherwise provided herein, this Employment
Agreement may not be assigned by either the Company or the Executive.
10. Notices. All notices, requests, demands and other communications which
are required to be or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when (a) delivered in person, (b) the
day following dispatch by an overnight courier service (such as Federal Express
or UPS, etc.) or (c) five (5) days after dispatch by certified or registered
first class mail, postage prepaid, return receipt requested, to the party to
whom the same is so given or made:
If to the Company: Intertech/Penta Group, Inc.
c/o Complete Management, Inc.
254 West 31st Street
New York, New York 10011
Attn: Steven Rabinovici, Chairman of the Board
9
<PAGE>
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: George Lander, Esq.
If to the Executive
with a copy to:
11. Governmental Regulation. Nothing contained in this Employment Agreement
shall be construed so as to require the commission of any act contrary to law,
and wherever there is any conflict between any provision of this Employment
Agreement and any statute, law, ordinance, order or regulation, the latter shall
prevail, but in such event any such provision of this Employment Agreement shall
be curtailed and limited only to the extent necessary to bring it within the
legal requirements.
12. Governing Law. This Employment Agreement shall be governed by and
construed in accordance with the laws of New York.
13. Entire Agreement; Amendment. This Employment Agreement together with
the Acquisition Agreement sets forth the entire understanding of the parties in
respect of the subject matter contained herein and supersedes all prior
agreements, arrangements and understanding relating to the subject matter
hereof. This Agreement may only be amended by a written agreement signed by both
parties hereto or their duly authorized representatives.
14. Guaranty. Complete hereby guarantees all of the obligations of the
Company under this Employment Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.
INTERTECH/PENTA GROUP, INC.
By: /s/ William Fontanetta
-------------------------------------
William Fontanetta, President
/s/ Gregory Heineman
-------------------------------------
Gregory Heineman
COMPLETE MANAGEMENT, INC.
By: /s/ Arthur Goldberg
-------------------------------------
A. Goldberg,
COO
11
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated the 28th day of August, 1996 between
COMPLETE MANAGEMENT, INC., a New York corporation ("the Company"), with its
principal place of business at 254 West 31st Street, New York, New York 10001,
and KENNETH S. SCHWARTZ ("Schwartz"), residing at 284 Guard Hill Road, Bedford,
New York 10506.
1. Term. Subject to the terms and conditions hereof, the term of employment
of Schwartz under this Agreement shall be for the five (5) year period (the
"Employment Period") commencing on August 29, 1996 (the "Commencement Date") and
expiring on August 28, 2001, unless sooner terminated by Schwartz's death or as
provided in any of Paragraphs 5, 6 or 7 hereof (the "Expiration Date").
2. Duties and Responsibilities. The Company shall employ Schwartz and
Schwartz accepts such employment, as the Vice President of Medical Affairs of
the Company during the Employment Period. Schwartz shall report to and be
subject to the direction of the Executive Vice President of the Physicians
Network Division of the Company and shall render such executive and
administrative services as such Vice President and/or the Board of Directors of
the Company (the "Board") may from time to time assign to him, provided they are
consistent with his status as Vice President of Medical Affairs. During the
Employment Period, Schwartz shall devote substantially all of his business time
and attention to the businesses of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
<PAGE>
3. Compensation and Benefits. During the Employment Term:
(a) Schwartz's base compensation shall be at the rate of $280,000.00 per
year, payable in regular installments in accordance with the Company's practice
for its executives, less applicable withholding for income and employment taxes
as required by law and other deductions as to which Schwartz shall agree. Such
base compensation shall be subject to increases as and when determined by the
Board in its sole discretion.
(b) Except as otherwise provided herein, Schwartz shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company, upon such terms and conditions
which are made available to executives of the Company, generally.
(c) In addition to the salary provided for in Paragraph 3(a), Schwartz
shall be entitled to an incentive bonus for each medical practice identified by
him with which the Company shall enter into a long-term management services (an
"MSA Agreement") agreement in its customary form. It is understood that the
Company shall have the final decision in its sole discretion as to whether it
shall enter into a management services agreement with such identified practice
and the terms thereof. The incentive bonus payable to Schwartz for each such
medical practice with which the Company shall have entered into an MSA Agreement
shall be an aggregate of $10,000 of which: (i) $5,000 shall be payable in cash
and (ii) $5,000 shall be payable in shares of common stock, par value $.001 per
share, of the Company based upon its average unweighted closing price during the
twenty (20) consecutive trading days immediately preceding the signing of such
management services agreement. The cash portion
2
<PAGE>
of the incentive bonus shall be paid to Schwartz promptly following the signing
of the management services agreement. Promptly following such signing, the
Company shall list the shares issuable in partial payment of the incentive bonus
on the American Stock Exchange (or such other Exchange on which the Common Stock
is then listed) and issue instructions to its transfer agent to issue and
deliver such shares to Schwartz promptly following the listing thereof.
(d) Schwartz shall be entitled to reimbursement of all reasonable, ordinary
and necessary business related expenses incurred by him in the course of his
duties and upon compliance with the Company's procedures. In such connection the
Company shall provide Schwartz with an American Express Corporate Card or
equivalent.
(e) The Company shall lease a Mercedes 400 SEL automobile, equipped with
two cellular phones, for Schwartz' use. Schwartz shall use due care in operating
and maintaining such automobile.
(f) Schwartz shall be entitled to six (6) full weeks of paid vacation
during each calendar year which shall be taken in accordance with the procedures
of the Company in effect from time to time.
4. Incentive Stock Options. On the Commencement Date, the Company and
Schwartz shall enter into a Stock Option Agreement (the "Stock Option
Agreement"), substantially in the form attached hereto and marked Exhibit A,
pursuant to which the Company shall grant to Schwartz options (the "Incentive
Stock Options") to acquire, at the then fair market value per share, such number
of shares of its Common Stock as have an aggregate exercise price of $75,000,
and upon such other terms and conditions as are set forth
3
<PAGE>
therein. In the event Schwartz's employment is terminated for any reason other
than death or Disability (as defined in Paragraph 5) any nonvested Incentive
Stock Options shall immediately be canceled without any further action being
required to be taken by the Company.
5. Termination in Case of Disability. In case of a Disability, which for
this purpose shall mean that as a result of illness or injury, Schwartz is
unable substantially to perform his duties hereunder for a period of at least
ninety (90) consecutive days, or a total of at least 180 days in any period of
365 consecutive days, the Company may terminate Schwartz's employment hereunder
upon giving Schwartz at least thirty (30) days' written notice of termination.
6. Termination in other events by the Company or Schwartz.
(a) The Company may terminate Schwartz's employment for Cause (as defined
in sub-paragraph (b) below). Upon such termination the Company shall have no
further obligations to Schwartz hereunder, except for obligations incurred prior
to the date of such termination.
(b) "Cause" shall mean (i) a material breach by Schwartz of any of the
terms, covenants, agreements or representations set forth herein, which is not
remedied within fifteen (15) days after written notice thereof, or (ii)
commission by Schwartz of an act constituting financial dishonesty against the
Company, (iii) commission by Schwartz of a felony or any other crime involving
moral turpitude, or (iv) repeated failure by Schwartz to follow reasonable
written directions of the Board of Directors or Executive Vice President of the
Company.
4
<PAGE>
(c) Schwartz shall have the right to terminate this agreement, on 10 days'
written notice, if (i) the Company shall file a petition for bankruptcy or
re-organization under the federal bankruptcy statutes or an involuntary petition
is filed against the Company and not removed or withdrawn within 30 days or (ii)
the Company does not pay any material amount of compensation due hereunder and
then fails either to pay such amount within the 10-day notice period required
for termination hereunder or contest in good faith said notice. Further, if such
contest is not resolved within 30, days the Company shall submit such dispute to
a court of competent jurisdiction in a proceeding for declaratory judgment.
7. Confidentiality; Non-Compete.
(a) Schwartz agrees that during the term hereof, or at any time thereafter,
he will not, directly or indirectly, use for his own benefit or for the benefit
of any third party, or reveal or cause to be revealed to any person, firm,
entity or corporation, any Confidential Information (as defined herein) which
relates to the Company or its strategies and procedures for conducting business
or its customers or any of the medical practices it manages or with which it has
negotiated (except in connection with the performance of his duties hereunder or
as may be required by law) and that upon termination of his employment he will
deliver all memorandum and/or information developed by or relating to the
Company, all lists of customers, and medical practices with whom or which the
Company has done or negotiated the doing of business and all other notes,
records and other property belonging to the Company or relating to its business
or its customers or the medical practices which it manages. Confidential
Information shall include, but not be limited to, trade secrets, supplier lists,
customer lists, medical practice lists, intellectual property and any other
information, whether
5
<PAGE>
or not proprietary, which relates to the business of the Company except to the
extent that such information becomes generally available to the public other
than as a result of Schwartz's breach of this Section 7(a) or is received by him
from a third party not in violation of any obligation to the Company.
(b) For the period of two (2) years after the termination of this Agreement
(the "Non-Compete Period"), Schwartz hereby covenants and agrees with the
Company, that, unless acting as an officer, employee or consultant to the
Company, or affiliate of the Company, or with the Company's prior written
consent, he will not anywhere in any geographic areas in which the Company is
then doing business; (i) compete, directly or indirectly, with the Company or
any of its affiliates in the business of managing medical practices, hospitals,
diagnostic centers or other similar medical related businesses (the "Competitive
Business"); (ii) directly or indirectly, on its own behalf or on behalf of or as
an employee or agent of any other person or entity, contact or approach any
person or business, wherever located, for the purpose of competing with the
Company in the Competitive Business; (iii) participate as a director, officer,
consultant, or partner of, or have any other direct or indirect financial
interest in, any enterprise which engages in the Competitive Business; provided,
however, that nothing herein shall prohibit Schwartz from continuing to act as
the Systems Director of St. Francis Hospital in Hartford, Connecticut; as the
Director of Radiology at St. Francis Hospital in Poughkeepsie, New York; or as a
consultant to Hudson Valley Hospital Center in Peekskill, New York; provided,
further, that nothing herein shall prohibit Schwartz from owning not more than
three (3%) percent of the outstanding stock of any corporation required to file
reports pursuant to the Securities Exchange Act of 1934; (iv)
6
<PAGE>
participate as an employee, agent, representative or consultant in, or render
any services to, any enterprise in which his responsibility competes, directly
or indirectly, with the Competitive Business; (v) persuade or attempt to
persuade any employee of the Company (or any of its subsidiaries) to leave the
employ of the Company (or any of its subsidiaries) or to become employed by any
other entity, (vi) persuade or attempt to persuade any current client or former
client to reduce the amount of business it does or intends or anticipates doing
with the Company (or any of its subsidiaries); or (vii) take any action which
might divert from the Company any opportunity of which he became aware during
his employment with the Company which would be within the scope of any of the
businesses then engaged in or to his knowledge planned to be engaged in by the
Company.
(c) Schwartz acknowledges that a violation of any of the covenants
contained in this Paragraph 7 may cause irreparable injury to the Company and
that the Company will be entitled, in addition to any other rights and remedies
it may have, to injunctive relief; provided, however, that nothing contained
herein constitutes a waiver by Schwartz of his rights to contest the existence
of any such violation of such covenants.
(d) In the event the covenants contained in this Paragraph 7 should be held
by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
7
<PAGE>
(e) In the event this Agreement shall be terminated, then notwithstanding
such termination, the provisions of this paragraph 9 shall survive such
termination.
8. Successors; Binding Agreement. This Agreement shall inure to the benefit
of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Schwartz should die while any amount would still be
payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company, with a copy to the Secretary of the Company) or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
10. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to
8
<PAGE>
agreements made and to be performed in New York, and may not be changed or
terminated orally.
11. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
COMPLETE MANAGEMENT, INC.
By: /s/ Arthur L. Goldberg
-------------------------------------
Arthur L. Goldberg,
Senior Executive Vice President
/s/ Kenneth S. Schwartz
-------------------------------------
KENNETH S. SCHWARTZ
9
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 24th day of September, 1996 between
COMPLETE MANAGEMENT, INC., a New York corporation (the "Company"), with its
principal place of business at 254 West 31st Street, New York, New York 10001,
and JOHN T. DOOLEY ("Dooley"), residing at 1221 Eighty-First Street, North
Bergen, New Jersey 07047. Except where the context indicates otherwise, the term
Company shall include Complete Management, Inc. and any subsidiary.
1. Period.
Subject to the terms and conditions hereof, the term of employment of
Dooley under this Agreement shall be for the period (the "Employment Period")
commencing on September 24, 1996 (the "Commencement Date") and expiring on
September 23, 1997, unless sooner terminated by the death of Dooley or as
provided in Paragraphs 5 or 6 hereof.
2. Duties and Responsibilities. The Company shall employ Dooley, and Dooley
accepts such employment as the Vice President-Chief Information Officer of the
Company. Dooley shall report to and be subject to the direction of the Senior
Executive Vice President of the Company and shall render such executive and
administrative services as the Senior Executive Vice President of the Company
may from time to time assign to him, provided they are consistent with his
status as Vice President-Chief Information Officer of the Company. During the
Employment Period, Dooley shall devote his full time, energy, skill and
attention to the businesses of the
<PAGE>
Company and shall perform his duties in a diligent, trustworthy, loyal and
businesslike manner.
3. Compensation and Benefits.
(a) Dooley's base compensation shall be at the annual rate of $150,000
payable in regular installments in accordance with the Company's practice for
its executives, less applicable withholding for income and employment taxes as
required by law and other deductions to which Dooley shall agree. Such base
compensation shall be subject to increases as and when determined by the board
of directors of the Company in its sole discretion.
(b) Except as otherwise provided herein, Dooley shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company, upon such terms and conditions
as are made available to executives of the Company, generally.
(c) Dooley shall be entitled to reimbursement of all reasonable, ordinary
and necessary business related expenses incurred by him in the course of his
duties, including reasonable expenses incurred to attend professional meetings,
upon submission of appropriate documentation in accordance with the Company's
procedures.
(d) Dooley shall be entitled to the use of a cellular telephone and any
other equipment reasonably necessary for the diligent and businesslike
performance of
2
<PAGE>
his duties, and he shall be entitled to paid parking at a garage in the vicinity
of the Company's offices.
(e) Dooley shall be provided with a private office, suitable
administrative-secretarial support, and, initially, a staff of two persons. The
size of Dooley's staff shall be subject to modification as circumstances
dictate, in accordance with the Company's procedures.
(f) Dooley shall be entitled to two full weeks of paid vacation during the
first calendar year of his employment with the Company and shall be entitled to
three full weeks of paid vacation during each subsequent calendar year of his
employment with the Company. Such paid vacation shall be taken in accordance
with the procedures of the Company in effect from time to time.
(g) In the event Dooley's employment is terminated for any reason other
than for Cause (as defined in Paragraph 6), the Company shall continue to pay
Dooley monthly installments of his base compensation for a period of three
months or for the balance of the Employment Period, whichever period is longer.
4. Incentive Stock Options. As soon as practicable after the Commencement
Date, the Company shall grant to Dooley options (the "Stock Options") to acquire
50,000 common shares, of the Company (the "Common Shares") at an exercise price
equal to the fair market value of the Common Shares on the date of grant. The
Stock Options shall be issued pursuant to the Complete Management, Inc. 1995
Stock Option Plan, subject to shareholder approval of an amendment thereof, and
are intended to constitute Incentive Stock Options as defined in section 422 of
the
3
<PAGE>
Internal Revenue Code of 1986, as amended (the "Code") to the maximum extent
permitted under the Code and non qualified options for the balance. Of the total
Stock Options, options for 16,666 shares shall vest and become exercisable on
the first anniversary of the date of grant, options for an additional 16,666
shares shall vest and become exerciseable on the second anniversary thereof and
options for the balance shall vest and become exercisable on the third
anniversary thereof. In the event Dooley's employment is terminated for any
reason other than death or Disability (as defined in Paragraph 5) any nonvested
Incentive Stock Options shall immediately be canceled without any further action
being required to be taken by the Company.
5. Termination in Case of Disability. In case of a Disability, which for
this purpose shall mean that as a result of illness or injury, Dooley is unable
substantially to perform his duties hereunder for a period of at least 60
consecutive days, or a total of at least 120 days in any period of 365
consecutive days, the Company may terminate Dooley's employment hereunder upon
giving Dooley at least thirty (30) days' written notice of termination.
6. Termination by the Company for Cause.
(a) The Company may terminate Dooley's employment for Cause (as defined in
Sub-Paragraph (b) below) upon notice of termination. Upon such notice of
termination, the Company shall have no further obligations to Dooley hereunder.
(b) "Cause" shall mean (i) a material breach by Dooley of any of the terms,
covenants, agreements or representations set forth herein, or (ii) Dooley's
engaging in misconduct which is materially injurious to the Company, monetarily
or
4
<PAGE>
otherwise, including, but not limited to, engaging in any conduct which
constitutes a crime under federal, state or local laws.
7. Confidentiality.
(a) Dooley agrees that during the Employment Period, or at any time
thereafter, he will not, directly or indirectly, use for his own benefit or for
the benefit of any third party, or reveal or cause to be revealed to any person,
firm, entity or corporation, any Confidential Information (as defined herein)
which relates to the Company or its customers. Confidential Information shall
include, but not be limited to, trade secrets, supplier lists, customer lists,
intellectual property, computer systems, computer hardware, computer software,
any modifications made to the configuration of the computer systems, hardware or
software and any other information, whether or not proprietary, which relates to
the business of the Company and which otherwise is not considered to be public
information. Confidential Information and all memoranda, notes, lists, records
and other documents (and all copies thereof, regardless of media on which they
exist) made or completed by Dooley or made available to Dooley concerning the
business of the Company or its customers shall be the Company's property and
shall be delivered to the Company promptly upon the last day of the Employment
Period or at any other earlier time requested by the Company.
(b) Dooley further agrees that during the Employment Period and for a
period of two (2) years thereafter, he will not, directly or indirectly, in any
manner (i) persuade or attempt to persuade any employee of the Company to leave
the employ of the Company or to become employed by any other entity; (ii)
persuade or attempt to
5
<PAGE>
persuade any current client or former client to reduce the amount of business it
does or intends or anticipates doing with the Company or (iii) take any action
which might divert from the Company any opportunity of which he became aware
during his employment with the Company which would be within the scope of any of
the businesses then engaged in or planned to be engaged in by the Company.
(c) Dooley acknowledges that a violation of any of the covenants contained
in this Paragraph 7 may cause irreparable injury to the Company and that the
Company will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by Dooley of his rights to contest the existence of any
such violation of such covenants.
(d) In the event the covenants contained in this Paragraph 7 should be held
by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(e) In the event this Agreement shall be terminated, then notwithstanding
such termination, the provisions of this Paragraph 7 shall survive such
termination.
6
<PAGE>
8. Successors; Binding Agreement. This Agreement shall inure to the benefit
of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Dooley should die while any amount would still be
payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than Dooley, with a copy to the President of the
Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
10. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to agreements made and to be performed in New York, and may not be
changed or terminated orally.
11. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
7
<PAGE>
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
COMPLETE MANAGEMENT, INC.
By: /s/ Steven M. Rabinovici
----------------------------------
Steven M. Rabinovici
Chief Executive officer
/s/ JOHN T. DOOLEY
----------------------------------
JOHN T. DOOLEY
8
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the _____ day of May, 1996 between
COMPLETE MANAGEMENT, INC., a New York corporation (the "Company"), with its
principal place of business at 254 West 31st Street, New York, New York 10001,
and HARVEY R. HIRSCHFELD ("Hirschfeld"), residing at 59 Garden Oval,
Springfield, New Jersey 07081. Except where the context indicates otherwise, the
term Company shall include Complete Management, Inc. and any subsidiary.
1. Period.
Subject to the terms and conditions hereof, the term of employment of
Hirschfeld under this Agreement shall be for the period (the "Employment
Period") commencing on May ___, 1996 (the "Commencement Date") and expiring on
May ____, 1998 (the "Expiration Date"), unless sooner terminated by the death of
Hirschfeld or as provided in Paragraphs 5 or 6 hereof.
2. Duties and Responsibilities. The Company shall employ Hirschfeld, and
Hirschfeld accepts such employment to promote, organize and facilitate the
formation of a subsidiary or division of the Company for the purpose of engaging
in the acquisition, financing and disposal of accounts receivable (the
"Division"). Hirschfeld shall be employed as its Chief Operating Officer and
shall report to and be subject to the direction of the Chief Executive Officer
of the Division and shall render such executive and administrative services as
the Chief Executive Officer of the Division may from time to time assign to him,
provided they are consistent with his
<PAGE>
status as Chief Operating Officer of the Division. During the Employment Period,
Hirschfeld shall devote his full time, energy, skill and attention to the
businesses of the Company and shall perform his duties in a diligent,
trustworthy, loyal and businesslike manner.
3. Compensation and Benefits.
(a) Hirschfeld's base compensation shall be at the annual rate of
$75,000.00 for the first three months of the Employment Period (the
"Probationary Period") and at the annual rate of $150,000 for each month
thereafter of the Employment Period, payable in regular installments in
accordance with the Company's practice for its executives, less applicable
withholding for income and employment taxes as required by law and other
deductions to which Hirschfeld shall agree. Such base compensation shall be
subject to increases as and when determined by the board of directors of the
Company in its sole discretion.
(b) Except as otherwise provided herein, Hirschfeld shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company, upon such terms and conditions
as are made available to executives of the Company, generally. Hirschfeld shall
also be entitled to a $500 transportation allowance, payable monthly.
(c) Hirschfeld shall be entitled to reimbursement of all reasonable,
ordinary and necessary business related expenses incurred by him in the course
of his
2
<PAGE>
duties and upon submission of appropriate documentation in accordance with the
Company's procedures.
(d) Hirschfeld shall be entitled to three full weeks of paid vacation
during each calendar year which shall be taken in accordance with the procedures
of the Company in effect from time to time.
4. Incentive Stock Options. On the Commencement Date, the Company and
Hirschfeld shall enter into a Stock Option Agreement (the "Stock Option
Agreement, pursuant to which the Company shall grant to Hirschfeld options (the
"Stock Options") to acquire 20,000 common shares, par value $.001 per share, of
the Company (the "Common Shares") at an exercise price equal to the fair market
value of the Common Shares on the Commencement Date and upon such other terms
and conditions as set forth therein. The Stock Options shall be issued pursuant
to the Complete Management, Inc. 1995 Stock Option Plan, subsequent to
shareholder approval of an amendment thereof, and are intended to constitute
Incentive Stock Options as defined in section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") to the maximum extent permitted under the Code
and non qualified options for the balance. The Stock Options may be exercised at
such time and in such manner as provided in the Stock Option Agreement;
provided, however, that 10,000 of such Stock Options shall vest and become
exercisable one year from the date of grant and the balance one year thereafter.
In the event Hirschfeld's employment is terminated for any reason other than
death or Disability (as defined in Paragraph 5) any
3
<PAGE>
nonvested Incentive Stock Options shall immediately be canceled without any
further action being required to be taken by the Company.
5. Termination in Case of Disability. In case of a Disability, which for
this purpose shall mean that as a result of illness or injury, Hirschfeld is
unable substantially to perform his duties hereunder for a period of at least 60
consecutive days, or a total of at least 120 days in any period of 365
consecutive days, the Company may terminate Hirschfeld's employment hereunder
upon giving Hirschfeld at least thirty (30) days' written notice of termination.
6. Other Termination by the Company.
(a) The Company may terminate Hirschfeld's employment, with or without
cause, on two weeks' written notice given at any time during the Probationary
Period.
(b) The Company may terminate Hirschfeld's employment for Cause (as defined
in sub-paragraph (c) below) upon notice of termination. Upon such notice of
termination, the Company shall have no further obligations to Hirschfeld
hereunder.
(c) "Cause" shall mean (i) a material breach by Hirschfeld of any of the
terms, covenants, agreements or representations set forth herein, or (ii)
Hirschfeld's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
4
<PAGE>
7. Date of Termination. "Date of Termination" shall mean the date on which
a notice of termination is given.
8. Confidentiality; Non-Compete.
(a) Hirschfeld agrees that during the Employment Period, or at any time
thereafter, he will not, directly or indirectly, use for his own benefit or for
the benefit of any third party, or reveal or cause to be revealed to any person,
firm, entity or corporation, any Confidential Information (as defined herein)
which relates to the Company or its customers and that upon the Expiration Date
or the Date of Termination, whichever the case may be, he will deliver all lists
of customers, notes, records and all other property belonging to the Company or
relating to its business or its customers. Confidential Information shall
include, but not be limited to, trade secrets, supplier lists, customer lists,
intellectual property and any other information, whether or not proprietary,
which relates to the business of the Company and which otherwise is not
considered to be public information.
(b) Hirschfeld further agrees that during the term of this Agreement and
for a period of two (2) years after the Expiration Date or the Date of
Termination, whichever the case may be, he will not, directly or indirectly, in
any manner (i) engage in any other business in which the Division is engaged on
the Expiration Date or the Date of Termination, whichever the case may be, in
such geographic areas in which the Company is then engaged, and will not,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be employed by or
connected in any manner with any corporation, firm, entity, or
5
<PAGE>
business that is so engaged unless duly authorized by written consent of the
Company; provided, however, that nothing herein shall prohibit Hirschfeld from
owning not more than three (3%) percent of the outstanding stock of any publicly
held corporation; (ii) persuade or attempt to persuade any employee of the
Company to leave the employ of the Company or to become employed by any other
entity; (iii) persuade or attempt to persuade any current client or former
client to reduce the amount of business it does or intends or anticipates doing
with the Company or (iv) take any action which might divert from the Company any
opportunity of which he became aware during his employment with the Company
which would be within the scope of any of the businesses then engaged in or
planned to be engaged in by the Company.
(c) Hirschfeld acknowledges that a violation of any of the covenants
contained in this paragraph 8 may cause irreparable injury to the Company and
that the Company will be entitled, in addition to any other rights and remedies
it may have, to injunctive relief; provided, however, that nothing contained
herein constitutes a waiver by Hirschfeld of his rights to contest the existence
of any such violation of such covenants.
(d) In the event the covenants contained in this paragraph 8 should be held
by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other
6
<PAGE>
jurisdictions and activities covered hereby, the terms and provisions hereof
shall remain in full force and effect.
(e) In the event this Agreement shall be terminated, then notwithstanding
such termination, the provisions of this paragraph 8 shall survive such
termination.
9. Successors; Binding Agreement. This Agreement shall inure to the benefit
of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Hirschfeld should die while any amount would still be
payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than Hirschfeld, with a copy to the President of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
7
<PAGE>
11. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to agreements made and to be performed in New York, and may not be
changed or terminated orally.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
COMPLETE MANAGEMENT, INC.
by: /s/ Steven M. Rabinovici
--------------------------------
Steven M. Rabinovici
Chief Executive officer
/s/ HARVEY R. HIRSCHFELD
--------------------------------
HARVEY R. HIRSCHFELD
8
<PAGE>
COMPLETE MANAGEMENT, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of June 11, 1996
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of June 11, 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 8% Convertible
Subordinated Debentures Due 2003 (the "Debentures") of $35,000,000 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 250,000 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 of Twenty-Five Dollars
($25.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
1. Grant. The Representative is hereby granted the right to
purchase, at any time from June 11, 1997 until 5:30 p.m., New York time, on June
11, 2001, at which time the Warrants expire, up to an aggregate of 250,000
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
Twenty-One and 04/100 Dollars ($21.04) (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
-2-
<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.
-3-
<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 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
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.
-4-
<PAGE>
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 IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
-5-
<PAGE>
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.
-6-
<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
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).
-8-
<PAGE>
(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
at the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Shares such number of prospectuses as shall reasonably be requested.
-9-
<PAGE>
(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
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.
-10-
<PAGE>
(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
-11-
<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 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.
-12-
<PAGE>
(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 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.
-13-
<PAGE>
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:
-14-
<PAGE>
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 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.
-15-
<PAGE>
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 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
-16-
<PAGE>
(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 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.
-18-
<PAGE>
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 mail,
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
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.
-20-
<PAGE>
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
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-
<PAGE>
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:
------------------------------
Name: Steven A. Rothstein
Title: Chairman
<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, JUNE 11, 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 June 11, 1997 until 5:30 p.m., New York
City time on June 11, 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 $21.04 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 June 11, 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 June 11, 1996
ATTEST: COMPLETE MANAGEMENT, INC.
[SEAL]
By:
- ------------------------------ -----------------------------
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 June , 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>
SUBSIDIARIES OF COMPLETE MANAGEMENT, INC.
Medical Management, Inc.
Incorporated under the laws of the State of New York.
Doing business under the name Medical Management, Inc.
Intertech/Penta Group, Inc.
Incorporated under the laws of the State of New York.
Doing business under the name Intertech/Penta Group, Inc.
Northern Metropolitan Management Corp.
Incorporated under the laws of the State of Delaware.
Doing business under the name Northern Metropolitan Management Corp.
CMI Capital Corporation
Incorporated under the laws of the State of New York.
Doing business under the name Hobbes Capital.
Advanced Alliance Management Corp.
Incorporated under the laws of the State of New York.
Doing business under the name Advanced Alliance Management Corp.
<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 Form S-1
Registration Statement registering $28,750,000 of 6.5 to 8.0% convertible
subordinated debentures due December 15, 2003 and 3,450,000 common shares.
/s/ Arthur Andersen LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" 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 the
Registration Statement (Form S-1) and related Prospectus of Complete Management,
Inc. for the registration of $28,750,000 of convertible subordinated debentures
due December 15, 2003 and 3,450,000 shares of common stock.
ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
November 4, 1996
<PAGE>
As independent public accountants, we hereby consent to the use of our report
dated March 15, 1996 on the consolidated financial statements of Amedisys,
Inc. as of December 31, 1995 and for each of the three years in the period
ended December 31, 1995 (and to all references to our firm) included in this
Form S-1 Registration Statement of Complete Management, Inc. covering the
registration of $28,750,000 of 6.5 to 8.0% convertible subordinated debentures
due 2003 and 3,450,000 common shares.
Hannis T. Bourgesis & Co., LLP
- -------------------------------
Hannis T. Bourgesis & Co., LLP
Baton Rouge, Louisiana
November 1, 1996
<PAGE>
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
----------------------------------------
COMPLETE MANAGEMENT, INC.
(Exact name of obligor as specified in its charter)
New York 11-3149119
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
254 West 31st Street
New York, New York 10001-2813
(Address of principal executive offices) (Zip Code)
-------------------------------------------
% Convertible Subordinated Debentures due December 15, 2003
(Title of the indenture securities)
-----------------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
(On July 14, 1996, in connection with the merger of Chemical Bank and The Chase
Manhattan Bank (National Association), Chemical Bank, the surviving corporation,
was renamed The Chase Manhattan Bank).
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 30th day of October, 1996.
THE CHASE MANHATTAN BANK
By /s/ L. O'Brien
-------------------------------
L. O'Brien
Senior Trust Officer
- 3 -
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
Chemical Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1996, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Millions
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .......................................... $ 4,167
Interest-bearing balances .................................. 5,094
Securities:
Held to maturity securities ...................................... 3,367
Available for sale securities .................................... 27,786
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold ......................................... 7,204
Securities purchased under agreements to resell ............ 136
Loans and lease financing receivables:
Loans and leases, net of unearned income ............$67,215
Less: Allowance for loan and lease losses ........... 1,768
Less: Allocated transfer risk reserve ............... 75
-------
Loans and leases, net of unearned income,
allowance, and reserve ..................................... 65,372
Trading Assets ................................................... 28,610
Premises and fixed assets (including capitalized
leases) .................................................... 1,326
Other real estate owned .......................................... 26
Investments in unconsolidated subsidiaries and
associated companies ....................................... 68
Customer's liability to this bank on acceptances
outstanding ................................................ 995
Intangible assets ................................................ 309
Other assets ..................................................... 6,993
--------
TOTAL ASSETS ..................................................... $151,453
========
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
Deposits
<S> <C> <C>
In domestic offices ............................................ $ 46,917
Noninterest-bearing ..................... ................$16,711
Interest-bearing ......................................... 30,206
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's ...................................................... 31,577
Noninterest-bearing ......................................$ 2,197
Interest-bearing ..........................................29,380
-------
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's
Federal funds purchased ........................................ 12,155
Securities sold under agreements to repurchase ................. 8,536
Demand notes issued to the U.S. Treasury ............................. 1,000
Trading liabilities .................................................. 20,914
Other Borrowed money:
With a remaining maturity of one year or less .................. 10,018
With a remaining maturity of more than one year ...................... 192
Mortgage indebtedness and obligations under capitalized
leases ......................................................... 12
Bank's liability on acceptances executed and outstanding ............. 1,001
Subordinated notes and debentures .................................... 3,411
Other liabilities .................................................... 8,091
TOTAL LIABILITIES .................................................... 143,824
----------
EQUITY CAPITAL
Common stock ......................................................... 620
Surplus .............................................................. 4,664
Undivided profits and capital reserves ............................... 2,970
Net unrealized holding gains (Losses)
on available-for-sale securities ..................................... (633)
Cumulative foreign currency translation adjustments .................. 8
TOTAL EQUITY CAPITAL ................................................. 7,629
----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL ....................................... $ 151,453
==========
</TABLE>
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
EDWARD D. MILLER ) DIRECTORS
THOMAS G. LABRECQUE )
- 5 -
