<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________ to _______________
COMMISSION FILE NUMBER 0-22019
SPECIALTY CARE NETWORK, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 62-1623449
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
44 UNION BOULEVARD, SUITE 600, LAKEWOOD, COLORADO 80228
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 716-0041
-----------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
On October 31, 1999, 12,432,297 shares of the Registrant's common stock,
$.001 par value, were outstanding.
<PAGE> 2
Specialty Care Network, Inc. and Subsidiaries
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Consolidated Condensed Balance Sheets -
September 30, 1999 and December 31, 1998................................... 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1999 and 1998
Nine Months Ended September 30, 1999 and 1998.............................. 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998.............................. 5
Notes to Consolidated Condensed Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.................. 18
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.......................................................... 18
Item 3. Defaults Upon Senior Securities............................................ 19
Item 4. Submission of Matters to a Vote of Security Holders........................
Item 6. Exhibits and Reports on Form 8-K........................................... 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Specialty Care Network, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 797,504 $ 1,418,201
Accounts receivable, net 1,607,351 22,281,471
Due from affiliated practices in litigation, net 2,967,280 4,747,940
Receivables from sales of affiliated practices assets
and execution of new service agreements 1,083,407 7,953,068
Loans to physician stockholders 306,499 521,355
Prepaid expenses and other 519,461 1,500,382
Current portion note receivable 1,176,686 --
Deferred tax asset
202,217 --
Prepaid and recoverable income taxes 1,069,399 4,258,102
------------ ------------
Total current assets 9,729,804 42,680,519
Property and equipment, net 3,663,802 11,050,365
Intangible assets, net 17,692 134,319
Management service agreements, net 2,155,346 13,153,048
Advances to affiliates and other 827,590 944,520
Other assets 1,013,989 2,216,507
------------ ------------
Total assets $ 17,408,223 $ 70,179,278
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of capital lease obligations $ -- $ 244,446
Accounts payable 126,688 785,649
Accrued payroll, incentive compensation and related
expenses 549,065 2,453,653
Accrued expenses 1,455,649 2,730,069
Line-of-credit -- 52,925,000
Current portion note payable 800,000 --
Due to affiliated physician practices -- 3,326,014
Deferred income 1,080,109 --
Deferred income taxes -- 1,083,178
Convertible debentures -- 589,615
------------ ------------
Total current liabilities 4,011,511 64,137,624
Note payable, less current portion 11,700,000 --
Capital lease obligations, less current portion -- 680,152
Deferred income 865,900 --
------------ ------------
Total liabilities 16,577,411 64,817,776
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000
shares authorized, no shares issued or outstanding -- --
Common stock, $0.001 par value, 50,000,000
shares authorized, 18,621,055 and 18,618,955
shares issued and outstanding in 1999 and
1998, respectively 18,621 18,619
Additional paid-in capital 67,426,955 66,993,627
Accumulated deficit (56,094,467) (57,687,071)
Treasury stock (10,520,297) (3,963,673)
------------ ------------
Total stockholders' equity 830,812 5,361,502
============ ============
Total liabilities and stockholders' equity $ 17,408,223 $ 70,179,278
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
Specialty Care Network, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service fees $ 5,240,287 $ 19,479,388 $ 27,126,783 $ 55,963,990
Marketing, advertising and other Internet revenue 142,986 -- 279,778 --
Other 39,898 633,023 362,472 1,907,422
------------ ------------ ------------ ------------
5,423,171 20,112,411 27,769,033 57,871,412
Costs and expenses:
Clinic expenses 424,236 14,134,169 14,866,690 39,857,918
General and administrative expenses 2,653,631 3,955,398 8,483,618 9,977,359
Production, content and
product development 817,771 -- 1,374,556 --
Litigation and other costs 906,035 -- 4,269,295 --
------------ ------------ ------------ ------------
Income (loss) from operations 621,498 2,022,844 (1,225,126) 8,036,135
Other:
Gain on sale of assets, amendment
and restatement of service
agreements, and litigation
settlement 117,485 -- 3,649,243 --
Gain on sale of equity investment 127,974 -- 127,974 1,240,078
Gain on sale of majority interest
in subsidiary -- -- 221,258 --
Interest income 88,749 23,179 249,245 141,355
Interest expense (318,566) (1,054,965) (2,205,552) (2,698,668)
------------ ------------ ------------ ------------
Income before income taxes 637,140 991,058 817,042 6,718,900
Income tax (expense) benefit (920,786) (423,348) 775,561 (2,650,585)
------------ ------------ ------------ ------------
Net (loss) income $ (283,646) $ 567,710 $ 1,592,603 $ 4,068,315
============ ============ ============ ============
Net (loss) income per common share
(basic) $ (0.02) $ 0.03 $ 0.11 $ 0.22
============ ============ ============ ============
Weighted average common shares
outstanding (basic) 12,429,197 18,415,301 14,817,837 18,117,349
============ ============ ============ ============
Net (loss) income per common share (diluted) $ (0.02) $ 0.03 $ 0.10 $ 0.22
============ ============ ============ ============
Weighted average number of common shares
and common share
equivalents used in computation
(diluted) 14,186,836 18,607,745 15,637,817 18,489,022
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
Specialty Care Network, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,592,603 $ 4,068,315
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,491,225 1,528,287
Amortization 1,425,645 3,092,599
Gain on sale of subsidiary (221,258) --
Gain on sale of equity investment -- (1,228,701)
Gain on sale of assets, amendment and restatement
of service agreements and litigation settlement (3,649,243) --
Impact of termination agreements (1,073,777) --
Equity in loss of investee 23,852 --
Gain on disposal of assets (5,891) --
Deferred income tax (1,285,395) (738,735)
Non-cash compensation expense-stock options 394,277 82,503
Changes in operating assets and liabilities, net of
the non-cash effects of the acquisitions of the
net assets of physician groups:
Accounts receivable, net 3,294,746 (5,056,114)
Due from affiliated practices in litigation (1,423,324) --
Prepaid expenses and other assets 168,192 (1,178,895)
Accounts payable and accrued expenses (1,926,666) 651,892
Accrued payroll, incentive compensation and
related expenses 7,782 350,584
Income taxes payable and prepaid and
recoverable income taxes, net 3,188,703 (854,847)
Due to affiliated physician practices (3,121,548) 1,849,703
Deferred income 1,946,009 --
------------ ------------
Net cash provided by operating activities 697,958 2,566,591
INVESTING ACTIVITIES
Purchases of property and equipment (954,220) (6,897,225)
Proceeds from sale of medical equipment 1,001,856 --
Proceeds from sale of majority interest in a subsidiary
and equity investments, net of cash 3,208,397 1,075,000
Increase in other assets (39,403) 74,363
Increase in intangible assets -- (92,998)
Repayments from (advances to) affiliates 108,815 (1,404,916)
Advances to investee (899,342) --
Acquisition of physician groups -- (12,558,005)
------------ ------------
Net cash provided by (used in) investing activities 2,426,103 (19,803,781)
FINANCING ACTIVITIES
Proceeds from sales of affiliated practices
assets and execution of new service agreements 36,693,110 --
Proceeds from line-of-credit agreement -- 15,225,000
Principal repayments on line of credit agreement (40,425,000) --
Principal repayments on capital lease obligations (47,686) (172,881)
Loans to physician stockholders (48,178) --
Escrowed payment related to acquisition of additional
interest in majority-owned subsidiary (60,000) --
Purchases of treasury stock -- (1,307,474)
Repayments on loans to physician stockholders 135,451 185,797
Exercise of common stock options 7,545 231,350
------------ ------------
Net cash (used in) provided by financing
Activities (3,744,758) 14,161,792
Net decrease in cash and cash equivalents (620,697) (3,075,398)
Cash and cash equivalents at beginning of period 1,418,201 3,444,517
------------ ------------
Cash and cash equivalents at end of period $ 797,504 $ 369,119
============ ============
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1999 1998
------------ ------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 2,227,470 $ 2,508,404
============ ============
(Refund received) income taxes paid $ (2,678,869) $ 4,156,242
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
EFFECTS OF THE ACQUISITIONS OF THE NET ASSETS OF PHYSICIAN GROUPS:
Assets acquired $ -- $ 21,992,643
Liabilities assumed -- (280,482)
Convertible note payable issued -- (5,454,439)
Cash outlay -- (11,799,305)
------------ ------------
Common stock issued to effect acquisitions $ -- $ 4,458,417
============ ============
SALE OF ASSETS AND RESTRUCTURE OF SERVICE AGREEMENTS:
Assets disposed of $(36,274,465) $ --
Liabilities transferred 2,954,021 --
Convertible debenture forgiven 589,615 --
Treasury stock acquired 6,556,623 --
Receivable from affiliated practices 1,083,407 --
Cash received 28,740,042 --
------------ ------------
Gain on sale of assets, amendment and restatement
of service agreements, and litigation settlement $ 3,649,243 $ --
============ ============
SALE OF SUBSIDIARY:
Liabilities assumed $ (343,832) $ --
Assets disposed of (9,619) --
Note receivable 172,200 --
------------ ------------
Loss on sale $ (181,251) $ --
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
Specialty Care Network, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited)
September 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Specialty Care Network, Inc. and subsidiaries (collectively the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, these statements include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of the interim periods reported herein.
Operating results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Production, Content and Product Development Costs
Beginning with the second quarter of 1999, the Company began incurring
production, content and product development costs related to the development and
support of its HealthGrades.com and ProviderWeb.net web sites. These costs
(which consist primarily of salaries and benefits, consulting fees and other
costs related to software development, application development and operations
expense) are expensed as incurred. Total costs for the three and nine months
ended September 30, 1999 were approximately $818,000 and $1,375,000,
respectively.
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between completion
of a working model and the launch of its web sites have not been
significant.
DESCRIPTION OF BUSINESS
Specialty Care Network, Inc. operates two healthcare Internet sites and provides
practice management services to physicians in practices that focus on
musculoskeletal care. Healthcare Report Cards, Inc. ("HRCI") was formed in
September 1998 as a wholly-owned subsidiary of the Company. In November 1998,
HRCI launched an Internet web site, HealthCareReportCards.com(TM), that rated
the quality of outcomes at various hospitals for several medical procedures. In
June 1999, the Company formed HealthGrades.com, Inc. ("HGI") as a majority-owned
subsidiary of the Company, which succeeded to and expanded on the operations of
HRCI. HGI completed the expansion and redesign of the HRCI Internet web site
with the launch of its new web site, HealthGrades.com(TM) on August 4, 1999.
HealthGrades.com rates the performance of hospitals, physicians and health plans
across the United States. In October 1999, HGI launched ProviderWeb.net ("PWN"),
a subscription service for physician practice administrators and managers that
provides various online resources. The Company's wholly-owned subsidiary,
Provider Partnerships, Inc. ("PPI"), which provided consulting services to
hospitals, was sold to the former stockholders of PPI in June 1999 as part of an
agreement reached between the Company and the former PPI stockholders to resolve
a dispute between the Company and the former PPI stockholders. In addition, as
part of this agreement, the former PPI stockholders were given a minority
interest in HGI. (See Note 2- AGREEMENT WITH THE FORMER PPI STOCKHOLDERS). In
September 1999, Ambulatory Services, Inc., ("ASI"), a wholly-owned subsidiary of
the Company, sold its interest in an ambulatory surgery center. (See Note 4 -
SALE OF INTEREST IN AMBULATORY SURGERY CENTER.)
7
<PAGE> 8
NOTE 2 - AGREEMENT WITH THE FORMER PPI STOCKHOLDERS
In June 1999, the Company entered into an agreement (the "stockholders
agreement") with the former PPI stockholders to resolve certain issues raised by
the former stockholders of PPI relating to the transaction in which the Company
acquired PPI. The following is a summary of the significant terms of the
stockholders agreement:
o The Company formed HGI and transferred to HGI the HealthCareReportCards.com
web site and other related internet products. With respect to HGI, the
agreement provides, among other things, for the following:
o Venture5 LLC, whose members consist of the former PPI stockholders, and
Peter A. Fatianow, an employee of Specialty Care Network, Inc. who
developed a new product included in the healthcare rating web site, own
a minority interest in HGI. The Company owns a majority interest.
o The Company will facilitate financing to fund the operations of HGI. If
the Company is unable to facilitate a financing of at least $4 million
by December 31, 1999, the Company will transfer sufficient shares of HGI
stock that the Company owns so that the former PPI stockholders will
become the majority stockholders of HGI.
o Venture5's ownership position will not be diluted below 25 percent
unless certain events occur, including the reduction of the Company's
stock ownership interest below 50.1 percent after completion of an
initial round of financing or below 55 percent following a subsequent
round of financing.
o Until their ownership interest in HGI is reduced below five percent,
Venture5 is entitled to representation on HGI's Board of Directors
generally proportionate to the amount of stock that they own. Certain
corporate matters require a supermajority vote of the Board of
Directors.
o The former PPI stockholders have specified preemptive rights, tag-along
rights and registration rights with respect to their HGI shares.
o The Company sold most of the assets of PPI to the former PPI stockholders
for notes receivable totaling $172,200. The notes receivable are payable on
June 22, 2002 including all accrued and unpaid interest. The notes bear
interest at the greater of 4.8% per annum or the "Applicable Federal Rate"
as defined in Section 1274(d) of the Internal Revenue Code of 1986. The
Company will fund up to a maximum of $344,000 of expenses of HGI for the
period July 1, 1999 through December 31, 1999.
o The former PPI stockholders waived their rights under options to purchase
760,000 shares of the Company's common stock that they previously held.
o The parties to the agreement mutually released each other from claims
relating to the Company's acquisition of PPI.
In September 1999, the Company entered into an agreement with Venture5 under
which the Company has agreed to purchase a number of shares of HGI from the
former PPI stockholders that will increase its ownership in HGI to 90%. The
agreement required that the Company pay Venture5 $4,000,000 by November 1, 1999.
In November 1999, the purchase date was extended until January 31, 2000. Upon
completion of the Company's purchase, the stockholders agreement relating to HGI
will terminate. If the Company is unable to make the payment by that date, the
Company will release from escrow to Venture5 $60,000 that was deposited pursuant
to this agreement and the stockholders agreement will remain in effect.
NOTE 3 - RESTRUCTURE AND OTHER TRANSACTIONS
RESTRUCTURING TRANSACTION
Effective June 15, 1999, the Company closed its previously announced
restructuring transaction through nine separate restructure agreements involving
the following nine practices: Floyd R. Jaggears, Jr., M.D., P.C., II; Riyaz H.
Jinnah, M.D., II, P.A.; The Orthopaedic and Sports Medicine Center, II, P.A.;
Orthopaedic Associates of West Florida, P.A.; Orthopaedic Institute of Ohio,
Inc.; Orthopaedic Surgery Centers, P.C. II; Princeton Orthopaedic Associates,
II, P.A.; Reconstructive Orthopaedic Associates, II, P.C.; and Steven P.
Surgnier, M.D., P.A., II.
8
<PAGE> 9
Under the restructure agreements, the Company transferred, with respect to each
practice, all of the accounts receivable relating to the practice; tangible and
intangible assets purchased or acquired by the Company in respect of the
practice, other than those disposed of in the ordinary course of business since
the date the Company affiliated with the practice; all prepaid expenses relating
to the practice; all inventory relating to the practice; and all other assets
relating to the practice. The amount payable to the Company from each practice
and its physician owners for the assets sold to the practice generally equals
the sum of (1) the book value of the accounts receivable relating to the
practice on the effective date of closing; (2) the book value of all fixed
assets and other capital assets relating to the practice on the effective date
of closing; (3) the book value of all prepaid expenses relating to the practice
on the effective date of closing; (4) the book value of all notes and other
receivables the physician owners of the practice owed to the Company on the
effective date of closing; and (5) the cash balance of the practice's deposit
account on the effective date of closing, reduced by the book value of the
liabilities and obligations relating to the practice on the effective date of
closing.
In addition, the Company and each of the practices and their physician owners
entered into a management services agreement to replace the existing service
arrangement. As consideration for the Company's entry into the management
services agreement, the practices and their physician owners either paid the
Company an additional amount of cash, or paid cash and returned to the Company
shares of the Company's common stock.
Under the management services agreements, the Company provides only limited
services to the practices. In addition, the terms of the management services
arrangements have been reduced, generally from forty year terms to five year
terms beginning from the initial affiliation date of the affected practice; the
management services agreements expire at various times between one year after
closing of the restructuring transaction and September 10, 2002. The practices
pay reduced service fees to the Company. Six of the practices pay monthly
service fees, while three paid a lump sum fee in connection with the closing of
the restructuring transaction, in lieu of the monthly fee obligation.
The Company received approximately $17.8 million in payment for the
restructuring transaction. Of this amount, approximately $17.1 million was used
to reduce outstanding indebtedness.
TERMINATION OF MANAGEMENT SERVICES AGREEMENTS
During the third quarter of 1999, the Company terminated its management services
agreements with four of its affiliated practices. As a result of these
terminations, the Company is no longer required to provide management services
to these practices. Included in service fee revenue in the Company's statement
of operations for the three months ended September 30, 1999 is approximately
$2.7 million related to revenue recognized as a result of these terminations.
OTHER TRANSACTIONS
Effective June 14, 1999, the Company entered into a termination agreement with
Ortho-Associates, P.A. d/b/a Park Place Therapeutic Center ("PPTC"), which
terminated the affiliation of PPTC with the Company. The consideration paid to
the Company consisted of payment for the tangible book value of assets relating
to PPTC and payment for the termination of the service agreement. In connection
with the termination agreement, the Company received a cash payment of
$8,800,000. Additionally, warrants to purchase approximately 545,000 shares of
Company common stock held by PPTC were canceled.
Also effective June 16, 1999, the Company entered into a settlement agreement
with TOC Specialists, PL ("TOC") that resolves all legal disputes and litigation
between the Company and TOC. In connection with the settlement agreement, the
Company received a cash payment of $3,500,000 and 760,000 shares of the
Company's common stock in consideration for the tangible book value of the TOC
assets and the termination of the service agreement.
The Company used the entire $12,300,000 of cash consideration received in these
transactions to reduce outstanding indebtedness.
As of June 30, 1999, approximately $3.7 million of the cash received from the
restructure transaction was restricted for the reduction of the Company's
outstanding bank indebtedness. The cash was used to reduce the Company's bank
indebtedness in July 1999.
9
<PAGE> 10
NOTE 4 - SALE OF INTEREST IN AMBULATORY SURGERY CENTER
During 1998, the Company funded, through its wholly-owned subsidiary, ASI, the
purchase of a lease for, and improvements to, a surgery center in Lutherville,
Maryland. The surgery center was the only asset of SCN of Maryland, LLC, (the
"LLC"), which was owned by ASI. In March 1999, a promissory note in the amount
of $2,120,619 was issued to ASI by the LLC with respect to advances made by ASI
to cover development of the surgery center. This promissory note bore interest
at 8% and was payable in sixty monthly installments beginning July 1, 1999. In
March 1999, the Company sold 68% of its interest in the LLC to certain physician
owners of a practice affiliated with the Company for $360,505. The sale resulted
in a pre-tax gain of $221,258. In September 1999, the Company sold its remaining
interest in the LLC to the affiliated practice for $169,650. In addition, the
Company received $2,212,445, in full payment of the obligation (including
accrued interest) of the LLC to the Company and $502,633 to repay working
capital advances made by ASI to the LLC. This sale resulted in a pre-tax gain of
$127,974. The Company used approximately $1.6 million of the proceeds from this
sale to pay down its line-of-credit.
NOTE 5 - AMENDMENT OF CREDIT FACILITY
Effective September 1999, the Company entered into an amendment to its credit
facility, which converted the existing credit facility to a term loan. The term
loan provides for monthly principal and interest payments through November 2000,
with interest payable at a floating rate based on the bank syndicate's prime
lending rate plus .75%. The monthly principal payments under the term loan are
as follows: $167,000 for the months of October 1999 through December 1999,
$200,000 for the months of January 2000 through March 2000, $233,000 for the
months of April 2000 through June 2000, $266,667 for the months of July 2000
through October 2000 and a final payment of $9,633,332 in November 2000. The
term loan does not contain any financial covenants other than timely principal
and interest payments. The term loan is secured by substantially all of the
assets of the Company. In addition, the Company's wholly-owned subsidiary,
HealthCareReportCards, Inc. is a guarantor of the term loan.
At September 30, 1999, the Company had $12.5 million outstanding under the term
loan at an effective interest rate of approximately 9.0% per annum.
NOTE 6 - SEGMENT DISCLOSURES
Management regularly evaluates the operating performance of the Company by
reviewing results on a product or service provided basis. The Company's
reportable segments are Physician Practice Management ("PPM") and Internet
Services. PPM derives its revenue primarily from management services provided to
physician practices. Internet Service's revenue is derived primarily from
advertising related to an Internet web site that rates the performance of
hospitals, physicians and health plans across the United States. The Company's
other segment represents ambulatory surgery center services and health care
consulting for the three and nine months ended September 30, 1999.
The Company uses net (loss) income before income taxes for purposes of
performance measurement. The measurement basis for segment assets includes
intangible assets.
10
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<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- -------------- -------------- -------------
PPM
<S> <C> <C> <C> <C>
Revenue from external customers $ 5,306,998 $ 20,112,411 $ 27,544,417 $ 57,871,412
Interest income 39,619 23,179 157,419 141,355
Interest expense 318,566 1,054,965 2,205,552 2,698,668
Segment net income before income taxes 2,970,613 991,058 4,828,522 6,718,900
Segment assets 21,282,908 170,989,765 21,282,908 170,989,765
Segment asset expenditures 29,042 2,089,907 775,797 6,897,225
INTERNET SERVICES
Revenue from external customers $ 143,047 $ -- $ 279,839 $ --
Segment net loss before income taxes (1,946,611) -- (2,877,376) --
Segment assets 340,539 -- 340,539 --
Segment asset expenditures 78,765 -- 178,423 --
OTHER
Revenue from external customers $ -- $ -- $ 132,831 $ --
Interest income 49,130 -- 91,826 --
Equity in net loss of investee (4,874) -- (23,852) --
Segment net loss before income taxes (385,008) -- (1,023,633) --
Segment assets -- -- -- --
Segment asset expenditures -- -- -- --
</TABLE>
11
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<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE
Total for reportable segments $ 5,450,045 $ 20,112,411 $ 27,824,256 $ 57,871,412
Other revenue (26,874) -- (55,223) --
------------ ------------ ------------ ------------
Total consolidated revenue $ 5,423,171 $ 20,112,411 $ 27,769,033 $ 57,871,412
============ ============ ============ ============
INCOME BEFORE INCOME TAXES
Total net income before tax for
reportable segments $ 1,024,002 $ 991,058 $ 1,951,146 $ 6,718,900
Other net loss (385,008) -- (1,023,633) --
Adjustment (1,854) -- (110,471) --
------------ ------------ ------------ ------------
Income before income taxes $ 637,140 $ 991,058 $ 817,042 $ 6,718,900
============ ============ ============ ============
ASSETS
Total assets for reportable segments $ 21,623,447 $170,989,765 $ 21,623,447 $170,989,765
Elimination of investment in
subsidiaries (4,215,224) -- (4,215,224) --
------------ ------------ ------------ ------------
Consolidated total assets $ 17,408,223 $170,989,765 $ 17,408,223 $170,989,765
============ ============ ============ ============
</TABLE>
For each of the years presented, the Company's primary operations and assets
were within the United States.
NOTE 7 - SUBSEQUENT EVENT
Effective November 15, 1999, the Company settled its lawsuit with the
Specialists Orthopedic Medical Corporation, (one of the Company's affiliated
practices), and the Specialists Surgery Center, a partnership that operates a
surgery center (collectively, "the Specialists"). In consideration for the
settlement of the lawsuit, the Specialists will make a current cash payment to
the Company, return a substantial amount of the Company's common stock owned by
the physicians, and enter into a note payable to the Company payable in monthly
installments through December 2003.
12
<PAGE> 13
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this section regarding, the sufficiency of cash flows from
operations, possible issuance of equity or debt securities, adequacy of our
efforts to address Year 2000 issues, cost of Year 2000 initiatives, effects of
failure of us or other companies to be Y2K compliant are "forward looking
statements." Actual events or results may differ materially from those discussed
in forward looking statements as a result of various factors, including the
unavailability of bank or other debt or equity financings on acceptable terms,
unanticipated expenditures, inadequacy of efforts to remediate Year 2000 issues,
unanticipated costs related to Year 2000 initiatives and other factors discussed
below and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, particularly under, "Risk Factors" in Item 1 and in our
proxy statement dated May 12, 1999 for our special meeting of stockholders on
June 11, 1999, particularly under "Information About Specialty Care Network,
Inc."
GENERAL
We operate two healthcare Internet sites and provide practice management
services to physicians. Through our Internet web site, HealthGrades.com, we
provide ratings or "report cards" on hospitals and health plans, designate
"leading physicians" in 60 specialties and offer directories of specialty
healthcare providers across the country. HealthGrades.com profiles more than
600,000 physicians, 5,000 hospitals, 400 health plans, 10,000 mammography
clinics and 300 fertility clinics nationwide. ProviderWeb.net is a subscription
service for physician practice administrators and managers that provides online
resources.
Prior to the restructuring transaction described below under "RESTRUCTURING
TRANSACTION", we entered into long-term service agreements with practices
affiliated with us pursuant to which we, among other things, provided facilities
and management, administrative and development services, and employed most
non-physician personnel, in return for specified service fees. The operating
expenses incurred by us included the salaries, wages and benefits of personnel
(other than physician owners and certain technical medical personnel), supplies,
expenses involved in administering the clinical aspects of the affiliated
practices and depreciation and amortization of assets. In addition to the
operating expenses discussed above, we incurred personnel and administrative
expenses in connection with our corporate offices, which provided management,
administrative and development services to the affiliated practices.
RESTRUCTURING TRANSACTION
Effective June 15, 1999, we closed our previously announced restructuring
transaction through nine separate restructure agreements involving the following
nine practices: Floyd R. Jaggears, Jr., M.D., P.C., II; Riyaz H. Jinnah, M.D.,
II, P.A.; The Orthopaedic and Sports Medicine Center, II, P.A.; Orthopaedic
Associates of West Florida, P.A.; Orthopaedic Institute of Ohio, Inc.;
Orthopaedic Surgery Centers, P.C. II; Princeton Orthopaedic Associates, II,
P.A.; Reconstructive Orthopaedic Associates, II, P.C.; and Steven P. Surgnier,
M.D., P.A., II. (See Note 3 to the Consolidated Condensed Financial Statements
for information regarding this transaction.)
We have received to date approximately $17.8 million in payment for the
restructuring transaction. Of this amount, approximately $17.1 million was used
to reduce outstanding indebtedness.
OTHER TRANSACTIONS
Effective June 14, 1999, we entered into a termination agreement with
Ortho-Associates, P.A. d/b/a Park Place Therapeutic Center ("PPTC"), which
terminated the affiliation of PPTC with us. Also effective June 16, 1999, we
entered into a settlement agreement with TOC Specialists, PL ("TOC") that
resolves all legal disputes and litigation between us and TOC. (See Note 3 to
the Consolidated Condensed Financial Statements for further information
regarding these transactions.)
We used the entire amount of the cash consideration received in these
transactions of $12,300,000 to reduce outstanding indebtedness.
13
<PAGE> 14
ACCOUNTING TREATMENT
Commencing January 1, 1999, costs of obtaining long-term service agreements for
practices affiliated with us which are not party to the restructuring
transaction are amortized using the straight-line method over estimated lives of
five years from January 1, 1999.
RESULTS OF OPERATIONS
REVENUES:
Service fees
For the three months ended September 30, 1999, service fees revenue, including
reimbursement of clinic expenses, was $5.2 million compared with $19.5 million
for the same period of 1998. Our service fees revenue was $27.1 million for the
nine months ended September 30, 1999, compared to $55.9 million for the same
period in 1998. These decreases were primarily the result of the reduced service
fees received by us due to the modification of arrangements with four practices
beginning January 1, 1999 and as a result of the restructuring transaction. (See
Note 3 to the Consolidated Condensed Financial Statements for information
regarding the restructuring transaction). In connection with the restructuring
transaction, the Company and the practices agreed to reduce Company management
services obligations and reduced service fees commencing on April 1, 1999.
During the third quarter of 1999, the Company terminated its management services
agreements with four of its affiliated practices. As a result of these
terminations, the Company is no longer required to provide management services
to these practices. Included in service fee revenue for the three months ended
September 30, 1999 is approximately $2.7 million related to revenue recognized
as a result of these terminations.
Marketing, advertising and other Internet revenue
Marketing, advertising and other Internet revenue was $142,986 and $279,778 for
the three and nine month periods ended September 30, 1999. There was no
corresponding revenue during 1998.
COSTS AND EXPENSES:
Clinic expenses and general and administrative expenses
For the three months ended September 30, 1999, total clinic expenses were
approximately $424,000 compared to $14.1 million for the same period of 1998.
For the nine months ended September 30, 1999, total clinic expenses were $14.9
million compared to $39.9 million for the same period of 1998. These decreases
were primarily the result of the elimination of our obligation to pay clinic
expenses with respect to practices that were party to the transactions described
above under "Revenues - Service fees". For the three months ended September 30,
1999, general and administrative expenses were $2.7 million compared with $4.0
million for the same period of 1998. General and administrative expenses were
$8.5 million for the nine months ended September 30, 1999, compared to $10
million for the same period in 1998. The decreases in general and administrative
expenses are primarily the result of the reduction in corporate overhead due to
the transactions described above.
Production, content and product development costs
In the second quarter of 1999, we began incurring production, content and
product development costs related to the development and support of our
HealthGrades.com and ProviderWeb.net Internet sites. These costs (which consist
primarily of salaries and benefits, consulting fees and other costs related to
content acquisition and licensing, software development, application development
and operations expense) are expensed as incurred. Total costs for the three and
nine months ended September 30, 1999 were $817,771 and $1,374,556, respectively.
14
<PAGE> 15
Litigation and other costs
We continue to be involved in litigation with certain of its affiliated
practices. As a result of the disputes, we recorded a charge of approximately
$0.6 million and $2.7 million for the three and nine months ended September 30,
1999, respectively, to reserve for service fee revenues for these practices that
have not been paid. For the three and nine months ended September 30, 1999, we
incurred approximately $160,000 and $850,000, respectively, in expenses directly
related to these disputes. In addition, we incurred legal and other consulting
fees associated with the negotiation of a restructuring transaction with nine of
our affiliated practices of approximately $200,000 and $710,000 for the three
and nine months ended September 30, 1999, respectively.
Gain on sale of assets, amendment and restatement of service agreements, and
litigation settlement
Effective June 15, 1999, we closed the restructuring transaction with nine
practices. Additionally, we entered into a termination agreement with Park Place
Therapeutic Center and entered into a settlement agreement with TOC Specialists,
PL, during the second quarter of 1999. We recorded a pre-tax gain on these
transactions of $3.6 million for the nine months ended September 30, 1999.
Gain on sale
During 1998, we funded, through our wholly-owned subsidiary, Ambulatory
Services, Inc. ("ASI"), the purchase of a lease for, and improvements to, a
surgery center in Lutherville, Maryland. The surgery center was the only asset
of SCN of Maryland, LLC (the "LLC"), which was owned by ASI. In March 1999, a
promissory note in the amount of $2,120,619 was issued to ASI by the LLC with
respect to advances made by ASI to cover development of the surgery center. This
promissory note bore interest at 8% and was payable in sixty monthly
installments beginning July 1, 1999. In March 1999, we sold 68% of our interest
in the LLC to certain physician owners of a practice affiliated with us for
$360,505. The sale resulted in a pre-tax gain of $221,258. In September 1999, we
sold our remaining interest in the LLC to the affiliated practice for $169,650.
In addition, we received $2,212,445, in full payment of the obligation
(including accrued interest) of the LLC to us and $502,633 to repay working
capital advances made by ASI to the LLC. This sale resulted in a pre-tax gain of
$127,974. We used approximately $1.6 million of the proceeds from this sale to
pay down its line-of-credit.
Income taxes
For the three and nine months ended September 30, 1999, our effective income tax
expense (benefit) rate was 145% and (95%), respectively. For the three months
ended September 30, 1999, the effective tax rate differs from an expected 35%
federal rate principally due to operating losses incurred by HealthGrades.com,
Inc ("HGI"). This majority-owned subsidiary is not eligible for consolidation
with us for federal income tax purposes and, as a result, no current or future
income tax benefit has been recorded for its losses. The effective income tax
rate for the nine months ended September 30, 1999 is less than the expected
federal tax rate principally due to reductions in the valuation allowance for
deferred tax assets recorded resulting from our restructuring transaction. The
reduction in the valuation allowance for the nine months ended September 30,
1999, was partially offset by our inability to record a future income tax
benefit for the operating losses of HGI, as discussed above.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had a working capital surplus of approximately $5.7
million, an increase of $27.2 million from a working capital deficit of $21.5
million as of December 31, 1998. The increase was principally the result of an
amendment to our credit facility during September 1999, which converted our
existing credit facility to a term loan. At December 31, 1998, we were in
default under our credit facility because we were not in compliance with certain
financial covenants. As a result, the bank syndicate could declare the
outstanding balance immediately due and payable. Accordingly, the total amount
outstanding under the credit facility of approximately $52.9 million at December
31, 1998 was included as a current liability in our Consolidated Balance Sheet.
The term loan now provides for monthly principal and interest payments through
November 2000, with interest payable at a floating rate based on the bank
syndicate's prime lending rate plus .75%. The monthly principal payments are as
follows: $167,000 for the months of October 1999 through December 1999, $200,000
for the months of January 2000 through March 2000, $233,000 for the months of
April 2000 through June 2000, $266,667 for the months of July 2000 through
October 2000 and a final payment of $9,633,332 in November 2000. The term loan
does not contain any financial covenants other than timely principal and
interest payments. The term loan is secured by substantially all of the assets
of the Company. In addition, the Company's wholly-owned subsidiary,
HealthCareReportCards, Inc. is a guarantor of the term loan. At September 30,
1999, the Company had $12.5 million outstanding under the term loan at an
effective interest rate of approximately 9.0% per annum.
For the nine months ended September 30, 1999, cash flow provided by operations
was $697,958 compared to cash flow provided by operations of $2.6 million for
the same period of 1998. For the three months ended September 30, 1999, cash
flow used in operations was $1.9 million.
During the nine months ended September 30, 1999, we received an income tax
refund of approximately $2.7 million related to the overpayment of 1998
estimated taxes. We expect to receive, by December 31, 1999, an additional $1.3
million of tax refunds related to net operating loss carrybacks and overpayments
of 1998 estimated state taxes.
We continue to incur significant legal fees and other costs related to pending
litigation with affiliated practices. Additionally, we are incurring significant
costs relating to the development and marketing of our Internet sites'
HealthGrades.com and ProviderWeb.net. In September 1999, we entered into an
agreement with the former stockholders of Provider Partnerships, Inc., under
which we have agreed to purchase a number of shares of HGI that will increase
our ownership in HGI to 90%. The agreement requires that we pay $4,000,000 to
the former stockholders of Provider Partnerships, Inc. by January 31, 2000. (See
also Note 2 to the Condensed Consolidated Financial Statements.) We anticipate
that we will require additional funds to finance our ongoing operations and to
service our debt. Management is currently examining various financing
alternatives. The availability and terms of any financing will depend on market
and other conditions. We cannot assure that sufficient funds will be available
on terms acceptable to us, if at all.
YEAR 2000
The Year 2000 (Y2K) issue is a result of a global programming standard that
records dates as six digits (i.e. MM/DD/YY), using only the last two digits for
the year. Any software application or hardware product that uses two-digit
fields could interpret the year 2000 as the year 1900. Systems that do not
properly recognize the correct year could generate erroneous data or cause a
system to fail, resulting in business interruption. This situation is not
limited to computers; it has the potential to affect many systems, components,
and devices that have embedded computer chips that may be date sensitive.
We are coordinating our efforts to address the Y2K issue with our affiliated
practices and vendors. We cannot assure that the systems of other companies on
which our systems rely will be timely converted. A failure to convert by another
company or a conversion that is incompatible with our systems could have a
material adverse effect on us.
16
<PAGE> 17
In 1997, we established a Y2K Coordinator to oversee all corporate-wide Y2K
initiatives. These initiatives encompass all of our computer software and
embedded systems. Teams of internal and external specialists were established to
inventory and test critical computer programs and automated operational systems.
Additionally, a detailed project plan has been created that outlines all
activities related to the Y2K issue. Generally speaking, the project involves
three areas: Corporate Headquarters, Affiliated Practices, and Internet
Operations.
Corporate Headquarters: Because we began operations in 1996, most of our
corporate computer hardware is relatively new. Additionally, most of the
software applications are "off the shelf", resulting in few internal software
modifications. Since January 1998, all significant internal applications have
been reviewed and updated. We have completed identifying and have corrected all
internal applications. We have completed upgrading and modifying all computer
hardware that required Y2K conversions. As of September 30, 1999, we have
completed our Y2K activities. Total costs incurred by us to modify the software
used at the corporate office were not material.
Affiliated Practices: The restructuring and other transactions shifted
responsibility for Year 2000 compliance to most of the practices we were
formerly affiliated with. We have assessed the status of the computer systems at
the affiliated practices that continue to be affiliated with us. Based upon our
review, and discussion with our remaining practices, we believe that all
affiliated practices are compliant. All costs to modify systems to become Y2K
compliant have been, and will be borne by the affiliated practices.
Although we believe we have addressed all significant Y2K issues that could
affect us, we have few alternatives available, other than reversion to manual
methods, in order to avoid the effects of not establishing Y2K readiness. As a
result, if any significant issues arise with our corporate headquarters, we
could incur significant additional costs to correct the problem. There can be no
assurance that any remediation plan will address all the problems that may
arise. For the Y2K non-compliance issues identified to date, the cost to upgrade
or prepare for Y2K is not expected to have a material impact on our operating
results.
Internet Operations: To the extent that our assessment is finalized without
identifying any additional material non-compliant IT systems we operate, or that
are operated by third parties, the most likely worst case Y2K scenario is a
systemic failure beyond our control. This could include a prolonged
telecommunications or electrical failure. Such a failure could prevent us from
operating our business, prevent users from accessing our web site, or change the
behavior of advertising customers or persons accessing our web site. We believe
that the primary business risks, in the event of such failure, would include,
but not be limited to, lost advertising revenues, increased operating costs,
loss of customers or persons accessing our web site, or other business
interruptions of a material nature. These issues could lead to claims of
mismanagement, misrepresentation, or breach of contract, any of which could have
a material adverse effect on our business, results of operations and financial
condition. We have not made any contingency plans to address such risks.
Additionally, the computer systems necessary to maintain the viability of the
Internet or any of the Web sites that direct consumers to the Company's link to
online stores may not be Y2K compliant. Computers used by customers to access
these online stores may not be Y2K compliant, delaying customers' product
purchases.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Orthopaedic Institute of Ohio
On November 1, 1999, we filed a complaint in the U.S. District Court for the
District of Colorado against the Orthopaedic Institute of Ohio, Inc. ("OIO").
The compliant asserts that, prior to the closing of the restructure agreement
between OIO and us, OIO, the physician owners and the administrator of OIO
diverted over $470,000 from our bank account and deposited such funds into a
bank account held by OIO and the physician owners. The compliant further asserts
that OIO and the physician owners are continuing to withhold from us amounts
that remain due under the restructure agreement of over $720,000.
Reconstructive Orthopaedic Associates II, P.C.
On October 27, 1999, Reconstructive Orthopaedic Associates II, P.C., ("ROA"),
filed a complaint against us in the U.S. District Court for the Eastern District
of Pennsylvania. The complaint asserts that, during negotiations between ROA and
us related to the restructure agreement by and between ROA and us, we agreed
that if we entered into a similar restructuring agreement with any other
affiliated practice on financial terms more favorable to such affiliated
practice than those extended to ROA under its restructure agreement, we would
modify and adjust the terms of their restructure agreement to ensure that ROA
received financial terms as favorable as those extended to such other affiliated
practice. The complaint further alleges that one or more lawsuits or other
adversary proceedings between us and one or more other affiliated practices have
been settled, in fact or in principle, on financial terms materially more
favorable to the other affiliated practices than the terms extended to ROA under
its restructure agreement. ROA seeks compensatory, consequential and incidental
damages in excess of $75,000, punitive damages in excess of $1,000,000 and
attorneys fees. Additionally, ROA seeks a declaratory judgment that if any of
the alleged settlements were entered into between us and any other affiliated
practices on terms materially more favorable than those extended to ROA, we
would be required to modify and adjust the terms of their restructure agreement
to ensure that ROA received financial terms as favorable as those extended to
such other affiliated practices.
On November 8, 1999, we filed a complaint in the U.S. District Court for the
District of Colorado against ROA. The complaint asserts that ROA has taken
actions in direct contravention of our management service agreement with ROA,
including trying to terminate the agreement in a manner not allowed by the
contract, threatening to withhold payments due under the agreement, and filing
suit in another jurisdiction in violation of the agreement. We seek a
declaration and adjudication of both parties' contractual rights and obligations
in order to terminate this dispute. We also seek injunctive relief and damages.
We believe we have strong legal and factual defenses to ROA's claims. We intend
to vigorously defend against their lawsuit and aggressively pursue our claims.
The Specialists Orthopedic Medical Corporation
Effective November 12, 1999, the Company settled its lawsuit with the
Specialists Orthopedic Medical Corporation, one of the Company's affiliated
practices, and the Specialists Surgery Center, a partnership that operates a
surgery center (collectively, "the Specialists"). (See discussion in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 for
the history of this litigation). In consideration for the settlement of the
lawsuit, the Specialists will make a current cash payment to the Company, return
a substantial amount of the Company's common stock owned by the physicians, and
enter into a note payable to the Company payable in monthly installments through
December 2003.
18
<PAGE> 19
Mid-Atlantic Orthopaedic Specialists, P.C.
On October 28, 1999, we filed a Second Amended Complaint asserting in addition
to the declaratory judgment claim, claims for breach of contract, replevin,
indemnification, enforcement of restrictive covenants, promissory estoppel,
unjust enrichment, conversion, civil theft, tortious interference, accounting
and constructive trust. (See the Company's proxy statement for its special
meeting of stockholders on June 11, 1999, in particular, Information About
Specialty Care Network, Inc. - Legal Proceedings, for the history of this
litigation.) MAOS and the Physician Owners have filed a Motion to dismiss the
claims for civil theft, conversion, replevin and punitive damages. SCN has
opposed the Motion to Dismiss, and the issue is pending with the Court. On
August 31, 1999, MAOS and the Physician Owners filed a counterclaim against SCN
and two of its officers, Kerry Hicks and Pat Jaeckle, asserting claims for
breach of contract, breach of covenant of good faith and fair dealing, fraud,
negligent misrepresentation, and state and federal securities law claims. SCN
and the individual counter-claim defendants have denied the allegations of MAOS
and the Physician Owners, and have filed a Motion to Dismiss the common law,
fraud and securities fraud counterclaims, including all counterclaims brought
against the individual defendants. We intend to vigorously defend against their
lawsuit and aggressively pursue our claims.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- The following is a list of exhibits filed as part of this
quarterly report on Form 10-Q.
EXHIBIT
NUMBER DESCRIPTION
10.1 Amendment No. 3 to Second Amended and
Restated Revolving Loan and Security
Agreement Dated as of November 21, 1997
10.2 Stock Purchase Agreement by and among
Specialty Care Network and Venture5, LLC
11 Statement re: computation of per share
earnings
27 Summary financial data schedule
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECIALTY CARE NETWORK, INC.
Date: November 15, 1999 By: /s/ Paul Davis
--------------------------- ------------------------------
Paul Davis
Senior Vice President, Finance
(Chief Financial Officer)
20
<PAGE> 21
Specialty Care Network, Inc. and Subsidiaries
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Exhibit 10.1 Amendment No. 3 to Second Amended and Restated Revolving Loan and
Security Agreement Dated as of November 21, 1997
Exhibit 10.2 Stock Purchase Agreement by and among Specialty Care Network and
Venture5, LLC
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Summary Financial Data Schedule
</TABLE>
<PAGE> 1
AMENDMENT NO.3
--------------
DATED AS OF SEPTEMBER 16, 1999
TO
SECOND AMENDED AND RESTATED REVOLVING
LOAN AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 21, 1997
AMONG
SPECIALTY CARE NETWORK, INC.
SCN OF PRINCETON, INC.
AND
BANK OF AMERICA, N.A.,
AMSOUTH BANK,
PARIBAS,
KEY CORPORATE CAPITAL, INC.
AND
BANK OF AMERICA, N.A., AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions 1
2. Amendments to Agreement 2
3. Representations and Warranties 4
3.1 Incorporation 4
3.2 Due Authorization, No Conflicts, Etc 5
3.3 Due Execution, Etc 5
4. Conditions Precedent 6
4.1 Conditions Precedent to Effectiveness of Amendment No.3 6
5. Effectiveness of Amendment No.3 8
6. Closing 8
7. Governing Law, Etc 8
8. Section Titles and Table of Contents 8
9. Arbitration 8
10. Counterparts 10
11. Agreement to Remain in Effect 10
</TABLE>
-1-
<PAGE> 3
This Amendment No.3 to Second Amended and Restated Revolving Loan and
Security Agreement, made and entered into as of this 16th day of September,
1999, by and among Specialty Care Network, Inc. (the "Borrower"); the
Guarantors, jointly and severally; the various banks and lending institutions on
the signature pages attached hereto together with all assignees of such banks
and lending institutions (each a "Bank" and collectively the "Banks"); and Bank
of America, N.A., successor to NationsBank, N.A., successor to NationsBank of
Tennessee, N.A., as agent (the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks, the Swingline Bank,
and the Agent entered into a certain Second Amended and Restated Revolving Loan
and Security Agreement dated as of November 21, 1997, as amended by Amendment
No.1 thereto dated March 30, 1998 and Amendment No.2 thereto dated April 1, 1998
(collectively the "Loan Agreement"); and
WHEREAS, the parties to the Loan Agreement desire to amend the existing
Loan Agreement to convert it from a revolving loan facility to a term loan
facility, to eliminate the Swingline Bank and Swingline Loan, to delete the
existing financial ratios, to add Healthcare Report Cards, Inc., as a Guarantor,
to pledge additional collateral, and to modify certain of the negative
covenants, all as hereinafter more specifically set forth;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used in this Amendment No.3 which
are not otherwise defined herein shall have the respective meanings ascribed
thereto in the Agreement.
-1-
<PAGE> 4
2. AMENDMENTS TO AGREEMENT.
2.1 In the Exhibits to the Agreement, EXHIBIT A, being the "Form of
Notes", is hereby amended by replacing the Notes attached thereto with the
modified and renewed Term Loan Notes attached hereto as Replacement EXHIBIT A.
2.2 Section I of the Agreement, DEFINITIONS, is hereby amended by
deleting "NOTICE OF BORROWING", "NOTICE OF CONVERSION", "PERMITTED ACQUISITION",
"PERMITTED ACQUISITION INDEBTEDNESS", "PERMITTED ACQUISITION PRICE", "REVOLVING
LOANS", "SWINGLINE BANK", "SWINGLINE COMMITMENT", "SWINGLINE COMMITTED AMOUNT",
"SWINGLINE LOAN","SWINGLINE NOTE", and "UNUTILIZED LOAN COMMITMENT", and by
adding thereto the following new definitions as follows:
"AMENDMENT NO.3 EFFECTIVE DATE" has the meaning specified in
Section 5 of Amendment No.3.
"TERM LOANS" means those term loans made pursuant to Paragraph
2.1 hereof.
In addition to the foregoing new definitions, the following definitions
are hereby amended:
"COMMITTED AMOUNT" is hereby amended to equal that amount set forth opposite
each Bank's signature hereto, which amount is for a Term Loan only; "GUARANTOR"
is hereby amended to add Healthcare Report Cards, Inc. as a Guarantor;
"COLLATERAL DOCUMENTS" and "PLEDGED INSTRUMENTS" are hereby amended to add the
Pledge Agreement required to be executed by Healthcare Report Cards, Inc.
pursuant to Paragraph 4.1(f) hereof and the stock pledged thereby, respectively,
and "TOTAL COMMITMENTS" is hereby amended to replace Seventy-Five Million and
No/100 Dollars ($75,000,000.00) with the figure of Twelve Million Five Hundred
Thousand and No/100 Dollars ($12,500,000.00).
-2-
<PAGE> 5
2.3 Paragraphs 2.1 through and including 2.11 are hereby deleted in
their entirety.
Remaining Paragraph 2.12 is hereby re-numbered 2.2, and there is hereby inserted
a new Paragraph 2.1 as follows:
"2.1 TERM LOANS. Subject to the terms and conditions of and relying upon
the representations, warranties and covenants contained in this
Agreement, each Bank severally agrees to convert its existing revolving
loans to the Borrower to Term Loans until the Termination Date, said
Term Loans to be evidenced by the Term Loan Notes attached hereto as
Replacement EXHIBIT A. Said Term Loans shall amortize and be payable at
the times and at the rates set forth in said Notes; provided, on or
before December 31, 1999, the Borrower shall also pay to the Banks to be
applied on a prorata basis the greater of: (i) one hundred percent
(100%) of all "true-up" proceeds received from the reconciliation of the
current assets and liabilities of practices disposed of prior to
September 3, 1999, or (ii) Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00). As restructured hereby, there shall be no Swingline Loan
Subfacility nor Letter of Credit Facility, and Borrower hereby certifies
to the Banks that there are no outstanding Letters of Credit issued and
outstanding under the Agreement.
2.4 Paragraphs 3.2 and 3.3 in the Agreement are hereby deleted in their
entirety, and Paragraph 3.4 is hereby re-numbered as Paragraph 3.2.
2.5 Paragraph 6.16 of the Agreement is hereby deleted in its entirety.
2.6 Paragraph 7.5 is hereby amended to delete subparagraph (6) thereof
in its entirety and to re-number subparagraphs (7) and (8) as subparagraphs (6)
and (7).
2.7 Paragraph 7.10 is hereby amended to delete subparagraph (3) thereof
in its entirety and to re-number subparagraph (4) as subparagraph (3).
2.8 Paragraph 7.13 is hereby deleted in its entirety and replaced with
the following subparagraph 7.13:
"7.13 ACQUISITIONS. Neither the Borrower nor any Subsidiary will make
any Acquisition without first obtaining the prior written consent of the
Majority Banks.
-3-
<PAGE> 6
2.9 The Swingline Bank is hereby deleted as a party to the Agreement
(although Bank of America, N. A. remains as a party to the Agreement in its
other capacities), and Healthcare Report Cards, Inc. is hereby added to the
Agreement as a Guarantor thereunder. In addition, all references in this
Agreement to Revolving Loans are hereby replaced with references to Term Loans,
including any references in the title of this Agreement, this Agreement being
hereafter entitled the "Second Amended and Restated Term Loan and Security
Agreement".
3. REPRESENTATIONS AND WARRANTIES. To induce the Banks and the Agent to
enter into this Amendment No. 3, the Borrower and Guarantors jointly and
severally represent and warrant to the Banks and the Agent as follows:
3.1 INCORPORATION. Specialty Care Network, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; has the corporate power to own its properties and to engage in the
business it conducts, and is duly qualified and in good standing as a foreign
corporation in the jurisdictions wherein the nature of its business or the
ownership of its properties requires it to be so qualified. SCN of Princeton,
Inc. is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; has the corporate power to own its
properties and to engage in the business it conducts, and is duly qualified and
in good standing as a foreign corporation in the jurisdictions wherein the
nature of its business or the ownership of its properties requires it to be so
qualified. Healthcare Report Cards, Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
has the corporate power to own its properties and to engage in the business its
conducts, and is duly qualified and in good standing as a foreign corporation in
-4-
<PAGE> 7
the jurisdictions wherein the nature of its business or the ownership of its
properties requires it to be so qualified.
3.2 DUE AUTHORIZATION, NO CONFLICTS, ETC. The execution, delivery and
performance by the Borrower and Guarantors of this Amendment No.3 and any and
all other agreements, instruments and documents to be executed and/or delivered
by the Borrower and Guarantors pursuant hereto or in connection herewith, and
the consummation by the Borrower and Guarantors of the transactions contemplated
hereby or thereby: (a) are within their respective corporate powers; (b) have
been duly authorized by all necessary corporate action, including without
limitation, the consent of stockholders where required; (c) do not and will not
conflict with or result in any breach of, or constitute with the passage of time
or the giving of notice or both, a default under (i) any Requirement of Law or
(ii) any agreement to which Borrower or any Guarantor is a party or by which
they, or any of their respective property, is bound; and (d) do not require the
consent, authorization by, or approval of, or notice to, or filing or
registration with, any governmental authority or any other Person other than
those which have been obtained and copies of which have been delivered to the
Agent pursuant to Subsection 4.1 (a)(ii) hereof, each of which is in full force
and effect.
3.3 DUE EXECUTION, ETC. This Amendment No.3 and each of the other
agreements, instruments and documents to be executed and/or delivered by the
Borrower or any Guarantor pursuant hereto or in connection herewith (a) has been
duly executed and delivered, and (b) constitutes the legal, valid and binding
obligation of the Borrower and each Guarantor, enforceable against it in
accordance with its terms, subject however to state and federal bankruptcy,
-5-
<PAGE> 8
insolvency, reorganization and other laws and general principles of equity
affecting enforcement of the rights of creditors generally.
4. CONDITIONS PRECEDENT. The effectiveness of this Amendment No.3 is
subject to the fulfillment of the following conditions precedent on or prior to
the Amendment No.3 Effective Date (as hereinafter defined in Section 5 hereof):
4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT NO.3. The Agent
shall have received, on or prior to the Amendment No.3 Effective Date, the
following, each dated on or prior to the Amendment No.3 Effective Date unless
otherwise indicated, in form and substance satisfactory to the Agent and in
sufficient copies for each Bank:
(a) Certified copies of (i) the resolutions of the Board of
Directors of the Borrower and each Guarantor approving this Amendment No.3 and
each other agreement, instrument or document to be executed by it pursuant
hereto or as contemplated hereby, and (ii) all documents evidencing other
necessary corporate action and required governmental and third party approvals,
licenses and consents with respect to this Amendment No.3 and the transactions
contemplated hereby.
(b) A certificate of the Secretary or an Assistant Secretary
of Borrower and each Guarantor certifying the names and true signatures of the
officers of Borrower and each Guarantor who have been authorized to execute on
behalf of Borrower and each Guarantor this Amendment No.3 and any other
agreement, instrument or document executed or to be executed by Borrower or any
Guarantor in connection herewith.
(c) A certificate dated the Amendment No.3 Effective Date
signed by the President or any Vice-President of Borrower, to the
following effect:
-6-
<PAGE> 9
(i) The representations and warranties of
the Borrower contained in Sections 3.1, 3.2, and 3.3 of this
Amendment No.3 are true and correct on and as of such date as
though made on and as of such date;
(ii) No Default or Event of Default has
occurred and is continuing, and no Default or Event of Default
would result from the execution and delivery of this Amendment
No. 3 or the other agreements, instruments and documents
contemplated hereby; and
(iii) The Borrower has paid or agreed to pay
all amounts payable by it pursuant to the Agreement as amended
hereby (including, without limitation, all legal fees and
expenses of Banks' counsel incurred in connection herewith) to
the extent then due and payable.
(d) Executed Term Loan Notes in the form attached
hereto as Replacement EXHIBIT A.
(e) Executed Guaranty and Suretyship Agreement of
Healthcare Report Cards, Inc., in substantially the form of
EXHIBIT l hereto.
(f) Executed Pledge Agreement executed by Healthcare
Report Cards, Inc. in favor of the Agent for the benefit of the Banks,
in substantially the form of EXHIBIT 2 hereto.
(g) A favorable opinion of Messrs. Baker Donelson
Bearman & Caldwell, counsel to the Borrower, in substantially the form
of Exhibit 3 hereto, and as to such other matters as any Bank, through
the Agent, may reasonably request.
-7-
<PAGE> 10
5. EFFECTIVENESS OF AMENDMENT NO.3. This Amendment No.3 shall
become effective at such time as (a) each of the conditions precedent set forth
in Section 4.1 hereof shall have been satisfied, and (b) counterparts of this
Amendment No. 3, executed and delivered by the Borrowers, the Guarantors, the
Banks, and the Agent shall have been received by the Agent (or, alternatively,
confirmation of the execution hereof by such parties shall have been received by
the Agent). The date upon which the conditions described in clauses (a) and (b)
of the foregoing sentence shall have been fulfilled is referred to herein as the
"Amendment No.3 Effective Date".
6. CLOSING. The Closing under this Amendment No.3 shall occur
on the Amendment Effective Date at the offices of Boult, Cummings, Conners &
Berry, PLC, 414 Union Street, Nashville, Tennessee 37219, or such other location
as the parties may agree.
7. GOVERNING LAW, ETC. This Amendment No.3 shall be governed
by, and construed in accordance with, the laws of the State of Tennessee as
provided in Section 10.9 of the Agreement, which Section is incorporated herein
by reference and made a part hereof as though set forth in full herein.
8. SECTION TITLES AND TABLE OF CONTENTS. The Section Titles
and Table of Contents contained in this Amendment No.3 are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of the
agreement among the parties hereto.
9. ARBITRATION. Any controversy or claim between or among the
parties hereto including but not limited to those arising out of or relating to
this Instrument, Agreement or document or any related instruments, agreements or
documents, including any claim based on or arising from an alleged tort, shall
be determined by binding arbitration in accordance with the Federal Arbitration
Act (or if not applicable, the applicable state law), the Rules of Practice and
-8-
<PAGE> 11
Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and
Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
agreement applies in any court having jurisdiction over such action.
(a) Special Rules. The arbitration shall be conducted
in the city of the Borrower's domicile at the time of the execution of this
instrument, agreement or document and administered by J.A.M.S. who will appoint
an arbitrator; if J.A.M.S. is unable or legally precluded from administering the
arbitration, then the American Arbitration Association will serve. All
arbitration hearings will be commenced within 90 days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional 60
days. In any such arbitration, the prevailing party will be awarded attorney's
fees, costs of arbitration and all out-of-pocket expenses against the defaulting
party.
(b) Reservation of Rights. Nothing in this
instrument, agreement or document shall be deemed to (i) limit the applicability
of any otherwise applicable statutes of limitation or repose or any waivers
contained in this Agreement; or (ii) be a waiver by the Agent or Banks of the
protection afforded to them by 12 U.S.C. ss. 91 or any substantially equivalent
state law; or (iii) limit the right of the Agent or Banks hereto (A) to exercise
self help remedies such as (but not limited to) set off, or (B) to foreclose
against any real or personal property collateral, or (C) to obtain from a court
provisional or ancillary remedies such as (but not limited to)
-9-
<PAGE> 12
injunctive relief, writ of possession or the appointment of a receiver. The
Agent or Banks may exercise such self help rights, foreclose upon such property,
or obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this instrument,
agreement or document. Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
10. COUNTERPARTS. This Amendment No.3 may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.
11. AGREEMENT TO REMAIN IN EFFECT. Except as expressly
provided herein, the Agreement and each other Collateral Document shall be and
shall continue in full force and effect in accordance with its respective terms.
- 10 -
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No.3 to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
BORROWER
SPECIALTY CARE NETWORK, INC.
BY: D. Paul Davis
---------------------------
TITLE: Senior Vice President, Finance
---------------------------------
GUARANTORS AND SUBSIDIARIES
SCN OF PRINCETON, INC.
BY: /s/ PATRICK M. JAECKLE
---------------------------
TITLE: Executive Vice President
--------------------------------
HEALTHCARE REPORT CARDS, INC.
BY: Patrick M. Jaeckle
---------------------------
TITLE: Executive Vice President
---------------------------------
BANKS
Committed Amount: BANK OF AMERICA, N.A., successor to NationsBank,
$5,000,000.00 N.A., successor to NationsBank of Tennessee,
N.A., as Agent
BY: Walker Choppin
---------------------------
TITLE: Senior Vice President
---------------------------------
- 11 -
<PAGE> 14
Committed Amount:
$2,500,000.00 AMSOUTH BANK
BY: Cathy Wind
---------------------------
TITLE: Vice President
---------------------------------
Committed Amount: PARIBAS
$2,500,000.00
BY:
---------------------------
Russell Pomerantz Brett I. Mehlman
TITLE: Director Director
---------------------------------
Committed Amount: KEY CORPORATE CAPITAL INC.,
$2,500,000.00 A MICHIGAN CORPORATION
BY:
---------------------------
TITLE:
---------------------------------
AGENT
BANK OF AMERICA, N.A., AS AGENT
BY: Walker Choppin
---------------------------
TITLE: Senior Vice President
---------------------------------
-12-
<PAGE> 15
EXHIBIT
A
TERM LOAN NOTE
(Modification and Renewal)
$2,500,000.00 Nashville, Tennessee
September 16, 1999
FOR VALUE RECEIVED, the undersigned Specialty Care Network, Inc.
promises to pay to the order of Paribas ("Bank") the sum of Two Million Five
Hundred Thousand and No/100 Dollars ($2,500,000.00) with interest at the rate of
three-quarters of one percent (.75%) per annum over the Bank of America Prime
Rate charged by Bank of America, N.A., said interest rate to be adjusted
whenever there is a change in said rate, but in no event shall the interest rate
charged herein exceed the maximum rate of interest permitted to be charged under
the laws in effect from time to time (the "Maximum Rate"). Bank of America Prime
Rate is the fluctuating rate of interest established by the Bank from time to
time as its "Prime Rate," whether or not such rate shall be otherwise published.
Such Prime Rate is established by Bank as an index or base rate and may or may
not at any time be the best or lowest rate charged by Bank on any loan. If at
any time or from time to time the Prime Rate increases or decreases, then the
rate of interest hereunder shall be correspondingly increased or decreased
effective on the day on which any such increase or decrease of the Prime Rate
changes, unless otherwise herein provided. In the event that the Bank, during
the term hereof, shall abolish or abandon the practice of establishing a Prime
Rate, or should the same become unascertainable, the Bank shall designate a
comparable reference rate which shall be deemed to be the Prime Rate for
purposes hereof.
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Said interest shall be due and payable
monthly on the then outstanding principal balance on the first (1st) day of each
consecutive month, the first such payment being due October 1, 1999. Principal
hereon shall also be due and payable monthly on the first (1st) day of each
consecutive month as follows: Thirty-Three Thousand Three Hundred Thirty-Three
and 34/100 Dollars ($33,333.34) each on October 1, 1999, November 1, 1999 and
December 1, 1999; Forty Thousand NoIl00 Dollars ($40,000.00) each on January 1,
2000, February 1, 2000 and March 1, 2000; Forty-Six Thousand Six Hundred
Sixty-Six and 67/100 Dollars ($46,666.67) each on April 1, 2000, May 1, 2000 and
June 1, 2000; and Fifty-Three Thousand Three Hundred Thirty-Three and 34/100
Dollars ($53,333.34) each on July 1, 2000, August 1, 2000, September 1, 2000 and
October 1, 2000. In addition, on December 31, 1999, the Borrower shall also pay
principal in an amount as required by Paragraph 2.1 of the Loan Agreement, as
hereinafter defined. On the Termination Date, November 21, 2000, the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
This Note is a renewal and modification of that certain Revolving Loan
Note from undersigned to Bank dated November 21, 1997, in the original principal
amount of Fifteen Million
PAGE 1 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 16
and No/100 Dollars ($15,000,000.00), the same having been paid down and hereby
converted to a term loan. All terms which are capitalized and used herein (which
are not otherwise specifically defined herein) and which are defined in that
certain Second Amended and Restated Revolving Loan and Security Agreement dated
as of November 21, 1997 as amended by Amendment Nos. 1 through 3 thereto (as the
same may be further amended, modified or restated from time to time, the "Loan
Agreement") shall be used herein as defined in the Loan Agreement.
Notwithstanding the rate of interest set forth hereinabove, if the
balance of all Obligations (as such term is defined in the Loan Agreement) due
from the undersigned is greater than $7,500,000.00 on April 15, 2000, then the
interest rate charged hereon shall be increased on April 15, 2000 and at all
times thereafter from three quarters of one percent (.75%) per annum over the
Bank of America Prime Rate to one and one-half percent (1.5%) per annum over the
Bank of America Prime Rate, said rate to be adjusted whenever there is a change
in said rate, but in no event to exceed the Maximum Rate.
Interest shall continue to accrue when payments are submitted by
instruments representing funds not immediately available and until such funds
are, in fact, collected. Both principal and interest due on this Note are
payable in Nashville, Tennessee, at par in lawful money of the United States of
America, in the Nashville, Tennessee Office of the Agent or at such other place
as the Agent may designate in writing from time to time. Prepayments, if any,
made hereon shall be applied in inverse order of maturity.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of any part of interest or
principal in accordance with the terms hereof, or upon failure of the
undersigned to keep and perform all the covenants, promises, agreements,
conditions and provisions of this Note, the Loan Agreement, any Loan Document or
in any other instrument or document now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced hereby, subject to any
applicable grace, notice or cure periods contained therein; then, in any such
case, the entire unpaid principal sum evidenced by this Note, together with all
accrued interest, shall, at the option of any holder, without notice, become due
and payable forthwith, regardless of the stipulated Termination Date. Upon the
occurrence of any default as set forth herein, at the option of holder and
without notice to obligor, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
three percentage points (3 %) in excess of the above-specified interest rate, as
it varies from time to time, or (ii) the Maximum Rate, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default. Failure of the holder to exercise
this right of accelerating the maturity of the debt, or indulgence granted from
time to time, shall in no event be considered as a waiver of said right of
acceleration or stop the holder from exercising said right.
PAGE 2 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 17
To the extent permitted by applicable law, obligor shall pay to Bank of
America, N.A. a late charge equal to four percent (4%) of any payment which is
past due for a period of ten (10) or more days, in order to cover the additional
expenses incident to the handling and processing of delinquent payments.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives and assigns, waive demand,
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection and all other notices or demands whatsoever with respect
to this Note or the enforcement hereof, and consent that the time of said
payments or any part thereof may be extended by the holder hereof and assent to
any substitution, exchange, or release of collateral permitted by the holder
hereof, all without in any wise modifying, altering, releasing, affecting or
limiting their respective liability. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
The term obligor, as used in this Note, shall mean all parties, and
each of them, directly or indirectly obligated for the indebtedness that this
Note evidences, whether as principal, maker, endorser, surety, guarantor or
otherwise.
It is expressly understood and agreed by all parties hereto, including
obligors, that if it is necessary to enforce payment of this Note through an
attorney or by suit, undersigned or any obligors shall pay reasonable attorneys'
fees, court costs and all costs of collection.
This obligation is made and intended as a Tennessee contract and is to
be so construed.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE UNDERSIGNED'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
PAGE 3 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 18
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(ii) BE A WAIVER BY THE AGENT OR ANY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE
RIGHT OF THE AGENT OR ANY BANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. THE AGENT OR ANY BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN TERM LOAN NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned
the day and year first above written.
SPECIALTY CARE NETWORK, INC.,
a Delaware corporation
By: D. Paul Davis
------------------------------
Its: Senior Vice President, Finance
------------------------------
PAGE 4 OF A 4 PAGE NOTE
<PAGE> 19
TERM LOAN NOTE EXHIBIT
(Modification and Renewal) A
$2,500,000.00 Nashville, Tennessee
September 16, 1999
FOR VALUE RECEIVED, the undersigned Specialty Care Network, Inc.
promises to pay to the order of Amsouth Bank ("Bank") the sum of Two Million
Five Hundred Thousand and No/100 Dollars ($2,500,000.00) with interest at the
rate of three-quarters of one percent (.75%) per annum over the Bank of America
Prime Rate charged by Bank of America, N.A., said interest rate to be adjusted
whenever there is a change in said rate, but in no event shall the interest rate
charged herein exceed the maximum rate of interest permitted to be charged under
the laws in effect from time to time (the "Maximum Rate"). Bank of America Prime
Rate is the fluctuating rate of interest established by the Bank from time to
time as its "Prime Rate," whether or not such rate shall be otherwise published.
Such Prime Rate is established by Bank as an index or base rate and may or may
not at any time be the best or lowest rate charged by Bank on any loan. If at
any time or from time to time the Prime Rate increases or decreases, then the
rate of interest hereunder shall be correspondingly increased or decreased
effective on the day on which any such increase or decrease of the Prime Rate
changes, unless otherwise herein provided. In the event that the Bank, during
the term hereof, shall abolish or abandon the practice of establishing a Prime
Rate, or should the same become unascertainable, the Bank shall designate a
comparable reference rate which shall be deemed to be the Prime Rate for
purposes hereof.
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Said interest shall be due and payable
monthly on the then outstanding principal balance on the first (1st) day of each
consecutive month, the first such payment being due October 1, 1999. Principal
hereon shall also be due and payable monthly on the first (1st) day of each
consecutive month as follows: Thirty-Three Thousand Three Hundred Thirty-Three
and 34/100 Dollars ($33,333.34) each on October 1, 1999, November 1, 1999 and
December 1, 1999; Forty Thousand No/100 Dollars ($40,000.00) each on January 1,
2000, February 1, 2000 and March 1, 2000; Forty-Six Thousand Six Hundred
Sixty-Six and 67/100 Dollars ($46,666.67) each on April 1, 2000, May 1, 2000 and
June 1, 2000; and Fifty-Three Thousand Three Hundred Thirty-Three and 34/100
Dollars ($53,333.34) each on July 1, 2000, August 1, 2000, September 1, 2000 and
October 1, 2000. In addition, on December 31, 1999, the Borrower shall also pay
principal in an amount as required by Paragraph 2.1 of the Loan Agreement, as
hereinafter defined. On the Termination Date, November 21, 2000, the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
This Note is a renewal and modification of that certain Revolving Loan
Note from undersigned to Bank dated November 21, 1997, in the original principal
amount of Fifteen Million
PAGE 1 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 20
and No/100 Dollars ($15,000,000.00), the same having been paid down and hereby
converted to a term loan. All terms which are capitalized and used herein (which
are not otherwise specifically defined herein) and which are defined in that
certain Second Amended and Restated Revolving Loan and Security Agreement dated
as of November 21, 1997 as amended by Amendment Nos. 1 through 3 thereto (as the
same may be further amended, modified or restated from time to time, the ("Loan
Agreement") shall be used herein as defined in the Loan Agreement.
Notwithstanding the rate of interest set forth hereinabove, if the
balance of all Obligations (as such term is defined in the Loan Agreement) due
from the undersigned is greater than $7,500,000.00 on April 15, 2000, then the
interest rate charged hereon shall be increased on April 15, 2000 and at all
times thereafter from three quarters of one percent (.75%) per annum over the
Bank of America Prime Rate to one and one-half percent (1.5%) per annum over the
Bank of America Prime Rate, said rate to be adjusted whenever there is a change
in said rate, but in no event to exceed the Maximum Rate.
Interest shall continue to accrue when payments are submitted by
instruments representing funds not immediately available and until such funds
are, in fact, collected. Both principal and interest due on this Note are
payable in Nashville, Tennessee, at par in lawful money of the United States of
America, in the Nashville, Tennessee Office of the Agent or at such other place
as the Agent may designate in writing from time to time. Prepayments, if any,
made hereon shall be applied in inverse order of maturity.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of any part of interest or
principal in accordance with the terms hereof, or upon failure of the
undersigned to keep and perform all the covenants, promises, agreements,
conditions and provisions of this Note, the Loan Agreement, any Loan Document or
in any other instrument or document now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced hereby, subject to any
applicable grace, notice or cure periods contained therein; then, in any such
case, the entire unpaid principal sum evidenced by this Note, together with all
accrued interest, shall, at the option of any holder, without notice, become due
and payable forthwith, regardless of the stipulated Termination Date. Upon the
occurrence of any default as set forth herein, at the option of holder and
without notice to obligor, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
three percentage points (3%) in excess of the above-specified interest rate, as
it varies from time to time, or (ii) the Maximum Rate, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default. Failure of the holder to exercise
this right of accelerating the maturity of the debt, or indulgence granted from
time to time, shall in no event be considered as a waiver of said right of
acceleration or stop the holder from exercising said right.
PAGE 2 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 21
To the extent permitted by applicable law, obligor shall pay to Bank of
America, N.A. a late charge equal to four percent (4%) of any payment which is
past due for a period of ten (10) or more days, in order to cover the additional
expenses incident to the handling and processing of delinquent payments.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives and assigns, waive demand,
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection and all other notices or demands whatsoever with respect
to this Note or the enforcement hereof, and consent that the time of said
payments or any part thereof may be extended by the holder hereof and assent to
any substitution, exchange, or release of collateral permitted by the holder
hereof, all without in any wise modifying, altering, releasing, affecting or
limiting their respective liability. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
The term obligor, as used in this Note, shall mean all parties, and
each of them, directly or indirectly obligated for the indebtedness that this
Note evidences, whether as principal, maker, endorser, surety, guarantor or
otherwise.
It is expressly understood and agreed by all parties hereto, including
obligors, that if it is necessary to enforce payment of this Note through an
attorney or by suit, undersigned or any obligors shall pay reasonable attorneys'
fees, court costs and all costs of collection.
This obligation is made and intended as a Tennessee contract and is to
be so construed.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE UNDERSIGNED'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
PAGE 3 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 22
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(ii) BE A WAIVER BY THE AGENT OR ANY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE
RIGHT OF THE AGENT OR ANY BANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. THE AGENT OR ANY BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN TERM LOAN NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned
the day and year first above written.
SPECIALTY CARE NETWORK, INC.,
a Delaware corporation
By D. Paul Davis
----------------------------------
Its: Senior Vice President. Finance
----------------------------------
PAGE 4 OF A 4 PAGE NOTE
<PAGE> 23
EXHIBIT
TERM LOAN NOTE A
(Modification and Renewal)
$5,000,000.00 Nashville, Tennessee
September 16, 1999
FOR VALUE RECEIVED, the undersigned Specialty Care Network, Inc.
promises to pay to the order of Bank of America, N.A. ("Bank") the sum of Five
Million and No/100 Dollars ($5,000,000.00) with interest at the rate of
three-quarters of one percent (.75%) per annum over the Bank of America Prime
Rate charged by Bank of America, N.A., said interest rate to be adjusted
whenever there is a change in said rate, but in no event shall the interest rate
charged herein exceed the maximum rate of interest permitted to be charged under
the laws in effect from time to time (the "Maximum Rate"). Bank of America Prime
Rate is the fluctuating rate of interest established by the Bank from time to
time as its "Prime Rate," whether or not such rate shall be otherwise published.
Such Prime Rate is established by Bank as an index or base rate and may or may
not at any time be the best or lowest rate charged by Bank on any loan. If at
any time or from time to time the Prime Rate increases or decreases, then the
rate of interest hereunder shall be correspondingly increased or decreased
effective on the day on which any such increase or decrease of the Prime Rate
changes, unless otherwise herein provided. In the event that the Bank, during
the term hereof, shall abolish or abandon the practice of establishing a Prime
Rate, or should the same become unascertainable, the Bank shall designate a
comparable reference rate which shall be deemed to be the Prime Rate for
purposes hereof.
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Said interest shall be due and payable
monthly on the then outstanding principal balance on the first (1st) day of each
consecutive month, the first such payment being due October 1, 1999. Principal
hereon shall also be due and payable monthly on the first (1st) day of each
consecutive month as follows: Sixty-Six Thousand Six Hundred Sixty-Six and
67/100 Dollars ($66,666.67) each on October 1, 1999, November 1, 1999 and
December 1, 1999; Eighty Thousand and No/100 Dollars ($80,000.00) each on
January 1, 2000, February 1, 2000 and March 1, 2000; Ninety-Three Thousand Three
Hundred Thirty-Three and 34/100 Dollars ($93,333.34) each on April 1, 2000, May
1, 2000 and June 1, 2000; and One Hundred Six Thousand Six Hundred Sixty-Six and
67/100 Dollars ($106,666.67) each on July 1, 2000, August 1, 2000, September 1,
2000 and October 1, 2000. In addition, on December 31, 1999, the Borrower shall
also pay principal in an amount as required by Paragraph 2.1 of the Loan
Agreement, as hereinafter defined. On the Termination Date, November 21, 2000,
the entire outstanding principal balance, together with all accrued and unpaid
interest, shall be immediately due and payable in full.
This Note is a renewal and modification of that certain Revolving Loan
Note from undersigned to Bank dated November 21, 1997, in the original principal
amount of Thirty Million
PAGE 1 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 24
and No/100 Dollars ($30,000,000.00), the same having been paid down and hereby
converted to a term loan. An terms which are capitalized and used herein (which
are not otherwise specifically defined herein) and which are defined in that
certain Second Amended and Restated Revolving Loan and Security Agreement dated
as of November 21, 1997 as amended by Amendment Nos. 1 through 3 thereto (as the
same may be further amended, modified or restated from time to time, the "Loan
Agreement") shall be used herein as defined in the Loan Agreement.
Notwithstanding the rate of interest set forth hereinabove, if the
balance of all Obligations (as such term is defined in the Loan Agreement) due
from the undersigned is greater than $7,500,000.00 on April 15, 2000, then the
interest rate charged hereon shall be increased on April 15, 2000 and at all
times thereafter from three quarters of one percent (.75%) per annum over the
Bank of America Prime Rate to one and one-half percent (1.5%) per annum over the
Bank of America Prime Rate, said rate to be adjusted whenever there is a change
in said rate, but in no event to exceed the Maximum Rate.
Interest shall continue to accrue when payments are submitted by
instruments representing funds not immediately available and until such funds
are, in fact, collected. Both principal and interest due on this Note are
payable in Nashville, Tennessee, at par in lawful money of the United States of
America, in the Nashville, Tennessee Office of the Agent or at such other place
as the Agent may designate in writing from time to time. Prepayments, if any,
made hereon shall be applied in inverse order of maturity
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of any part of interest or
principal in accordance with the terms hereof, or upon failure of the
undersigned to keep and perform all the covenants, promises, agreements,
conditions and provisions of this Note, the Loan Agreement, any Loan Document or
in any other instrument or document now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced hereby, subject to any
applicable grace, notice or cure periods contained therein; then, in any such
case, the entire unpaid principal sum evidenced by this Note, together with all
accrued interest, shall, at the option of any holder, without notice, become due
and payable forthwith, regardless of the stipulated Termination Date. Upon the
occurrence of any default as set forth herein, at the option of holder and
without notice to obligor, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
three percentage points (3 %) in excess of the above-specified interest rate, as
it varies from time to time, or (ii) the Maximum Rate, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default. Failure of the holder to exercise
this right of accelerating the maturity of the debt, or indulgence granted from
time to time, shall in no event be considered as a waiver of said right of
acceleration or stop the holder from exercising said right.
PAGE 2 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 25
To the extent permitted by applicable law, obligor shall pay to Bank of
America, N.A. a late charge equal to four percent (4%) of any payment which is
past due for a period of ten (10) or more days, in order to cover the additional
expenses incident to the handling and processing of delinquent payments.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives and assigns, waive demand,
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection and all other notices or demands whatsoever with respect
to this Note or the enforcement hereof, and consent that the time of said
payments or any part thereof may be extended by the holder hereof and assent to
any substitution, exchange, or release of collateral permitted by the holder
hereof, all without in any wise modifying, altering, releasing, affecting or
limiting their respective liability. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
The term obligor, as used in this Note, shall mean all parties, and
each of them, directly or indirectly obligated for the indebtedness that this
Note evidences, whether as principal, maker, endorser, surety, guarantor or
otherwise.
It is expressly understood and agreed by all parties hereto, including
obligors, that if it is necessary to enforce payment of this Note through an
attorney or by suit, undersigned or any obligors shall pay reasonable attorneys'
fees, court costs and all costs of collection.
This obligation is made and intended as a Tennessee contract and is to
be so construed.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE UNDERSIGNED'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
PAGE 3 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 26
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(ii) BE A WAIVER BY THE AGENT OR ANY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE
RIGHT OF THE AGENT OR ANY BANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. THE AGENT OR ANY BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN TERM LOAN NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned
the day and year first above written.
SPECIALTY CARE NETWORK, INC.,
a Delaware corporation
By: D. Paul Davis
-------------------------------
Its Senior Vice President. Finance
-------------------------------
PAGE 4 OF A 4 PAGE NOTE
<PAGE> 27
EXHIBIT
A
TERM LOAN NOTE
(Modification and Renewal)
$2,500,000.00 Nashville, Tennessee
September 16, 1999
FOR VALUE RECEIVED, the undersigned Specialty Care Network, Inc.
promises to pay to the order of Key Corporate Capital, Inc. ("Bank") the sum of
Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) with
interest at the rate of three-quarters of one percent (.75%) per annum over the
Bank of America Prime Rate charged by Bank of America, N.A., said interest rate
to be adjusted whenever there is a change in said rate, but in no event shall
the interest rate charged herein exceed the maximum rate of interest permitted
to be charged under the laws in effect from time to time (the "Maximum Rate ").
Bank of America Prime Rate is the fluctuating rate of interest established by
the Bank from time to time as its "Prime Rate," whether or not such rate shall
be otherwise published. Such Prime Rate is established by Bank as an index or
base rate and may or may not at any time be the best or lowest rate charged by
Bank on any loan. If at any time or from time to time the Prime Rate increases
or decreases, then the rate of interest hereunder shall be correspondingly
increased or decreased effective on the day on which any such increase or
decrease of the Prime Rate changes, unless otherwise herein provided. In the
event that the Bank, during the term hereof, shall abolish or abandon the
practice of establishing a Prime Rate, or should the same become
unascertainable, the Bank shall designate a comparable reference rate which
shall be deemed to be the Prime Rate for purposes hereof.
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Said interest shall be due and payable
monthly on the then outstanding principal balance on the first (1st) day of each
consecutive month, the first such payment being due October 1, 1999. Principal
hereon shall also be due and payable monthly on the first (1st) day of each
consecutive month as follows: Thirty-Three Thousand Three Hundred Thirty-Three
and 34/100 Dollars ($33,333.34) each on October 1, 1999, November 1, 1999 and
December 1, 1999; Forty Thousand No/100 Dollars ($40,000.00) each on January 1,
2000, February 1, 2000 and March 1, 2000; Forty-Six Thousand Six Hundred
Sixty-Six and 67/100 Dollars ($46,666.67) each on April 1, 2000, May 1, 2000 and
June 1, 2000; and Fifty-Three Thousand Three Hundred Thirty-Three and 34/100
Dollars ($53,333.34) each on July 1, 2000, August 1, 2000, September 1, 2000 and
October 1, 1999. In addition, on December 31, 1999, the Borrower shall also pay
principal in an amount as required by Paragraph 2.1 of the Loan Agreement, as
hereinafter defined. On the Termination Date, November 21, 2000, the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
This Note is a renewal and modification of that certain Revolving Loan
Note from undersigned to Bank dated November 21, 1997, in the original principal
amount of Fifteen Million
PAGE 1 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 28
and No/100 Dollars ($15,000,000.00), the same having been paid down and hereby
converted to a term loan. All terms which are capitalized and used herein (which
are not otherwise specifically defined herein) and which are defined in that
certain Second Amended and Restated Revolving Loan and Security Agreement dated
as of November 21, 1997 as amended by Amendment Nos. 1 through 3 thereto (as the
same may be further amended, modified or restated from time to time, the "Loan
Agreement") shall be used herein as defined in the Loan Agreement.
Notwithstanding the rate of interest set forth hereinabove, if the
balance of all Obligations (as such term is defined in the Loan Agreement) due
from the undersigned is greater than $7,500,000.00 on April 15, 2000, then the
interest rate charged hereon shall be increased on April 15, 2000 and at all
times thereafter from three quarters of one percent (.75%) per annum over the
Bank of America Prime Rate to one and one-half percent (1.5%) per annum over the
Bank of America Prime Rate, said rate to be adjusted whenever there is a change
in said rate, but in no event to exceed the Maximum Rate.
Interest shall continue to accrue when payments are submitted by
instruments representing funds not immediately available and until such funds
are, in fact, collected. Both principal and interest due on this Note are
payable in Nashville, Tennessee, at par in lawful money of the United States of
America, in the Nashville, Tennessee Office of the Agent or at such other place
as the Agent may designate in writing from time to time. Prepayments, if any,
made hereon shall be applied in inverse order of maturity.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of any part of interest or
principal in accordance with the terms hereof, or upon failure of the
undersigned to keep and perform all the covenants, promises, agreements,
conditions and provisions of this Note, the Loan Agreement, any Loan Document or
in any other instrument or document now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced hereby, subject to any
applicable grace, notice or cure periods contained therein; then, in any such
case, the entire unpaid principal sum evidenced by this Note, together with all
accrued interest, shall, at the option of any holder, without notice, become due
and payable forthwith, regardless of the stipulated Termination Date. Upon the
occurrence of any default as set forth herein, at the option of holder and
without notice to obligor, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
three percentage points (3 %) in excess of the above-specified interest rate, as
it varies from time to time, or (ii) the Maximum Rate, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default. Failure of the holder to exercise
this right of accelerating the maturity of the debt, or indulgence granted from
time to time, shall in no event be considered as a waiver of said right of
acceleration or stop the holder from exercising said right.
PAGE 2 OF A 4 PAGE NOTE DPD
---------
(initial)
<PAGE> 29
To the extent permitted by applicable law, obligor shall pay to Bank of
America, N.A. a late charge equal to four percent (4%) of any payment which is
past due for a period of ten (10) or more days, in order to cover the additional
expenses incident to the handling and processing of delinquent payments.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives and assigns, waive demand,
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection and all other notices or demands whatsoever with respect
to this Note or the enforcement hereof, and consent that the time of said
payments or any part thereof may be extended by the holder hereof and assent to
any substitution, exchange, or release of collateral permitted by the holder
hereof, all without in any wise modifying, altering, releasing, affecting or
limiting their respective liability. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
The term obligor, as used in this Note, shall mean all parties, and
each of them, directly or indirectly obligated for the indebtedness that this
Note evidences, whether as principal, maker, endorser, surety, guarantor or
otherwise.
It is expressly understood and agreed by all parties hereto, including
obligors, that if it is necessary to enforce payment of this Note through an
attorney or by suit, undersigned or any obligors shall pay reasonable attorneys'
fees, court costs and all costs of collection.
This obligation is made and intended as a Tennessee contract and is to
be so construed.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE UNDERSIGNED'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
PAGE 3 OF A 4 PAGE NOTE DPD
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(initial)
<PAGE> 30
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(ii) BE A WAIVER BY THE AGENT OR ANY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE
RIGHT OF THE AGENT OR ANY BANK HERETO (a) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. THE AGENT OR ANY BANK MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN TERM LOAN NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned
the day and year first above written.
SPECIALTY CARE NETWORK, INC.,
a Delaware corporation
By: D. Paul Davis
------------------------------
Its: Senior Vice President, Finance
------------------------------
PAGE 4 OF A 4 PAGE NOTE
<PAGE> 1
STOCK PURCHASE AGREEMENT
BY AND AMONG
SPECIALTY CARE NETWORK, INC.,
A DELAWARE CORPORATION,
AS PURCHASER
AND
VENTURE5, LLC,
A COLORADO LIMITED LIABILITY COMPANY,
as Seller
September 15th, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of September 15th, 1999 ("Effective Date"), by and among SPECIALTY CARE
NETWORK, INC., a Delaware corporation ("SCN"), and VENTURE5, LLC, a Colorado
limited liability company ("Venture5").
WITNESSETH:
WHEREAS, SCN, through its subsidiary Healthcare Report Cards, Inc., a
Delaware corporation ("Subsidiary"), owns 5,368,420 shares of common stock of
HealthGrades.com, Inc., a Delaware corporation ("HealthGrades.com");
WHEREAS, Venture5 owns 2,631,580 shares of common stock of
HealthGrades.com;
WHEREAS, Venture5 desires to sell to SCN and SCN desires to purchase
from Venture5 2,205,264 shares of the common stock of HealthGrades.com owned by
Venture5 (the "Shares"), upon and subject to the terms, conditions,
representations and warranties set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, SCN and Venture5 agree as follows:
ARTICLE 1
PURCHASE AND SALE
.1 PURCHASE OF SHARES. At the Closing (as defined below), Venture5
shall sell to SCN, and SCN shall purchase from Venture5, the Shares for the
Purchase Price (as defined below).
.2 PURCHASE PRICE. The "Purchase Price" to be paid to Venture5 shall be
Four Million Dollars ($4,000,000). The Purchase Price shall be paid in cash at
the Closing.
.3 ESCROW DEPOSIT. Immediately upon the execution of this Agreement,
and pursuant to the terms of the Escrow Agreement attached hereto as Exhibit A
("Escrow Agreement"), the parties will deposit the following with the Escrow
Agent (as defined in the Escrow Agreement) acting pursuant to the Escrow
Agreement:
(a) Venture5 will deposit the certificate representing
the Shares ("Share Certificate") accompanied by a
duly endorsed stock transfer power in favor of SCN;
(b) SCN shall cause Peter Fatianow ('Fatianow") to
deliver a certificate
<PAGE> 3
representing 100,000 shares of common stock of
HealthGrades.com, Inc. ("Fatianow Share Certificate")
accompanied by a duly endorsed stock transfer power
in favor of SCN;
(c) Venture5 will deposit a certificate representing
426,316 shares (the "Venture5 Shares") of common
stock of HealthGrades.com ("the Venture5 Share
Certificate");
(d) Venture5 will deliver Non-Competition Agreements, in
the form of Exhibit B attached hereto, executed by
each of Ray Padilla' Kevin Hicks, Shannon Burke and
Timothy Dodge;
(e) The parties thereto will deliver five (S) executed
copies of an agreement to terminate ("Termination
Agreement") that certain Shareholders' Agreement
among SCN, Venture5, Health Care Report Cards, Inc.,
HealthGrades.com, Inc. and Peter Fatianow dated June
25, 1999 ("Shareholders' Agreement") in the form
attached hereto as Exhibit C
(f) Venture5 will deliver wire transfer instructions for
payment of the Purchase Price to Venture5; and
(g) SCN will deliver $60,000 in immediately available
funds ("Escrow Cash").
.4 SCN CLOSING DEPOSIT. At any time prior to 1:00 pm. MST, November 1,
1999 ("Escrow Expiration"), SCN may deposit with the Escrow Agent, acting
pursuant to the Escrow Agreement, $3,940,000, which together with the Escrow
Cash, shall upon such deposit represent the Purchase Price.
.5 CLOSING OF ESCROW TRANSACTIONS. Immediately upon receipt of the
Purchase Price from SCN ("Closing Deposit"), if such deposit was made on or
prior to the Escrow Expiration, the closing of the transactions contemplated by
this Article 1 (the "Closing") shall be deemed to have occurred (the date on
which the Closing takes place, the "Closing Date") and the Escrow Agent shall
deliver:
(a) to Venture5 the Purchase Price by wire transfer of
all cash delivered in consideration of the Purchase
Price;
(b) to Venture5 an executed original of the Termination
Agreement;
(c) to SCN the Share Certificate along with the duly
endorsed stock transfer power transferring the Shares
to SCN;
(d) to SCN the Fatianow Share Certificate along with the
duly endorsed stock transfer power transferring the
Fatianow Shares to SCN;
<PAGE> 4
(e) to SCN executed originals of the Non-Competition
Agreements;
(f) to SCN four executed originals of the Termination
Agreement for transmittal to all the parties thereto
(other than Venture5); and
(g) to Venture5 the Venture5 Share Certificate.
.6 TERMINATION OF ESCROW. If SCN shall not have made the Closing
Deposit prior to the Escrow Expiration, and this Agreement shall not have been
terminated prior to the Escrow Expiration pursuant to Article 7 hereof, on the
Escrow Expiration this Agreement shall be considered immediately terminated and:
(a) the Escrow Agent shall deliver to Venture5 the Share
Certificate and corresponding stock transfer power
and the Venture5 Share Certificate;
Q,) the Escrow Agent shall deliver to Venture5 the
original executed Non-Competition Agreements;
(c) the Escrow Agent shall deliver to Peter Fatianow the
Fatianow Share Certificate and stock transfer power;
(d) the Escrow Agent shall deliver to Venture5 all
original copies of the executed Termination
Agreement; and
(e) the Escrow Agent shall pay to Venture5 $60,000 in
immediately available funds in full satisfaction of
any and all liabilities that SCN may have to Venture5
due to SCN's failure to make the Closing Deposit
prior to the Escrow Expiration.
.7 RIGHTS IN ESCROWED SHARES. During the period the Shares are held in
escrow pursuant to the terms of this Agreement and the Escrow Agreement, and
subject to the obligations and restrictions contained in this Agreement
(including without limitation, the restrictions on transfer and encumbrance of
the Shares), Venture5 shall maintain all rights in and title to the Shares, and
shall remain subject to such rights provided and obligations imposed under the
Shareholders' Agreement, which agreement shall remain in full force and effect.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF VENTURE5
<PAGE> 5
Venture5 represents and warrants to SCN that the following
statements are true as of the date of this Agreement:
.1 ORGANIZATION, STANDING, ENFORCEABILITY AND AUTHORIZATION.
(a) Venture5 is a limited liability company duly organized,
validly existing and operating under the laws of the State of Colorado. Venture5
is in good standing under the laws of the State of Colorado and has all
requisite corporate power and authority to enter into this Agreement, to carry
out the transactions contemplated hereby and to perform its obligations
hereunder.
(b) This Agreement constitutes and all other agreements,
documents and instruments executed or to be executed by Venture5 in connection
herewith (the "Related Agreements") when duly executed and delivered will
constitute the valid and legally binding obligations of Venture5 and are
enforceable in accordance with their terms, except as such enforceability may be
limited by equitable principles and by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or similar laws relating to or affecting
the rights of creditors generally.
(c) The execution and delivery of this Agreement, the Related
Agreements, and all other documents and instruments executed or to be executed
by Venture5 pursuant to this Agreement, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of Venture5. This Agreement and the Related Agreements have
been or will have been, at the time of their respective executions and
deliveries, duly executed and delivered by a duly authorized Manager of
Venture5.
.2 OWNERSHIP OF SHARES. Venture5 is now, and immediately prior to the
Closing will be, the record and beneficial owner of the Shares. Each of the
Shares to be sold by Venture5 to SCN is now, and at the Closing will be, owned
by Venture5 free and clear of any lien, pledge, charge, adverse claim, security
interest, encumbrance (including any imposed by law in any jurisdiction), title
retention agreement, option or right to purchase of any kind.
.3 TITLE TO SHARES. Upon delivery of the certificates representing the
Shares to SCN hereunder and payment and delivery to Venture5 of the
consideration specified herein, SCN will acquire valid title thereto, free and
clear of any lien, pledge, charge, adverse claim, security interest, encumbrance
(including any imposed by law in any jurisdiction), title retention agreement,
option or right to purchase of any kind, other than (a) any restrictions imposed
by applicable securities laws, (b) any liens, pledges, charges, adverse claims,
security interests, encumbrances, title retention agreements, options, equities
or rights to purchase created by or through SCN or any of SCN's Affiliates.
.4 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. The execution and
delivery of
<PAGE> 6
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby will not conflict with or result in
any violation of or default wider any provision of the Articles of Organization
or Operating Agreement of Venture5 or any violation of; or default under any
mortgage, indenture, trust, lease, partnership or other agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation or Legal Requirement
applicable to Venture5 or its members, nor will they result in the creation or
imposition of any lien, pledge, charge, adverse claim, security interest, or
other encumbrance of any nature whatsoever on the Shares, nor will they prevent
or materially delay the consummation of the transactions contemplated hereby.
For purposes of this Agreement, the term "Legal Requirement" shall mean
any federal, state or local law, statute, legislation, ordinance, code, rule,
regulation, decree, award, order, permit, franchise, consent or authorization
of; any federal, state, local or other governmental body or agency, department,
commission, bureau, board, council, court, magistrate, panel or instrumentality
of the United States, any political subdivision thereof or any state or local
governmental authority.
.5 AUTHORIZATIONS; CONSENTS. No consents, licenses, approvals or
authorizations of; or registrations or declarations with, any governmental
authority, agency, bureau or commission, or any third party, are required to be
obtained or made by Venture5 or the Members in connection with the execution,
delivery, performance, validity and enforceability of this Agreement or any
Related Agreement or the sale or transfer of the Shares.
.6 LITIGATION. No action, suit, proceeding or governmental
investigation is pending or to the knowledge of Venture5 threatened, at law or
in equity, which seeks to question, delay or prevent, or could have the effect
of delaying or preventing, the consummation of all or any portion of the
transactions contemplated hereby.
.7 BROKERS AND FINDERS. No person or entity is entitled to any
brokerage commission, finder's fee or like payment in connection with the
transactions contemplated in this Agreement.
.8 ACCURACY. The representations and warranties made by Venture5 to SCN
set forth in this Agreement, the Schedules to this Agreement, including any
Updated Disclosure Schedule (as defined below) delivered to SCN prior to
Closing, and the written agreements, instruments and documents delivered and to
be delivered pursuant to or in connection with this Agreement, do not include an
untrue statement of material fact or omit to state any material fact necessary
to make them, in light of the circumstances in which they were or are made, not
misleading.
.9 ACKNOWLEDGEMENT. Venture5 acknowledges that its equity owners were
employees of HealthGrades.com prior to the Effective Date. As a result of those
employment relationships, Venture5 is familiar with the operations of
HealthGrades.com prior to the Effective Date and has an understanding of the
business opportunities that HealthGrades.com is pursuing and may pursue,
including business opportunities with those third parties listed on Schedule
2.9, attached hereto.
<PAGE> 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SCN
SCN represents and warrants to Venture5 as follows:
.1 ORGANIZATION AND STANDING. SCN is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
SCN has all requisite corporate power and authority to enter into this
Agreement, to carry out the transactions contemplated hereby and to perform its
obligations hereunder.
.2 AUTHORIZATION. The execution and delivery of this Agreement, and all
other agreements, documents and instruments executed or to be executed by SCN
pursuant to this Agreement (the "Purchaser Related Agreements"), and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate and other action on the part of SCN. This
Agreement and the Purchaser Related Agreements have been, or will have been, at
the time of their respective executions and deliveries, duly executed and
delivered by a duly authorized officer of SCN.
.3 ENFORCEABILITY. This Agreement constitutes, and each of the
Purchaser Related Agreements when duly executed and delivered will constitute,
the valid and legally binding obligation of SCN, enforceable in accordance with
its terms, except as such enforceability may be limited by equitable principles
and by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or similar laws relating to or affecting the rights of creditors
generally.
.4 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. The execution and
delivery of this Agreement, and the Purchaser Related Agreements, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in any violation or default under any provision of the
Certificate of Incorporation or Bylaws of SCN, or of any violation of; or
default under any mortgage, indenture, trust, lease, partnership or other
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation or Legal
Requirement applicable to SCN or any of its properties, the result of which
(either individually or in the aggregate) will prevent or materially delay the
consummation of the transactions contemplated hereby.
.5 AUTHORIZATIONS, CONSENTS. No consents, licenses, approvals or
authorizations of; and registrations or declarations with, any governmental
authority, bureau, agency or commission, or any third party, are required to be
obtained or made by SCN in connection with the execution, delivery, performance,
validity and enforceability of this Agreement or the Purchaser Related
Agreements or SCN's acquisition of the Shares pursuant hereto.
.6 LITIGATION. No action, suit, proceeding or governmental
investigation is pending or to the knowledge of SCN threatened, at law or in
equity, which seeks to question, delay or prevent the consummation of all or any
portion of the transactions contemplated hereby.
<PAGE> 8
.7 BROKERS AND FINDERS. No person or entity is entitled to any
brokerage commission, finder's fee or like payment from SCN connection with the
transactions contemplated in this Agreement.
.8 ACCURACY. The representations and warranties made by SCN to Venture5
set forth in this Agreement and the written agreements, instruments and
documents delivered and to be delivered pursuant to or in connection with this
Agreement, do not include an untrue statement of material fact or omit to state
any material fact necessary to make them, and in light of the circumstances in
which they were or are made, not misleading.
.9 PROSPECTIVE BUSINESS. To the knowledge of SCN, its officers and
directors, Schedule 2.9 provides a list of all the third parties with whom
HealthGrades.com has been engaged in substantial discussions regarding
prospective and potentially material business opportunities. However, in its
on-going and day-to-day business operations, HealthGrades.com is exploring and
will continue to explore all of the business opportunities that are or may
become available to it.
ARTICLE 4
COVENANTS OF VENTURE5
.1 NO SALE, TRANSFER OR ENCUMBRANCE OF SHARES. Venture5 agrees that,
between the date of this Agreement and the Closing Date, Venture5 shall not,
directly or indirectly, sell or otherwise transfer the Shares, pledge,
hypothecate or grant any security interest in the Shares, or agree or commit to
transfer or encumber any of the Shares or any interest in or right relating to
the Shares.
.2 NO SOLICITATION OR NEGOTIATION. Venture5 agrees that between the
date of this Agreement and the Closing Date it will not, nor will it permit any
officer, manager, member or agent of Venture5, to (i) solicit any proposal or
offer from any person or entity (other than SCN) relating to the sale of the
Shares, (ii) provide any non-public information to any person or entity (other
than SCN) for use in preparing any proposal or offer relating to the sale of the
Shares, or (iii) respond to or enter into any negotiations regarding any
proposal or offer from any person or entity (other than SCN) with respect to the
foregoing.
.3 FILINGS AND CONSENTS. Venture5 shall use commercially reasonable
efforts to make or give each filing or notice required to be made or given
pursuant to any applicable Legal Requirement by Venture5 in connection with the
execution and delivery of this Agreement or in connection with the consummation
or performance of any of the transactions contemplated hereby.
.4 UPDATED DISCLOSURE SCHEDULE. Between the Effective Date and the
Closing Date, if Venture5 becomes aware of any fact or condition that causes any
of its representations, warranties, obligations, covenants or agreements in this
Agreement to become untrue, misleading, or inaccurate in any material respect,
or which causes any covenant or agreement to become untrue
<PAGE> 9
or non-performable in any material respect, it will immediately deliver to SCN
an updated disclosure schedule ("Venture5 Updated Disclosure Schedule") setting
forth the facts or conditions that cause such representation, warranty,
obligation, covenant or agreement to become untrue, misleading, or inaccurate or
which causes Venture5 to become incapable of performing the transactions
contemplated hereby.
ARTICLE 5
COVENANTS OF SCN
SCN agrees with Venture5 that:
.1 FILINGS AND CONSENTS. Purchaser shall use commercially reasonable
efforts to make or give each filing or notice required to be made or given
pursuant to any applicable Legal Requirement by Purchaser in connection with the
execution and delivery of this Agreement or in connection with the consummation
or performance of any of the transactions contemplated hereby.
.2 UPDATED DISCLOSURE SCHEDULE. Between the Effective Date and the
Closing Date, if SCN becomes aware of any fact or condition that causes any of
its representations, warranties, obligations, covenants or agreements in this
Agreement to become untrue, misleading, or inaccurate in any material respect,
or which causes any covenant or agreement to become untrue or non-performable in
any material respect, it will immediately deliver to Venture5 an updated
disclosure schedule ("SCN Updated Disclosure Schedule") setting forth the facts
or conditions that cause such representation, warranty, obligation, covenant or
agreement to become untrue, misleading, or inaccurate or which causes SCN to
become incapable of performing the transactions contemplated hereby.
.3 NO SOLICITATION OR NEGOTIATION. SCN agrees that between the date of
this Agreement and the Closing Date it will not, nor will it permit any officer,
shareholder or agent of SCN, to (i) solicit any proposal or offer from any
person or entity (other than Peter Fatianow or Venture5) relating to the sale of
the Shares, (ii) provide any non-public information to any person or entity
(other than Peter Fatianow or Venture5) for use in preparing any proposal or
offer relating to the sale of the Shares, or (iii) respond to or enter into any
negotiations regarding any proposal or offer from any person or entity (other
than Peter Fatianow or Venture5) with respect to the foregoing.
ARTICLE 6
COVENANTS OF ALL PARTIES
The parties hereto agree that:
.1 COMMERCIALLY REASONABLE EFFORTS; FURTHER ASSURANCES. Subject to the
terms and conditions of this Agreement, each party will use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under
<PAGE> 10
applicable Legal Requirements to consummate the transactions contemplated by
this Agreement SCN and Venture5 each agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable In order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
.2 CERTAIN FILINGS, ETC. SCN and Venture5 shall cooperate with one
another (a) in determining whether any action by or in respect of; or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, in furnishing such information as may be required in
connection therewith, and in seeking timely to obtain any such actions,
consents, approvals or waivers.
.3 PUBLIC ANNOUNCEMENTS. The parties agree not to issue any press
release or make any public statement with respect to this Agreement or the
transactions contemplated hereby prior to the Closing without the prior consent
of SCN and Venture5 (which consent shall not be unreasonably withheld or
delayed), except to the extent that any party hereto is required by law to make
any such disclosure and such party notifies the other parties hereto a
reasonable time before making such disclosure of the nature and content of the
intended disclosure, and consults with such other parties regarding the nature
and content of such disclosure. In the event the parties mutually agree to make
a public announcement, the provisions of this Section 6.3 no longer will be in
full force and effect.
ARTICLE 7
TERMINATION OF AGREEMENT
.1 RIGHT TO TERMINATE AGREEMENT. This Agreement may be terminated prior
to the Closing:
(a) by the mutual written agreement of SCN and Venture5;
(b) by SCN if Venture5 shall deliver to SCN a Venture5
Updated Disclosure Schedule pursuant to Section 4.4
hereof prior to the Escrow Expiration;
or
(c) by Venture5 if SCN shall deliver to Venture5 a SCN
Updated Disclosure Schedule pursuant to Section 5.2
hereof prior to the Escrow Expiration.
<PAGE> 11
.2 EFFECT OF TERMINATION.
(a) Upon the termination of this Agreement pursuant to Section
7.1(a): (i) subject to Section 9.1 hereof, each party shall pay its own costs
and expenses; (ii) the parties shall deliver a termination notice to the Escrow
Agent with directions to make the deliveries from the Escrow Account in
accordance with Section 7 of the Escrow Agreement ("Mutual Termination Notice");
and (iii) no party hereto shall have any obligation or liability to the other
parties hereto under this Agreement.
(b) Upon the termination of this Agreement pursuant to Section
7.1(1,): (i) subject to Section 9.1 hereof, each party shall pay its own costs
and expenses; (ii) SCN shall deliver a termination notice to the Escrow Agent,
along with a copy of the Venture5 Updated Disclosure Schedule with directions to
make the deliveries from the Escrow Account in accordance with Section 7 of the
Escrow Agreement ("SCN Termination Notice"); and (iii) no party hereto shall
have any obligation or liability to the other party hereto under this Agreement.
(c) Upon the termination of this Agreement pursuant to Section
7.1(c): (i) subject to Section 9.1 hereof, each party shall pay its own costs
and expenses; (ii) Venture5 shall deliver a termination notice to the Escrow
Agent, along with a copy of the SCN Updated Disclosure Schedule with directions
to make the deliveries from the Escrow Account in accordance with Section 7 of
the Escrow Agreement ("Venture5 Termination Notice"); (iii) the Escrow Agent,
acting pursuant to the Escrow Agreement, shall pay to Venture5 $60,000 in
immediately available funds; and (iv) no party hereto shall have any obligation
or liability to the other party hereto under this Agreement.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
.1 SURVIVAL. The representations, warranties, covenants and agreements
set forth in this Agreement, or in any writing delivered in connection with this
Agreement, will survive the Closing Date and the consummation of the
transactions contemplated hereby, notwithstanding any examination made by or on
behalf of SCN or Venture5, the knowledge of any of their officers, directors,
shareholders, members, managers, employees or agents, and shall continue in full
force and effect for a period of two (2) years alter the Closing Date.
.2 INDEMNIFICATION.
(a) Venture5 agrees to indemnify SCN and hold SCN harmless
from and against any claim, loss, liability, damage or expense (including
attorney's fees and costs) (collectively "Losses") that SCN suffers, sustains or
becomes subject to as a result of or in connection with the breach by Venture5
of any representation, warranty, covenant or agreement of Venture5 contained in
this Agreement.
<PAGE> 12
(b) SCN agrees to indemnify Venture5 and hold Venture5
harmless from and against any Losses that Venture5 may suffer, sustain or become
subject to as a result of or in connection with the breach by SCN of any
representation, warranty, covenant or agreement of SCN contained in this
Agreement.
(c) To the extent authorized by the Delaware General
Corporation Law and the Certificates of Incorporation and Bylaws of SCN, the
Subsidiary and HealthGrades.com, SCN shall, and shall cause the Subsidiary and
HealthGrades.com to, indemnify, defend and hold harmless, jointly and severally,
Venture5 and Ray Padilla, Kevin Hicks, Timothy Dodge, Shannon Burke and Sarah
Loughran (the "Members") from and against any Loss that Venture5 or the Members
suffer, sustain or become subject to as a result of their being a shareholder,
officer, director or employee of SCN, the Subsidiary or HealthGrades.com,
regardless of when such Loss arises; provided that, with regard to Sarah
Loughran, the indemnity provided in this Section 8.2(c) shall apply only to
Losses from circumstances that occur before the Closing Date. This provision
does not provide Venture5 or the Members with any rights they are not otherwise
entitled to under the Delaware General Corporation Law, the Certificates of
Incorporation and Bylaws of the applicable entities. Additionally, the
indemnification rights referenced in this Section 8.2(c) shall not be less than
the indemnification rights granted to Kerry Hicks and all other shareholders,
officers, directors and employees of SCN, the Subsidiary and HealthGrades.com.
(d) If any third party shall notify any party (the
"Indemnified Party") with respect to any matter which may give rise to a claim
for indemnification against any other party (the "Indemnifying Party") under
this Section 8.2, then the Indemnified Party shall notify the Indemnifying Party
thereof promptly (and in any event within 15 days after receiving any written
notice from a third party); provided, however, that the failure of the
Indemnified Party to give timely notice hereunder shall not relieve the
Indemnifying Party of its indemnification obligations under this Agreement
unless, and only to the extent that such failure caused damages to SCN or
Venture5, as the case may be, for which the Indemnifying Party is obligated, to
be greater than they would have been had the Indemnified Party given timely
notice. In the event any Indemnifying Party notifies the Indemnified Party
within 15 days after the Indemnified Party has given notice of the matter that
the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying
Party will defend the Indemnified Party against the matter with counsel of its
choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may retain separate co-counsel at its sole cost and expense (except that
the Indemnifying Party will be responsible for the fees and expenses of the
separate co-counsel to the extent the Indemnified Party concludes reasonably
that the counsel the Indemnifying Party has selected has a conflict of
interest), (iii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld unreasonably); and
(iv) the Indemnifying Party will not consent to the entry of any judgment with
respect to the matter, or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the
<PAGE> 13
indemnifying Party does not notify the Indemnified Party that the Indemnifying
Party is assuming the defense of the matter, within 15 days after the
Indemnified Party has given notice thereof, the Indemnified Party may defend
against the matter in any manner it reasonably may deem appropriate. In the
event the Indemnifying Party chooses not to assume such defense, the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably).
ARTICLE 9
MISCELLANEOUS
.1 EXPENSES. Except as otherwise expressly provided herein, each party
will pay all of its expenses, including attorneys' and accountants' fees, in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated by
this Agreement; provided that in any proceeding or other attempt to enforce,
construe or to determine the validity of this Agreement, the nonprevailing party
will pay the reasonable expenses of the prevailing party, including reasonable
attorneys' fees and costs. SCN shall pay the reasonable attorney's fees of
Venrure5 incurred in the negotiation and documentation of this Agreement and the
transactions contemplated hereby, up to a maximum of Three Thousand Dollars
($3,000).
.2 NOTICES; ETC. All notices, instructions and other communications
given hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three business days after it is sent postage prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service.
If to SCN, to: Specialty Care Network, Inc.
44 Union Blvd.
Lakewood CO 80228
Attention: Kerry Hicks, President
Fax: (303) 716-1298
If to Venture5, to: Venture5, LLC
2304 S. Fenton Drive
Lakewood, CO 80227
Attention: Ray Padilla, Manager
Fax: (303) 989-2928
<PAGE> 14
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 9.2.
.3 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by either party
without the prior written consent of the other party. If this Agreement is
assigned with such consent, the terms and conditions shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns; provided, however that no assignment of this Agreement or
rights thereunder or delegation of duties thereunder shall relieve any party of
its obligations under this Agreement.
.4 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which is an original, but all of which shall constitute
one instrument. Facsimile signatures to this Agreement shall be binding upon the
parties.
.5 THIRD PARTY RIGHTS. The parties do not intend to confer any benefit
hereunder on any person or entity other than the parties hereto, the Indemnified
Parties and their respective successors in interest.
.6 PRONOUNS. All pronouns and any variations thereof used in this
Agreement shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as appropriate.
.7 AUTHORITY AND EXECUTION. Each person executing this Agreement on
behalf of a party hereto represents and warrants that he is duly and validly
authorized to do so on behalf of such party, with full right and authority to
execute this Agreement and to bind such party with respect to all of its
obligations hereunder.
.8 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction, as to such jurisdiction, shall be
ineffective to the extent of such invalidity or unenforceability, without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
.9 TIME OF ESSENCE. Time is of the essence of this Agreement.
.10 INTERPRETATION. Each party acknowledges that such party, either
directly or through such party's representatives, has participated in the
drafting of this Agreement, and any applicable
<PAGE> 15
rule of constructions that ambiguities are to be resolved against the drafting
party should not be applied in connection with the construction or
interpretation of this Agreement.
.11 GOVERNING LAW VENUE. The validity, interpretation and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the State of Colorado. Each of the parties submits to the jurisdiction of any
state or federal court sitting in Denver, Colorado, in any action or proceeding
arising out of or relating to this Agreement and agrees that all claims in
respect if the action or proceeding may be heard and determined in any such
court. Each party also agrees not to bring any action or proceeding arising out
of or relating to this Agreement in any other court. Each of the parties waives
any defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that might be required
of any other party with respect thereto.
[The remainder of this page is intentionally left blank.]
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first above written.
SPECIALTY CARE NETWORK, INC.,
a Delaware corporation
By: Patrick Jaeckle
---------------------------------
Name: Patrick Jaeckle
Title: Executive Vice President
VENTURE5, LLC,
a Colorado limited liability company
Name: Ray Padilla
--------------------------
Title: Manager
<PAGE> 17
SCHEDULE 2.9
OnHealth Network Company
America Online, Inc.
DentistryOnline.com, Inc.
WellMed
Newsweek.com
WashingtonPost.com
See attached documents provided to Venture 5 prior to the Effective Date
regarding the above listed third parties.
<PAGE> 18
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into this __ day of
September, 1999 ("Effective Date") by and among SPECIALTY CARE NETWORK, INC., a
Delaware corporation ("SCN"), PETER FATIANOW, VENTURE5, LLC, a Colorado limited
liability company ("Venture5"), and ______________________________ (the "Escrow
Agent") (each, a "Party," and collectively, the "Parties").
WHEREAS, SCN and Venture5 have entered into that certain Stock Purchase
Agreement dated of even date herewith (the "Purchase Agreement"), pursuant to
which SCN will acquire the Shares (as defined in the Purchase Agreement) from
Venture5 under the terms and conditions contained therein; and
WHEREAS, the Purchase Agreement provides for the closing of the
transaction contemplated thereby to be subject to certain deposits into escrow
by SCN, Peter Fatianow and Venture5, and the Purchase Agreement requires the
execution and delivery of this Escrow Agreement by the Parties as a condition to
performance of its obligations thereunder; and
WHEREAS, a copy of the Purchase Agreement has been delivered to the
Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent
hereunder;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements hereinafter set forth, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:
1. Appointment of Escrow Agent. SCN, Peter Fatianow and Venture5 hereby
appoint _______________________________ to serve as Escrow Agent and the Escrow
Agent hereby accepts, under the terms of this Agreement, such appointment and
the agency created thereby.
2. Terms: Effectiveness. Ml terms defined in the Purchase Agreement shall
have the same meanings when used herein. The Purchase Agreement is hereby
incorporated into this Escrow Agreement and made an integral part hereof. This
Escrow Agreement shall become effective at the Effective Date pursuant to the
Purchase Agreement.
3. Escrow Deposit. On the Effective Date, the parties are depositing the
following with the Escrow Agent, to be placed in a separate account ("Escrow
Account"):
a. the Share Certificate accompanied by a duly endorsed
stock transfer power in favor of SCN;
b. the Fatianow Share Certificate accompanied by a duly
endorsed stock transfer power in favor of SCN;
<PAGE> 19
c. the Venture5 Share Certificate;
d. the Non-Competition Agreements executed by each of
Ray Padilla, Kevin Hicks, Shannon Burke and Timothy
Dodge;
e. five (5) executed originals of the Termination
Agreement;
f. Wire transfer instructions for payment of the
Purchase Price; and
g. $60,000 in immediately available funds ("Escrow
Cash").
4. SCN Closing Deposit. At any time prior to 1:00 p.m. MST, November 1,
1999 ("Escrow Expiration"), SCN may deposit with the Escrow Agent $3,940,000,
which together with the Escrow Cash, shall upon deposit represent the Purchase
Price.
5. Closing of Escrow Transactions. Immediately upon receipt of the
Purchase Price from SCN ("Closing Deposit"), if such deposit was made on or
prior to the Escrow Expiration, the Escrow Agent shall deliver:
a. to Venture5 the Purchase Price by wire transfer of
all cash delivered;
b. to Venture5 an executed original of the Termination
Agreement;
c. to SCN the Share Certificate along with the duly
endorsed stock transfer power transferring the Shares
to SCN;
d. to SCN the Fatianow Share Certificate along with the
duly endorsed stock transfer power transferring the
Shares to SCN;
e. to SCN executed originals of the Non-Competition
Agreements; and
f. to SCN four executed originals of the Termination
Agreement.
g. to Venture5 the Venture5 Share Certificate.
Upon completion of the deliveries by the Escrow Agent pursuant to the
terms of this Section 5, all of the obligations of the Escrow Agent hereunder
shall terminate (such date being referred to herein as the "Termination Date").
6. Termination of Escrow. Upon the happening of any of the following
events (each a "Termination Event"), the Escrow Agent shall immediately make the
deliveries from the Escrow Account required in Section 7 hereof:
<PAGE> 20
a. receipt by the Escrow Agent of joint written
instructions by SCN and Venture5 to terminate the
Escrow Agreement;
b. receipt by the Escrow Agent of a SCN Termination
Notice pursuant to Section 7.1(b) of the Purchase
Agreement;
c. receipt by the Escrow Agent of a Venture5 Termination
Notice pursuant to Section 7.1(c) of the Purchase
Agreement; or
d. passing of the Escrow Expiration and SCN not having
made the Closing Deposit.
7. Termination Deliveries. Upon the happening of a Termination Event,
the Escrow Agent shall make the following deliveries from the Escrow Account,
and upon completion of such deliveries, all of the obligations of the Escrow
Agent hereunder shall terminate (such date being referred to herein as the
"Termination Date"):
a. the Escrow Agent shall deliver to Venture5 the Share
Certificate and stock transfer power attached
thereto;
b. the Escrow Agent shall deliver to Peter Fatianow the
Fatianow Share Certificate and stock transfer power
attached thereto;
c. the Escrow Agent shall deliver to Venture5 the
Venture5 Share Certificate;
d. the Escrow Agent shall deliver to Venture5 the
original executed Non-Competition Agreements;
e. the Escrow Agent shall deliver to Venture5 the five
(5) original copies of the executed Termination
Agreement;
f the Escrow Agent shall deliver to SCN the Escrow
Cash, only if the deliveries under this Section 7 are
being made because of a Termination Event described
in Section 6.a or 6.b hereof; and
g the Escrow Agent shall deliver to Venture5 the Escrow
Cash, only if the deliveries under this Section 7 are
being made because of a Termination Event described
in Section 6.c or 6.d hereof
8. Escrow Agent.
a. Escrow Agent Obligations. The obligations and duties of the
Escrow Agent are confined to those specifically enumerated in this Escrow
Agreement. The Escrow Agent shall not be subject to, nor be under any obligation
to ascertain or construe the terms and conditions of;
<PAGE> 21
any other instrument, whether or not now or hereafter deposited with or
delivered to the Escrow Agent or referred to in this Escrow Agreement, nor shall
the Escrow Agent be obliged to inquire as to the form, execution, sufficiency or
validity of any such instrument or as to the identity, authority, or rights of
the person or persons executing or delivering the same. The Escrow Agent shall
not be a party to, or be bound by, any agreement between the Parties other than
this Escrow Agreement whether or not a copy and/or original of such agreement is
held as part of the Escrow Account or otherwise hereunder, and the Escrow Agent
shall have no duty to know or inquire as to the performance of any provision of
such agreement between the Parties.
b. Escrow Agent Liability. The Escrow Agent shall not be
personally liable for any act which it may do or omit to do hereunder in good
faith and in the exercise of its own best judgment. Any act reasonably done or
omitted by the Escrow Agent pursuant to the advice of its attorneys shall be
deemed conclusively to have been performed or omitted in good faith by the
Escrow Agent. The Escrow Agent shall not be responsible for any recitals of fact
in this Escrow Agreement, for collecting any moneys required to be deposited
with it, or for the sufficiency of any escrow deposit.
c. Conflicts. If the Escrow Agent should receive or become
aware of any conflicting demands or claims with respect to this Escrow
Agreement, or the rights of any of the Parties hereto, or any money, property,
or instruments deposited herein or affected hereby, the Escrow Agent shall have
the right in its sole discretion, without liability for interest or damages, to
discontinue any or all further acts on its part until such conflict is resolved
to its satisfaction and/or to commence or defend any action or proceeding for
the determination of such conflict. If any disagreement or dispute arises
between the Parties concerning the meaning or validity of any provision of this
Escrow Agreement or concerning any other matter relating to this Escrow
Agreement, the Escrow Agent may, in its sole and absolute discretion, interplead
any amounts held in the Escrow Account it then holds with the District Court of
the City and County of Denver, State of Colorado, and name the other Parties
hereto in such interpleader action. Upon filing the interpleader action, the
Escrow Agent shall be relieved of all liability as to the Escrow Account and
shall be entitled to recover from the other Parties its reasonable attorney's
fees and other costs incurred in commencing and maintaining such action. The
Parties by signing this Escrow Agreement submit themselves to the jurisdiction
of such Court and appoint the Clerk of such Court as their agent for the service
of all process in connection with such proceedings.
d. Indemnification of Escrow Agent. SCN and Venture5 shall
jointly and severally indemnify and hold the Escrow Agent harmless from and
against all costs, damages, judgments, attorneys' fees (whether such attorneys
shall be regularly retained or specially employed), expenses, obligations and
liabilities of every kind and nature which the Escrow Agent may incur, sustain
or be required to pay in connection with or arising out of this Escrow Agreement
(except those arising out of the fraud or gross negligence of the Escrow Agent).
e. Court Orders. If any property subject hereto is at any time
attached, garnished, or levied upon under any final court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in the case any final order,
judgment or decree shall be made or entered by any court affecting such
<PAGE> 22
property, or any part thereof, or any act by the Escrow Agent, then and in any
of such events the Escrow Agent is authorized, in its sole discretion, to rely
upon and comply with any such final order, writ, judgment or decree which it is
advised by legal counsel of its own choosing is binding upon it.
f. Interest. The Escrow Agent shall have no liability to pay
interest on any money deposited or received hereunder.
g. Escrow Agent's Conduct: Fees. The Escrow Agent shall be
fully protected in relying upon any written notice, demand, certificate or
document which it in good faith believes to be genuine, as to the truth and
accuracy of the statements made therein, the identity and authority of the
persons executing the same and the validity of any signature thereon. The fees
of the Escrow Agent shall be paid by SCN upon invoice.
h. New Escrow Agent. Any Escrow Agent may resign by notice to
SCN and Venture5. Any such resignation shall be effective upon delivery of the
Escrow Account to the successor Escrow Agent, whereupon the resigning Escrow
Agent shall be discharged of any further duties under this Escrow Agreement. If
an Escrow Agent resigns, SCN shall appoint a successor Escrow Agent with the
consent of Venture5, which consent shall not be unreasonably withheld. If no
successor is appointed within thirty (30) days after resignation, the resigning
Escrow Agent may select as successor any corporation with trust powers in the
United States.
i. Reports from Escrow Agent. The Escrow Agent shall furnish
to SCN and Venture5, upon request, a report listing each transaction made by the
Escrow Agent in the previous six months with respect to this Escrow Agreement,
and the balance of the Escrow Account.
9. Miscellaneous.
a. Successors Benefits. This Escrow Agreement shall be binding
on and inure to the benefit of the Parties hereto and their respective
successors and assigns, but will not be assignable or delegable by any Party
without the prior written consent of the other Parties. This Escrow Agreement
shall be solely for the benefit of the Parties hereto.
b. Notices. Any notices, consents or other communication
required to be sent or given under this Escrow Agreement by any of the Parties
shall in every case be in writing and shall be deemed properly served if (i)
delivered personally, (ii) sent by registered or certified mail, in all such
cases with first class postage prepaid, return receipt requested, (iii)
delivered by a recognized overnight courier service, or (iv) sent by facsimile
transmission to the Parties at the addresses as set forth below or at such other
addresses as may be furnished in writing:
If to SCN, to: Specialty Care Network, Inc.
44 Union Blvd.
Lakewood CO 80228
Attention: Kerry Hicks, President
Fax: (303) 716-1298
<PAGE> 23
If to Venture5, to: Venture5, LLC
2304 S. Fenton Drive
Lakewood, CO 80227
Attention: Ray Padilla, Manager
Fax: (303) 989-2928
If to Peter Fatianow, to: Specialty Care Network, Inc.
44 Union Blvd.
Lakewood CO 80228
Attention: Peter Fatianow
Fax: (303) 716-1298
If to Escrow Agent:
Date of service of such notice shall be (a) the date such notice is personally
delivered, (b) three business days after the date of mailing if sent by
certified or registered mail, (c) one business day after date of delivery to the
overnight courier if sent by overnight courier, or (d) the next succeeding
business day after transmission by facsimile.
c. Governing Law: Venue. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado. Each of the parties submits to the
jurisdiction of any state or federal court sitting in Denver, Colorado, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect if the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
d. Amendments or Modification of Agreement. The terms of this
Escrow Agreement may be altered, amended, modified or revoked only in a writing
signed by all of the Parties hereto.
e. Counterparts. This Escrow Agreement may be executed in any
number of counterparts, each of which shall be construed as an original for all
purposes, but all of which taken together shall constitute one and the same
agreement.
<PAGE> 24
IN WITNESS WHEREOF, the Parties have executed this Escrow Agreement as
of the date first above written.
ESCROW AGENT
-----------------------------
By:
------------------------------------------
Its:
-----------------------------------------
Title:
---------------------------------------
SCN
SPECIALTY CARE NETWORK, INC.
a Delaware corporation
By:
------------------------------------
Name: Kerry Hicks
Title: President
VENTURE5
VENTURE5, LLC
a Colorado limited liability company
By:
------------------------------------
Name: Ray Padilla
Title: Manager
PETER FATIANOW
---------------------------------------
<PAGE> 1
Exhibit 11
Specialty Care Network, Inc. and Subsidiaries
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 12,429,197 18,415,301 14,817,837 18,117,349
Effect of dilutive securities:
Employee stock options 1,757,639 192,444 819,980 371,673
------------ ------------ ------------ ------------
Weighted average number of common shares
and common share equivalents used in
computation 14,186,836 18,607,745 15,637,817 18,489,022
============ ============ ============ ============
Net (loss) income $ (283,646) $ 567,710 $ 1,592,603 $ 4,068,315
============ ============ ============ ============
Net (loss) income per common share (basic) $ (0.02) $ 0.03 $ 0.11 $ 0.22
============ ============ ============ ============
Net (loss) income per common share (diluted) $ (0.02) $ 0.03 $ 0.10 $ 0.22
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 798
<SECURITIES> 0
<RECEIVABLES> 13,476
<ALLOWANCES> (7,818)
<INVENTORY> 0
<CURRENT-ASSETS> 9,730
<PP&E> 5,742
<DEPRECIATION> (2,078)
<TOTAL-ASSETS> 17,408
<CURRENT-LIABILITIES> 4,012
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 831
<TOTAL-LIABILITY-AND-EQUITY> 17,408
<SALES> 22,346
<TOTAL-REVENUES> 27,769
<CGS> 0
<TOTAL-COSTS> 24,725
<OTHER-EXPENSES> 4,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,206
<INCOME-PRETAX> 817
<INCOME-TAX> (776)
<INCOME-CONTINUING> 1,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,593
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.10
</TABLE>
