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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1998
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 001-13785
BMJ MEDICAL MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0676079
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4800 North Federal Highway
Suite 101E
Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 391-1311
(Registrant's telephone number, including area code)
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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the registrant's Common Stock, $0.001
par value per share, as of November 4, 1998 was 17,790,557 shares.
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<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
INDEX
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and March 31, 1998................................................................. 3
Condensed Consolidated Statements of Operations
for the three and six months ended September 30, 1998 and 1997..................... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1998 and 1997............................... 5
Notes to Condensed Consolidated Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 22
Item 2. Changes in Securities and Use of Proceeds.......................................... 22
Item 6. Exhibits and Reports on Form 8-K................................................... 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 613,000 $ 9,483,000
Accounts receivable........................................................... 27,002,000 25,794,000
Prepaid expenses and other current assets..................................... 875,000 539,000
Due from physician groups, net................................................ 8,043,000 2,250,000
------------- ------------
Total current assets...................................................... 36,533,000 38,066,000
Furniture, fixtures and equipment, net.......................................... 13,432,000 7,948,000
Management services agreements and other intangible assets,
net of accumulated amortization of $13,826,000 at
September 30, 1998 and $11,362,000 at March 31, 1998.......................... 63,802,000 45,064,000
Other assets.................................................................. 3,555,000 2,142,000
------------- ------------
Total assets.............................................................. $ 117,322,000 $ 93,220,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,967,000 $ 1,706,000
Accrued expenses.............................................................. 4,767,000 6,858,000
Accrued interest.............................................................. 263,000 520,000
Accrued salaries and benefits................................................. 3,336,000 2,159,000
Current portion of long-term debt............................................. 835,000 188,000
------------- ------------
Total current liabilities................................................. 11,168,000 11,431,000
Long-term debt, less current portion............................................ 40,702,000 17,929,000
Convertible notes to affiliates................................................. 1,707,000 --
Short-term debt expected to be refinanced....................................... -- 7,125,000
Minority Interest............................................................... 812,000 648,000
Commitments and contingencies
Series A Redeemable Convertible Preferred Stock, $.01 par value - 1,473,684
shares authorized, issued and outstanding (liquidation value
$7,109,000), net of discount and issuance costs............................. 4,957,000 --
Stockholders' equity:
Series B Convertible Preferred Stock.......................................... 2,839,000 --
Common Stock, $.001 par value - 35,000,000 shares authorized,
17,791,000 shares issued and outstanding at September 30, 1998;
17,384,000 shares issued and outstanding at March 31, 1998;................. 18,000 17,000
Additional paid-in capital.................................................... 101,904,000 97,801,000
Accumulated deficit........................................................... (46,785,000) (41,731,000)
------------- ------------
Total stockholders' equity................................................ 57,976,000 56,087,000
------------- ------------
Total liabilities and stockholders' equity................................ $ 117,322,000 $ 93,220,000
============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Practice revenues, net.............................................. $33,291,000 $18,418,000 $67,686,000 $29,669,000
Less: amounts retained by physician groups.......................... (13,342,000) (8,369,000) (29,572,000) (13,690,000)
----------- ----------- ----------- -----------
Management fee revenue.............................................. 19,949,000 10,049,000 38,114,000 15,979,000
----------- ----------- ----------- -----------
Operating expenses:
Medical support services.......................................... 15,479,000 9,117,000 29,196,000 14,582,000
General and administrative........................................ 3,779,000 2,903,000 5,577,000 4,487,000
Depreciation and amortization..................................... 2,094,000 2,629,000 3,347,000 3,657,000
----------- ----------- ----------- -----------
Total operating expenses............................................ 21,352,000 14,649,000 38,120,000 22,726,000
Operating loss...................................................... (1,403,000) (4,600,000) (6,000) (6,747,000)
Other expenses: Interest ........................................... 907,000 628,000 2,010,000 922,000
----------- ----------- ----------- -----------
Loss before extraordinary item...................................... (2,310,000) (5,228,000) (2,016,000) (7,669,000)
Extraordinary item, loss on early extinguishment of debt............ - - (3,038,000) -
----------- ----------- ----------- -----------
Net loss............................................................ $(2,310,000) $(5,228,000) $(5,054,000) $(7,669,000)
=========== =========== =========== ===========
Net loss per common share:
Basic:
Loss before extraordinary item.................................. $ (0.14) $ (0.78) $ (0.12) $ (1.23)
Extraordinary item.............................................. $ - $ - $ (0.17) $ -
----------- ----------- ----------- -----------
Net loss........................................................ $ (0.14) $ (0.78) $ (0.29) $ (1.23)
=========== =========== =========== ===========
Diluted:
Loss before extraordinary item.................................. $ (0.14) $ (0.78) $ (0.12) $ (1.23)
Extraordinary item.............................................. $ - $ - $ (0.17) $ -
----------- ----------- ----------- -----------
Net loss........................................................ $ (0.14) $ (0.78) $ (0.29) $ (1.23)
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic........................................................... 17,716,000 6,727,000 17,674,000 6,224,000
=========== =========== =========== ===========
Diluted......................................................... 17,716,000 6,727,000 17,674,000 6,224,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss......................................................................$ (5,054,000) $(7,669,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 728,000 389,000
Amortization of management services agreements and other intangibles........ 2,534,000 3,389,000
Interest expense converted to preferred stock................................. - 34,000
Equity-based compensation expense............................................. 68,000 2,165,000
Changes in operating assets and liabilities:
Accounts receivable......................................................... (904,000) (4,348,000)
Due from physician groups................................................... (5,185,000) -
Prepaid expenses and other current assets................................... (274,000) 4,000
Accounts payable............................................................ 261,000 232,000
Accrued expenses............................................................ (4,216,000) 2,448,000
Accrued salaries and benefits............................................... 1,196,000 681,000
Accrued interest............................................................ (257,000) -
------------ -----------
Net cash used in operating activities........................................... (11,103,000) (2,675,000)
Investing activities:
Purchases of furniture, fixtures and equipment................................ (5,676,000) (415,000)
Payments for management services agreements and goodwill...................... (12,672,000) (8,149,000)
Payments for deferred offering costs.......................................... - (1,924,000)
Cash used for acquisition of non-cash assets of affiliated practices.......... (645,000) (10,492,000)
Payments for deposits and other assets........................................ (1,528,000) (311,000)
------------ -----------
Net cash used in investing activities........................................... (20,521,000) (21,291,000)
Financing activities:
Proceeds from issuance of preferred stock..................................... 7,000,000 4,450,000
Proceeds from debt issuance................................................... 40,031,000 17,980,000
Amounts due physician groups.................................................. - 3,218,000
Proceeds from issuance of common stock........................................ 77,000 -
Payments on borrowings........................................................ (24,519,000) -
Minority interest............................................................. 165,000 -
------------ -----------
Net cash provided by financing activities....................................... 22,754,000 25,648,000
------------ -----------
Net (decrease) increase in cash and cash equivalents............................ (8,870,000) 1,682,000
Cash and cash equivalents at beginning of period................................ 9,483,000 722,000
------------ -----------
Cash and cash equivalents at end of period......................................$ 613,000 $ 2,404,000
============ ===========
</TABLE>
See accompanying notes.
5
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of BMJ Medical Management, Inc. and its subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of September 30, 1998, and the results of its operations for the three and
six months ended September 30, 1998 and 1997. The results of operations and cash
flows for the six months ended September 30, 1998 are not necessarily indicative
of the results of operations or cash flows which may be reported for the
remainder of the fiscal year.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
in the Company's Transition Report on Form 10-K for the three months ended March
31, 1998.
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 of the Notes to Consolidated Financial
Statements included in the Company's Transition Report on Form 10-K for the
three months ended March 31, 1998.
2. Recent Developments
On September 24, 1998, the Company announced a restructuring plan that
included reducing corporate overhead through the elimination of approximately 20
corporate positions and the impairment of goodwill related to the Company's
Independent Physician Association ("IPA") due to the bankruptcy of a significant
payer. The Company also began assessing its current business model. On October
7, 1998 the Company's Board of Directors elected Donald J. Lothrop President and
Chief Executive Officer. The Board of Directors has retained a consulting firm
to assist in the process of evaluating alternative business models and has under
consideration, among other things, an additional restructuring plan more fully
described under "Management's Discussion and Analysis - Liquidity and Capital
Resources-Outlook."
The Company anticipates, that if implemented, this additional restructuring
plan would result in the determination that certain intangible assets related to
Management Services Agreements and other assets have been impaired and would
result in the write-off of the impaired portion of such assets. The amount of
such impairment loss, which cannot be determined at this time, would be
recognized in the period that such determination is made, and the recognition of
any such impairment loss could have a material adverse effect on the Company's
business, results of operations and financial condition.
3. New Accounting Pronouncements
The Emerging Issues Task Force ("EITF") of the FASB reached a consensus
concerning certain matters relating to the physician practice management
industry with respect to the requirements which must be met to consolidate a
managed professional corporation and the accounting for business combinations
involving professional corporations. In accordance with the EITF's guidance, the
Company will discontinue the use of the display method to report revenues from
management contracts in financial statements for periods ending after December
15, 1998. Thus, after December 15, 1998, fees from management contracts will be
reported as a single line item in the Company's consolidated financial
statements.
4. Asset Write-down and Restructuring Charge
In September 1998, the Company implemented a restructuring plan which
included a total charge of approximately $2,050,000 included in general and
administrative ($1,500,000) and depreciation and amortization
6
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
4. Asset Write-down and Restructuring Charge--(continued)
expense ($550,000) in the accompanying condensed consolidated statements of
operations for the three and six months ended September 1998. The charges
consist primarily of severance costs of approximately $1,100,000 and other asset
write-offs of $400,000. Also included in the charge was $550,000 related to the
write-off of goodwill due to the bankruptcy of a significant payor for the
Company's Independent Physician Association ("IPA") acquired in 1997.
5. Earnings (Loss) Per Share
In 1997, the FASB issued Statement of Financial Accounting Standards No.
128 ("SFAS No. 128"), "Earnings Per Share" which applies to entities with
publicly held common stock and simplifies the standards for computing earnings
per share. SFAS No. 128 replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods and accordingly, all earnings per share amounts
for all periods presented have been conformed to SFAS No. 128 requirements.
Basic and diluted net loss per share for the three and six months ended
September 30, 1998 and 1997 were calculated using the weighted average number of
shares of Common Stock outstanding during the respective periods. Common Stock
equivalents are not included in the computation of diluted net loss per share
for the three and six month periods ended September 30, 1998 and 1997, as their
effect is antidilutive.
The following table set forth the computation of loss per share atributable
to common shareholders:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss before extraordinary item as reported..................................$(2,310,000) $(5,228,000) $(2,016,000) $(7,669,000)
Dividends, Series A Preferred Stock....................................... (109,000) - (109,000) -
Dividends, Series B Preferred Stock....................................... (49,000) - (49,000) -
Accretion, Series A Preferred Stock....................................... (25,000) - (25,000) -
----------- ----------- ----------- -----------
Numerator for earnings per share - loss
attributable to common shareholders.......................................$(2,493,000) $(5,228,000) $(2,199,000) $(7,669,000)
=========== =========== =========== ===========
</TABLE>
6. Practice Affiliations and Investment In Subsidiaries
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Seaview Orthopaedic & Medical Associates, a
New Jersey general partnership ("Seaview"), in exchange for $3,805,000 in cash
and the issuance of convertible promissory notes for $1,543,000, bearing
interest at 5% and convertible into shares of Common Stock at a conversion rate
of $8.75 on the unpaid principal amounts. The aggregate consideration of
$5,471,000, including transaction costs of $123,000, has been allocated as
follows: $4,946,000 to Management Services Agreements with the remainder
($525,0000) allocated to furniture, fixtures and equipment. The total amount of
consideration will be adjusted based on actual collections of the Practice for
the twelve month period ended March 1999. The value of any additional
consideration, which will consist entirely of the Company's Common Stock, will
increase the cost of the Seaview Management Services Agreement.
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Community Orthopedics and Pain Management, a
Florida Corporation ("Community"), in exchange for $611,000 in cash and the
issuance of a convertible promissory note for $604,000, bearing interest at 5%
and convertible into shares of Common Stock at a conversion rate of $8.75 on the
unpaid principal amount. The aggregate consideration of $1,235,000, including
transaction costs of $20,000, has been allocated as follows:
7
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
6. Practice Affiliations and Investment in Subsidiaries--(continued)
$1,227,000 to Management Services Agreement with the remainder ($8,000)
allocated to furniture, fixtures and equipment.
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Steven P. Hirsch, D.P.M., P.A., a Florida
professional association ("Hirsch"), in exchange for $160,000 in cash and the
issuance of a convertible promissory note for $130,000, bearing interest at 5%
and convertible into shares of Common Stock at a conversion rate of $8.75 on the
unpaid principal amount. The aggregate consideration of $303,000, including
transaction costs of $13,000, has been allocated as follows: $231,000 to
Management Services Agreement with the remainder ($72,000) allocated primarily
to furniture, fixtures and equipment, and accounts receivable.
In April 1998, the Company entered into a Management Services Agreement
with Douglas A. Bobb, D.O., in exchange for the issuance of 157,071 shares of
Common Stock recorded at $7.38 per share, representing consideration of
$1,159,000. All of the consideration has been allocated to the Management
Services Agreement.
In April 1998, BMJ of Chandler, Inc., a wholly-owned subsidiary of the
Company, purchased the assets of Warner Medical Park Outpatient Surgery, Inc.,
for $1,800,000. In April 1998, Surgical Associates of Bakersfield, Limited
Partnership, a limited partnership controlled by the Company, acquired all of
the assets of Kern Surgery Center, a California limited partnership, for
$2,400,000. These transactions have been accounted for using the purchase method
of accounting. Accordingly, the aggregate purchase price has been allocated as
follows: accounts receivable- $177,000; furniture, fixtures and
equipment-$261,000; goodwill and other intangibles-$3,531,000, with the
remaining purchase price allocated primarily to other assets. The Company is
depreciating the related assets acquired over their estimated useful lives,
ranging from three to seven years. Goodwill is being amortized over its
estimated remaining life of 25 years.
In June 1998, the Company entered into a Stock Purchase Agreement and a
Management Services Agreement with the Boca Raton Orthopaedic Group Inc., a
Florida corporation, in exchange for $3,517,000 in cash, an obligation to issue
$2,427,000 of Convertible Preferred Stock and the assumption of $1,000,000 in
liabilities. The aggregate consideration of $7,668,000 including transaction
costs has been allocated as follows: $6,685,000 to Management Services Agreement
with the remainder ($983,000) allocated primarily to furniture, fixtures and
equipment.
In July and September 1998, the Company entered into two separate Asset
Purchase Agreements and Management Services Agreements with Glen Miller, LTD., a
Nevada Corporation ("Miller") and Community Foot Care, P.A. Mark Warren, D.D.M.,
a Florida Corporation ("Warren"), located in Reno, Nevada and Delray Beach,
Florida, respectively. In exchange for an aggregate amount of $1,660,000 in
cash, the issuance of 2,323 shares of Convertible Preferred Stock with a fair
value of $232,000 and the obligation to issue $140,000 of Convertible Preferred
Stock, $269,000 of accrued liabilities and the issuance of 104,404 shares of
Common Stock recorded at $2.22 per share. The aggregate consideration of
$2,533,000 including transaction costs has been allocated as follows: $2,340,000
to Management Services Agreements with the remainder ($193,000) allocated to
accounts receivable and furniture, fixtures and equipment. The total number of
shares to be issued to Miller will depend on among other factors, the amount of
collections for the twelve month period ended September 1999. The value of any
subsequently issued shares will increase the cost of the Miller Management
Services Agreement.
See footnote 2 above for a discussion of the Company's consideration of
whether the intangibles associated with these transactions have been impaired
and the anticipated consequences of such determination.
8
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7. Debt and Preferred Stock Issuance
In April 1998, the Company issued in the aggregate, $2,300,000 of
convertible promissory notes (the "Convertible Notes") in conjunction with three
practice affiliation transactions that mature in four equal annual installments.
The Convertible Notes bear interest at 5% and are convertible into shares of
Common Stock at a conversion rate of $8.75 on unpaid principal amounts at the
option of the holder on the maturity dates.
In June, July and September, 1998 the Company, in connection with three
practice affiliation transactions, became obligated to issue $2,800,000 of
Series B Convertible Preferred Stock ("Series B") par value, $.01 per share
which is convertible into Common Stock. The Company has authorized the issuance
of up to 500,000 Series B shares. There were 2,323 shares issued and outstanding
as of September 30, 1998 and the Company has an obligation to issue an
additional 25,664 Series B shares. The Series B carries a 7% cumulative dividend
that is payable in additional shares of stock or cash. The Company is not
obligated to issue any additional shares of Series B on account of these
transactions until the first year anniversary of the practice affiliation. The
Series B conversion to Common Stock is based on, in part, the Market Price (as
defined in the Certificate of Designation for the Series B) into shares of
Common Stock. As of September 30, 1998, the number of shares of Common Stock
obligated to be issued if the Series B were converted would be 582,000 shares.
On June 30, 1998 the Company refinanced substantially all of its existing
debt with its previous lenders with proceeds from a $60,000,000 credit facility
which consists of a $15,000,000 revolving line of credit ("Revolving Loans"), a
$25,000,000 term note ("Tranche B Loan") and a $20,000,000 acquisition line of
credit in which all amounts outstanding at September 30, 2000 will convert to a
term loan (`Tranche A Loan") (collectively referred to as the "Credit
Facility").
Under the Revolving Loans, the Company may borrow up to $15,000,000 for
working capital and general corporate purposes and to finance start-up costs
relating to certain Ancillary Service Facilities (as defined in the Credit
Facility). The Revolving Loans are subject to a borrowing base equal to 80% of
the product of Eligible Accounts Receivable multiplied by the Collection Rate
(each as defined in the Credit Facility). The Revolving Loans mature on June 30,
2001 and interest is payable quarterly and, at the option of the Company, will
equal (a) a function of the greater of 0.50% plus the Federal Funds Rate or the
prime lending rate plus a margin ranging from 0.00%-1.25% based on the Company's
Leverage Ratio or (b) the LIBOR rate plus a margin ranging from 1.75%-3.00%
based on the Company's Leverage Ratio (as defined in the Credit Facility).
Under the Tranche A Loans, the Company may borrow up to $20,000,000 through
June 30, 2000 for Qualified Acquisitions (as defined in the Credit Facility).
The Tranche A Loans are payable in quarterly installments (assuming the entire
amount is borrowed) of (a) $1,250,000 beginning September 30, 2000 through June
30, 2001; (b) $1,875,000 from September 30, 2001 through June 30, 2002 and (c)
$3,125,000 from September 30, 2002 through March 31, 2003 with the remaining
unpaid balance due and payable on June 30, 2003. Interest is payable quarterly
and at rates equal to the Revolving Loans.
Under the Tranche B Loan, the Company borrowed $25,000,000 for the sole
purpose of refinancing certain existing indebtedness. The Tranche B Loan is
payable $62,500 quarterly through June 30, 2001; $312,000 quarterly from
September 30, 2001 through June 30, 2003; $5,438,000 quarterly through March 31,
2004 with any unpaid balance due on June 30, 2004. Interest on the Tranche B
Loan is payable quarterly and at the option of the Company will equal (a) a
function of the greater of 0.50% plus the Federal Funds Rate or the prime
lending rate plus a margin ranging from .75%-l.50%, based on the Company's
Leverage Ratio or (b) the LIBOR rate plus a margin ranging from 2.50%-3.25%
based on the Company's Leverage Ratio.
Under the terms of the Credit Facility, the Company may be required to make
mandatory annual prepayments beginning in 2001 in an amount equal to 50% of
Excess Cash Flow (as defined in the Credit Facility). The Company is also
required to meet certain covenants, including (a) the maintenance of certain
fixed charge, interest coverage, maximum funded indebtedness and leverage
ratios, (b) the maintenance of a minimum level of EBITDA and Tangible Net Worth
(as defined in the Credit Facility) and (c) limitation on capital
9
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7. Debt and Preferred Stock Issuance--(Continued)
expenditures. The Credit Facility also prohibits, with certain exceptions, the
Company from paying cash dividends. Additionally, under the terms of the Credit
Facility the Company is subject to certain restrictions with respect to issuing
subordinated debt, sales of Company assets, and changes in control of the
Company. Failure by the Company to satisfy the covenants in the Credit Facility
may result in a Default or Event of Default which could have a material adverse
effect on the Company's financial position.
As of November 15, 1998 no additional borrowing capacity exists under the
Credit Facility as currently structured. From July through November 1998, the
Company entered into a series of amendments relating to its Credit Facility that
provided for, among other things, revisions to certain financial covenants and
a reduction in the Tranche A loan total availability to $8,500,000 of which
$5,600,000 was outstanding at September 30, 1998. Under the terms of the Credit
Facility, the Company has the right to request letters of credit in an aggregate
amount not to exceed $2,000,000 with a term not to exceed one year from the date
of issuance.
The Credit Facility is secured by substantially all of the assets of the
Company and is supported by guarantees of the subsidiaries of the Company.
In connection with the Credit Facility, the Company issued pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") a new Series A
Redeemable Convertible Preferred Stock, par value, $.01 per share (the "Series
A"), to an affiliate of its agent bank in exchange for cash of $7,000,000. This
Series A is convertible into 1,473,684 shares of Common Stock. The Series A
carries a 6% cumulative dividend that is payable in cash. In addition, pursuant
to the Purchase Agreement, the investor obtained the right to nominate one
member to the Board of Directors of the Company and certain other rights.
In connection with the Credit Facility and the Purchase Agreement, the
Company issued in June 1998, an aggregate of 446,451 warrants to purchase Common
Stock with exercise prices ranging from $0.01-$9.00 per share with a weighted
average exercise price of $3.53 per share. The fair values per warrant based on
the Black-Scholes valuation method range from $3.26-$4.75 per share and the
related debt discount for certain of the warrants will be amortized over the
life of the Credit Facility.
Certain of the warrants contain put rights, which become effective upon the
earlier of: (1) a change of control or (2) June 30, 2005. In addition, certain
of the warrants are subject to anti-dilution provisions which may ultimately
increase the number of shares of Common Stock issuable upon exercise of such
warrants to 2% of the Company's fully-diluted Common Stock, resulting in
additional financing expense.
In accordance with the provisions of the Purchase Agreement, the Company
became obligated to issue in September 1998, 959,000 warrants with an exercise
price of $.01 to purchase Common Stock. Accordingly $959,000 was recorded as a
discount to the Series A Preferred Stock in the accompanying condensed
consolidated balance sheet at September 30, 1998. The warrants were issued in
November. If the Company does not complete an effective registration statement
to cover the underlying shares of its Common Stock issued pursuant to the
Purchase Agreement by an agreed upon date (as defined in the Purchase Agreement)
the Company will be required to issue additional nominally priced warrants to
purchase Common Stock. The parties have agreed to indefinitely postpone this
deadline.
The Series A are subject to redemption upon certain events including, but
not limited to, a change in control of the Company or seven years from the date
of the original issuance. However, as long as the Credit Facility is in place,
the redemption by the holder of the Series A is prohibited. If the Series A has
not been converted five years subsequent to the date of issuance, the holder
will receive increased Board of Directors' participation, the dividend rate will
increase to 12%, and the Company may be required to issue additional warrants to
purchase Common Stock.
The Series A is subject to anti-dilution provisions, which may ultimately
decrease the conversion price resulting in the issuance of additional shares of
Common Stock upon the conversion of the Series A.
10
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
8. Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards SFAS No. 109 ("SFAS No. 109"). SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. At September 30, 1998, net operating loss carryovers of approximately
$18,000,000 were available to reduce future federal income taxes, subject to
certain annual limitations.
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $15,094,000 and $16,300,000 valuation allowance at March
31, 1998, and September 30, 1998 respectively, was necessary to reduce the
deferred tax assets to the amount that will more than likely be realized.
9. Commitments and Contingencies
The Company is subject to legal proceedings in the ordinary course of its
business including certain claims resulting from successor liability in
connection with the assumption of certain liabilities of the physician
practices. The Company does not believe that any of such legal proceedings,
after consideration of professional and other liability insurance and amounts
provided in the accompanying consolidated balance sheet as of September 30,
1998, will have a material adverse effect on the Company's financial position,
results of operations or cash flows.
On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v.
Bone, Muscle & Joint, Inc., et al. was filed. In this action, in the United
States District Court for the Southern District of Texas, plaintiffs asserted
claims for breach of contract, common law fraud and promissory estoppel arising
out of an alleged restricted stock purchase agreement between plaintiffs and the
Company. Plaintiffs amended complaint seeks unspecified compensatory and
exemplary damages as well as specific performance for the delivery of 117,860
shares of the Company's Common Stock. On September 22, 1998, a Stipulation and
Order of Dismissal with Prejudice was entered in the United States District
Court for the Southern District of Texas pursuant to a Settlement Agreement
dated as of September 15, 1998.
At September 1998, the Company had commitments totaling $2,750,000 for
construction of two ambulatory surgery centers of which $2,300,000 had been
funded.
On October 23, 1998, an action entitled Tri-City Orthopaedics, et al vs.
Bone, Muscle & Joint, Inc. was filed. In this action, which is currently pending
in the United States District Court for the Southern District of California,
plaintiffs have asserted claims for breach of contract, common law fraud and
securities fraud arising out of the Management Services Agreement between
plaintiffs and the Company. Plaintiff's complaint seeks unspecified compensatory
and punitive damages as well as rescission of the Management Services Agreement.
The Company intends to defend against the action vigorously.
11
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
10. Supplemental Cash Flow Information
Significant non-cash financing and investing activities for the six months
ended September 30, 1998 are summarized as follows:
o The value of stock issued upon execution of Management Services
Agreements was $1,426,000.
o Notes issued upon execution of Management Services Agreements were
$2,466,000.
o Non-cash transactions from practice affiliations including accounts
receivable, furniture, fixtures and equipment, Management Services
Agreements, Goodwill, due to/from physicians, Convertible Preferred
Stock and accrued expenses amounted to $8,119,000.
o Deferred financing costs related to the issuance of warrants amounted
to $784,000.
o Deferred financing costs related to the issuance of preferred stock and
warrants amounted to $1,743,000.
o Interest paid amounted to $2,179,000.
Significant non-cash financing and investing activities for the six
months ended September 30, 1997 are summarized as follows:
o The value of stock issued upon execution of Management Services
Agreements was $13,800,000.
o Short-term loans converted to preferred stock amounted to $1,000,000.
o Common stock issued for payment of accrued salaries amounted to
$292,000.
o Non-cash transactions from practice affiliations including Management
Services Agreements and due to/from physicians amounted to $631,000.
o Deferred financing costs related to the issuance of warrants amount to
$714,000.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Transition Report
on Form 10-K for the period ended March 31, 1998 and the Condensed Consolidated
Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements included herein and made from time to time by
representatives of the Company. Except for historical information, matters
discussed below and in other oral and written communications such as press
releases are forward-looking statements that involve risks and uncertainties.
Whenever possible, the Company has identified these forward-looking statements
by words such as "believes," "estimates," "expects," and similar expressions.
The risks and uncertainties that these forward-looking statements are subject to
include, without limitation, the successful implementation of any further
restructuring plans that the Company may adopt, the potential inability of the
Company to meet its short term and long term liquidity needs, the potential
termination of contractual relationships, the potential inability of the Company
to establish ancillary service facilities, fluctuations in the volume of
procedures performed by the practices' physicians, changes in the reimbursement
rates for those services, uncertainty about the ability to collect the
appropriate fees for services provided or ordered by the practices' physicians,
taxes, and governmental regulations and the factors described below under the
caption "Impact of the Year 2000".
OVERVIEW AND RECENT DEVELOPMENTS
The Company is principally a Physician Practice Management Company ("PPM")
that provides management services to its affiliated practices and ancillary
service facilities, and also operates an Independent Physician Association
("IPA"). The Company focuses on musculoskeletal care, which involves the medical
and surgical treatment of conditions related to bones, muscles, joints and
related connective tissues. The broad spectrum of musculoskeletal care offered
by the Physician Practices ranges from acute procedures, such as spine or other
complex surgeries, to the treatment of chronic conditions, such as arthritis and
back pain. As of September 30, 1998, the Company had affiliated with physician
practices operating in Arizona, California, Florida, Pennsylvania, New Jersey,
Nevada, and Texas by entering into Management Services Agreements. The Company
was incorporated in Delaware in January 1996 and affiliated with its first
Practice in July 1996. At December 31, 1996, the Company had entered into
Management Services Agreements with three Practices comprising 34 physicians.
During the year ended December 31, 1997, the Company acquired an IPA with 42
physicians in Arizona and had entered into 22 additional Management Service
Agreements with 80 physicians. During the three months ended March 31, 1998, the
Company entered into Management Services Agreements with two Practices
comprising four physicians. During the six months ended September 30, 1998, the
Company entered into Management Services Agreements with seven Practices
comprising 22 physicians. During the three months ended September 30, 1998 the
Company entered into Management Services Agreements with 2 practices comprising
5 physicians. Additionally, the Company has assisted with several affiliated
practices in adding new physicians to the existing practice. The Company has
also facilitated the combination, where appropriate, of certain solo practices
into larger existing practices.
On September 24, 1998, the Company announced a restructuring plan that
included reducing corporate overhead through the elimination of approximately 20
corporate positions and assessing its current business model. On October 7, 1998
the Company's Board of Directors elected Donald J. Lothrop President and Chief
Executive Officer. The Board of Directors has retained a consulting firm to
assist in the process of evaluating alternative business models and has under
consideration, among other things, an additional restructuring plan more fully
described below under "Liquidity and Capital Resources - Outlook".
The Company anticipates that, if implemented, this additional restructuring
plan would result in the determination that certain intangible assets related to
management services agreements and other assets have been impaired and would
result in the write-off of the impaired portion of the assets. The amount of
such impairment loss, which cannot be determined at this time, would be
recognized in the period that such determination is made,
13
<PAGE>
and the recognition of any such impairment loss could have a material adverse
effect on the Company's business, results of operations and financial condition.
Practice revenues, net represents the gross revenues of the affiliated
Practices, the IPA, and the ancillary service facilities reported at the
estimated realizable amounts from patients, third party payors and others for
services rendered, net of contractual and other adjustments. Contractual
adjustments typically result from the differences between the Practices'
established rates for services and the amounts paid by government sponsored
health care programs and other insurers. The Company estimates that
approximately 17% of practice revenues, net were received under government
sponsored health care programs (principally, the Medicare and Medicaid programs)
during the six months ended September 30, 1998 and 1997. The Practices have
numerous agreements with managed care and other organizations to provide
physician services based on negotiated fee schedules.
Laws and regulations governing Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medicaid programs. Management fee revenue primarily
represents practice revenues, net less amounts retained by Practices (consisting
of amounts retained by the Practices, principally compensation and fees paid to
physicians and other health care providers) which are paid to the physicians
pursuant to the Management Services Agreements. Under each Management Services
Agreement, the Company assumes responsibility for the management of the
non-medical operations of the Practice, employs substantially all of the
non-professional personnel utilized by the Practice and may provide the Practice
with the facilities and equipment used in its medical practice. The Company's
management fee revenue consists of four components: (i) percentage of the
Practices' net collected revenues (generally ranging from 10% to 15%), plus (ii)
100% of the non-physician affiliated practice expenses (generally expected to
range from 45% to 55% of the Practices' net collected revenue), plus (iii) 66
2/3% of the cost savings the Company is able to achieve through its purchasing
power (generally related to medical malpractice insurance, property and
liability insurance, group benefits and certain major medical supplies) plus
(iv) a percentage of the profits from new ancillary services at the Practices.
The portion of the management fee revenue that represents a percentage of net
collected revenue is dependent upon the Practices' revenues which must be billed
and collected. As part of the restructuring plan under consideration, the
Company would seek to modify several of its existing management services
agreement to reduce the services provided by the Company in consideration for a
reduction of the management fees payable by the Practices. See "Liquidity and
Capital Resources - Outlook."
The Company's operating expenses consist primarily of the expenses incurred
in fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Practices, including non-professional
employee salaries, employee benefits, medical supplies, malpractice insurance
premiums, building and equipment rental and other expenses related to clinic
operations) and general and administrative expenses (personnel and
administrative expenses in connection with maintaining a corporate office
function that provides management, contracting, administrative, marketing and
development services to the Practices).
Subject to the cash flow constraints and other considerations described
below in "Liquidity and Capital Resources - Outlook," the Company anticipates
that its business model will continue to include acquiring and operating
additional Ancillary Service Facilities such as ambulatory surgery centers, MRI
diagnostic imaging centers and rehabilitative therapy units. Accordingly, the
Company expects that the mix and relationship of Practice and Ancillary Service
revenues and operating expenses will differ from historical trends through
September 30, 1998. The impact of these activities on the mix of revenues and
expenses cannot be determined at this time.
To date, the Company's operating costs have exceeded management fee
revenues. The Company's ability to increase future management fee revenues,
reduce operating costs and achieve positive cash flow will largely depend upon
whether the Company is able to successfully implement a further restructuring
plan that allows it to access additional capital resources and whether the
Company is then able to continue to develop Ancillary Service Facilities. See
"Liquidity and Capital Resources - Outlook."
14
<PAGE>
On November 20, 1997, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board reached a consensus concerning certain
matters relating to the physician practice management industry with respect to
the requirements which must be met to consolidate a managed professional
corporation and the accounting for business combinations involving professional
corporations. In accordance with the EITF's guidance, the Company will
discontinue use of the display method to report revenues from management
contracts in financial statements for periods ending after December 15, 1998.
Thus, after December 15, 1998, fees from management contracts will be reported
as a single line item in the Company's consolidated financial statements.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
The following table sets forth the percentages of the Practices' revenue
represented by certain items reflected in the Company's condensed consolidated
statements of operations.
As a result of the Company's limited period of existence and affiliation
with the Practices, the Company does not believe that comparisons between
periods and percentage relationships within the periods set forth below are
meaningful.
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Practice revenues, net.................................................. 100.0% 100.0%
Less: amounts retained by physician groups.............................. (40.1) (45.4)
----- -----
Management fee revenue.................................................. 59.9 54.6
Operating expenses and other expenses:
Medical support services.............................................. 46.4 49.4
General and administrative............................................ 11.4 15.8
Depreciation and amortization......................................... 6.3 14.3
----- -----
Total operating expenses............................................ 64.1 79.5
----- -----
Interest Expense 2.7 3.4
Net loss................................................................ (6.9)% (28.3)%
===== =====
</TABLE>
Practices revenues, net. For the three months ended September 30, 1998,
practice revenues, net was $33.3 million compared to $18.4 million for the three
months ended September 30, 1997. The significant increase was the result of the
Company reflecting revenues from 35 practice affiliation transactions for the
three months ended September 30, 1998 compared to the Company reflecting
revenues from a total of 21 practice affiliation transactions for the three
months ended September 30, 1997. Additionally, the Company also reflected
revenues from its three additional surgery centers, the expansion of other
ancillary services, in particular, physical and rehabilitative therapy and its
IPA for the three months ending September 30, 1998.
Amounts retained by physician groups. For the three months ended September
30, 1998, amounts retained by physician groups was $13.3 million compared to
$8.4 million for the three months ended September 30, 1997. The significant
increase was the result of the Company having had an additional 14 practice
affiliation transactions for the three months ended September 30, 1998 compared
to the Company having only 21 practice affiliation transactions for the three
months ended September 30, 1997.
Management fee revenue. For the three months ended September 30, 1998,
management fee revenue was $19.9 million compared to $10.0 million for the three
months ended September 30, 1997. The $9.9 million increase was a result of the
factors set forth above.
Medical Support services. For the three months ended September 30, 1998,
medical support services, principally clinic overhead expenses, was $15.5
million compared to $9.1 million for the three months ended September 30, 1997.
The $6.4 million increase was a result of the factors set forth above.
15
<PAGE>
General and administrative. General and administrative expenses for the
three months ended September 30, 1998 were $3.8 million, as compared to $2.9
million for the three months ended September 30, 1997. The increase primarily
relates to the Company's increased development of infrastructure to support
additional practice affiliations. Additionally, for the three months ended
September 30, 1998, the Company incurred approximately $1.5 million of expenses,
related primarily to severance pay as a result of a restructuring plan
management implemented in September 1998.
Depreciation and amortization. Depreciation and amortization for the three
months ended September 30, 1998 was $2.1 million, as compared to $2.6 million
for the three months ended September 30, 1997. The depreciation expense related
to acquired furniture, fixtures and equipment and the amortization expense
related primarily to Management Services Agreements. The decrease related
primarily to the lengthed amortization period related to the Management
Service Agreements. The intangible assets related to the Management Services
Agreements were being amortized over 4 years during the three months ended
September 30, 1997 as a result of the vesting provisions contained in the
restricted stock agreements relating to Common Stock which was issued by the
Company to physicians in connection with the practice affiliation transactions.
As of April 1, 1998, the Company amended and restated substantially all of its
restricted stock agreements to eliminate the vesting provisions related to these
shares of Common Stock. Accordingly, in April 1998 the Company revised the
estimated useful lives of its assets related to the Management Services
Agreements and is amortizing the remaining balances over periods ranging from 4
to 25 years. Consequently, the monthly per practice amortization expense related
to the practice affiliation transactions decreased beginning April 1998.
Additionally, included in depreciation and amortization expense for the three
months ended September 30, 1998, was a charge of approximately $550,000 related
to the write-off of goodwill for the Company's IPA as a result of the bankruptcy
of a significant payer. The Company is exploring several alternatives to obtain
additional working capital and cash for operations. One of the alternatives
under consideration is a plan to restructure the Company's arrangements with its
affiliated practices and physicians. The Company anticipates that, if
implemented, this restructuring plan will likely result in the determination
that certain intangible assets related to Management Service Agreements and
other assets have been impaired, which will result in the write-off of the
impaired portion of the assets. The amount of such impairment loss, which cannot
be determined at this time, will be recognized in the period that such
determination is made. The recognition of any such impairment loss could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Interest expense. Interest expense for the three months ended September 30,
1998, was $907,000 compared to $628,000 for the three months ended September 30,
1997. This increase related to borrowings related to practice affiliation
transactions and ancillary service facilities acquisitions.
Net loss. The net loss for the three months ended September 30, 1998 was
$2.3 million, or $0.14 per share of Common Stock, as a result of the factors set
forth above. The net loss for the three months ended September 30, 1997 was $5.2
million, or $0.78 per share of Common Stock as a result of the factors set forth
above.
16
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended September 30, 1998 Compared to the Six Months Ended
September 30, 1997
The following table sets forth the percentages of the Practices' revenue
represented by certain items reflected in the Company's condensed consolidated
statements of operations. As a result of the Company's limited period of
existence and affiliation with the Practices, the Company does not believe that
comparisons between periods and percentage relationships within the periods set
forth below are meaningful.
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Practice revenues, net.................................................. 100.0% 100.0%
Less: amounts retained by physician groups.............................. (43.7) (46.1)
------- ------
Management fee revenue.................................................. 56.3 53.9
Operating expenses and other expenses:
Medical support services............................................... 43.1 49.1
General and administrative............................................. 8.2 15.1
Depreciation and amortization.......................................... 4.9 12.3
------- ------
Total operating expenses............................................. 56.2 76.5
======= ======
Interest Expense 3.0 3.1
Extraordinary item 4.5 0.0
Net loss................................................................ (7.4)% (25.7)%
======= ======
</TABLE>
Practices revenues, net. For the six months ended September 30, 1998,
practice revenues, net was $67.7 million compared to $29.7 million for the six
months ended September 30, 1997. The significant increase was the result of the
Company reflecting revenues from 35 practice affiliation transactions for the
six months ended September 30, 1998 compared to the Company reflecting revenues
from a total of 21 practice affiliation transactions for the six months ended
September 30, 1997. Additionally, the Company also reflected revenues from its
three additional surgery centers, the expansion of other ancillary services, in
particular, physical and rehabilitative therapy and its IPA for the six months
ending September 30, 1998.
Amounts retained by physician groups. For the six months ended September
30, 1998, amounts retained by physician groups was $29.6 million compared to
$13.7 million for the six months ended September 30, 1997. The significant
increase was the result of the Company having had an additional 14 practice
affiliation transactions for the six months ended September 30, 1998 compared to
the Company having only 21 practice affiliation transactions for the six months
ended September 30, 1997.
Management fee revenue. For the six months ended September 30, 1998,
management fee revenue was $38.1 million compared to $16.0 million for the six
months ended September 30, 1997. The $22.1 million increase was a result of the
factors set forth above.
Medical Support services. For the six months ended September 30, 1998,
medical support services, principally clinic overhead expenses, was $29.2
million compared to $14.6 million for the six months ended September 30, 1997.
The $14.6 million increase was a result of the factors set forth above.
General and administrative. General and administrative expenses for the six
months ended September 30, 1998 were $5.6 million, as compared to $4.5 million
for the six months ended September 30, 1997. The increase primarily relates to
the Company's increased development of infrastructure to support the additional
practice affiliations. Additionally, for the six months ended September 30,
1998, the Company incurred approximately $1.5 million of expenses, related
primarily to severance pay as a result of a restructuring plan management
implemented in September 1998.
Depreciation and amortization. Depreciation and amortization for the six
months ended September 30, 1998 was $3.3 million, as compared to $3.7 million
for the six months ended September 30, 1997.
17
<PAGE>
The depreciation expense related to acquired furniture, fixtures and
equipment and the amortization expense related primarily to Management Services
Agreements. The decrease related primarily to the lengthed amortization
period related to the Management Service Agreements. The intangible assets
related to the Management Services Agreements were being amortized over 4 years
during the six months ended September 30, 1997 as a result of the vesting
provisions contained in the restricted stock agreements relating to Common Stock
which was issued by the Company to physicians in connection with the practice
affiliation transactions. As of April 1, 1998, the Company amended and restated
substantially all of its restricted stock agreements to eliminate the vesting
provisions related to these shares of Common Stock. Accordingly, in April 1998
the Company revised the estimated useful lives of its assets related to the
Management Services Agreements and is amortizing the remaining balances over
periods ranging from 4 to 25 years. Additionally, for the six months ended
September 30, 1998, there was a charge of approximately $550,000 related to the
write-off of goodwill for the Company's IPA as a result of the bankruptcy of a
significant payor. The Company is exploring several alternatives to obtain
additional working capital and cash for operations. One of the alternatives
under consideration is a plan to restructure the Company's arrangements with its
affiliated practices and physicians. The Company anticipates that, if
implemented, this restructuring plan will likely result in the determination
that certain intangible assets related to Management Service Agreements and
other assets have been impaired, which will result in the write off of the
impaired portion of the assets. The amount of such impairment loss, which cannot
be determined at this time, will be recognized in the period that such
determination is made. The recognition of any such impairment loss could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Interest expense. Interest expense for the six months ended September 30,
1998, was $2.0 million compared to $922,000 for the six months ended September
30, 1997. This increase related to borrowings related to practice affiliation
transactions and ancillary service facilities acquisitions.
Extraordinary item. The Company incurred an extraordinary loss of $3.0
million related to the write-off of deferred financing costs as a result of
refinancing its existing debt in June 1998. See-"Liquidity and Capital
Resources" for further discussion.
Net loss. The net loss for the six months ended September 30, 1998 was $5.1
million, or $0.29 per share of Common Stock, as a result of the factors set
forth above. The net loss for the six months ended September 30, 1997 was $7.7
million, or $1.23 per share of Common Stock as a result of the factors set forth
above.
Liquidity and Capital Resources
At September 30, 1998 and March 31, 1998, the Company had $25.4 million and
$26.6 million, respectively, in working capital and $613,000, and $9.5 million,
respectively, in cash and cash equivalents. The Company's principal sources of
liquidity as of September 30, 1998 and March 31, 1998 consisted of cash and cash
equivalents of $613,000 and $9.5 million, respectively, and $27.0 million and
$25.8 million of accounts receivable, respectively.
Cash used in operating activities for the six months ended September 30,
1998 and 1997, was $11.1 million and $2.7 million, respectively. The increase in
cash used in operating activities as compared to the six months ended September
30, 1997 was primarily related to the increase in amounts due from physician
groups and decrease in accrued expenses.
Cash used in investing activities for the six months ended September 30,
1998 and 1997 was $20.5 million and $21.3 million, respectively, a decrease of
$800,000, primarily related to fewer practice affiliation transactions in the
six months ended September 30, 1998. This was mostly offset by acquisitions of
ancillary service facilities.
Cash provided by financing activities for the six months ended September
30, 1998 and 1997 was $22.8 million and $25.6 million, respectively. The
decrease was primarily attributable to fewer debt borrowings due to less
practice affiliation transactions.
In April 1998, the Company issued in the aggregate, $2.3 million of
convertible promissory notes (the "Convertible Notes") in conjunction with three
practice affiliation transactions that mature in four equal annual installments.
The Convertible Notes bear interest at 5% and are convertible into shares of
Common Stock at a conversion rate of $8.75 on unpaid principal
18
<PAGE>
amounts at the option of the holder on the maturity dates.
In June, July and September 1998, the Company, in connection with three
practice affiliation transactions, became obligated to issue $2.8 million of
Series B Convertible Preferred Stock ("Series B") which is convertible only into
Common Stock. The Company has authorized the issuance of up to 500,000 Series B
shares. There were 2,323 shares issued and outstanding as of September 30, 1998
and the Company has an obligation to issue an additional 25,664 shares of Series
B. The Series B carries a 7% cumulative dividend that is payable in additional
shares of stock or cash. The Company is not obligated to issue any additional
shares of Series B, on account of these transactions until the first year
anniversary of the practice affiliation. The Series B conversion to Common Stock
is based on, in part, the Market Price (as defined in the Certificate of
Designation for the Series B) into shares of Common Stock.
On June 30, 1998 the Company refinanced substantially all of its debt with
its senior lender and other lenders with proceeds from a $60.0 million credit
facility consisting of $15.0 million revolving line of credit (the "Revolving
Loans"), $25.0 million term note (the "Tranche B Loan") and a $20.0 million
acquisition line of credit in which all amounts outstanding at June 30, 2000
will convert to a term loan (the "Tranche A Loan") (collectively referred to as
the "Credit Facility"). The Credit Facility is secured by substantially all of
the assets of the Company and is supported by guarantees of the subsidiaries of
the Company.
Under the Revolving Loans, the Company may borrow up to $15.0 million
subject to a borrowing base equal to 80% of the product of Eligible Accounts
Receivable multiplied by the Collection Rate (each as defined in the Credit
Facility). The Revolving Loans have a maturity of June 30, 2001 (the Revolving
Loans may be extended for two one-year terms at the discretion of the lender)
and interest is payable quarterly and, at the option of the Company, will equal
(a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime
lending rate plus a margin ranging from .0%-1.25% based on the Company's
leverage ration or (b) the LIBOR rate plus a margin ranging from 1.75%--3.00%
based on the Company's Leverage Ratio (as defined in the Credit Facility) (each
such rate the "Interest Rate").
Under the Tranche A Loans, the Company may borrow up to $20.0 million
through June 30, 2000 for Qualified Acquisitions (as defined in the Credit
Facility). The Tranche A Loans are payable in quarterly installments (assuming
the entire amount is borrowed) of (a) $1.25 million beginning September 30, 2000
through June 30, 2001; (b) $1.88 million from September 30, 2001 through June
30, 2002 and (c) $3.1 Million from September 30, 2002 through March 31, 2003
with the remaining unpaid balance due and payable on June 30, 2003. Interest is
payable quarterly at rates equal to the Interest Rate.
The Tranche B Loan is payable $62,500 quarterly through June 30, 2001;
$312,000 quarterly from September 30, 2001 through June 30, 2003; $5.4 million
quarterly through March 31, 2004 with any unpaid balance due on June 30, 2004.
Interest on the Tranche B Loan is payable quarterly, varies, and at the option
of the Company will equal (a) a function of the greater of 0.50% plus the
Federal Funds Rate or the prime lending rate (8.5% at June 24, 1998) plus a
margin ranging from .75%-1.50%, based on the Company's Leverage Ratio or (b) the
LIBOR rate approximately 5.5% at June 24, 1998) plus a margin ranging from
2.5%-3.25% based on the Company's Leverage Ratio.
Under the terms of the Credit Facility, the Company may be required to make
mandatory annual prepayments beginning in 2002 in an amount equal to 50% of
Excess Cash Flow (as defined in the Credit Facility). The Company is also
required to meet certain covenants, including (a) the maintenance of certain
fixed charge, interest coverage and leverage ratios, (b) the maintenance of a
minimum level of EBITDA and Tangible Net Worth (as defined in the Credit
Facility) and (c) limitations on capital expenditures. The Credit Facility also
prohibits, with certain exceptions, the Company from paying cash dividends.
Failure by the Company to satisfy the covenants in the Credit Facility may
result in a Default or Event of Default which could have a material adverse
effect on the Company's financial position, cash flows and results of
operations. Additionally, under the terms of the Credit Facility the Company has
the right to request letters of credit in an aggregate amount not to exceed $2.0
million and with a term not to exceed one year from the date of issuance. As of
November 15, 1998, no additional borrowing capacity exists under the Credit
Facility as currently structured. From July through November 1998, the Company
entered into a series of amendments relating to its Credit Facility that
provided
19
<PAGE>
for, among other things, revisions to certain financial covenants and a
reduction in the Tranche A total availability to $8.5 million of which $5.6
million was outstanding at September 30, 1998.
In connection the with Credit Facility, the Company issued pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") a new Series A
Redeemable Convertible Preferred Stock, par value, $.01 per share, (the "Series
A") to an affiliate of its agent bank in exchange for cash of $7.0 million. This
Series A is convertible into 1,473,684 shares of Common Stock. The Series A
carries a 6% cumulative dividend that is payable in cash. The number of shares
of Common Stock to be issued upon conversion is subject to certain future
factors and, accordingly, cannot be determined at this time. In addition,
pursuant to the Purchase Agreement, the investor obtained the right to nominate
one member to the Board of Directors of the Company and certain other rights.
In accordance with the provisions of the Purchase Agreement, the Company
became obligated to issue in September 1998, 959,000 warrants with an exercise
price of $.01 to purchase Common Stock. Accordingly $959,000 was recorded as a
discount to the Series A Preferred Stock in the accompanying condensed
consolidated balance sheet at September 30, 1998. The warrants were issued in
November. If the Company does not complete an effective registration statement
to cover the underlying shares of its Common Stock issued pursuant to the
Purchase Agreement by an agreed upon date (as defined in the Purchase Agreement)
the Company will be required to issue additional nominally priced warrants to
purchase Common Stock. Such agreed upon date deadline for filing the effective
registration statement has been mutually agreed upon by both parties to be
postponed indefinitely.
The Series A are subject to redemption upon certain events including, but
not limited to, a change in control of the Company or seven years from the date
of the original issuance. However, as long as the Credit Facility is in place,
the redemption by the holder of the Series A is prohibited. If the Series A has
not been converted five years subsequent to the date of issuance, the holder
will receive increased participation on the Board of Directors, the dividend
rate will increase to 12% and the Company may be required to issue additional
warrants to purchase Common Stock.
The Series A, are subject to anti-dilution provisions which may ultimately
decrease the conversion price resulting in the issuance of additional shares of
Common Stock upon the conversion of the Series A.
In connection with the Credit Facility and the Purchase Agreement, the
Company in June 1998, issued an aggregate of 446,451 warrants to purchase Common
Stock with exercise prices ranging from $0.01-$9.00 per share with a weighted
average exercise price of $3.53 per share. The fair values per warrant based on
the Black-Scholes valuation method range from $3.26-$4.75 per share. Certain of
the warrants contain put rights.
Outlook
Historically, available cash has been generated from cash flow from
operations, borrowings under the Credit Facility and other debt, and the
proceeds of equity securities. The Company will not be able to borrow any
further funds under the Credit Facility without amending certain of its terms.
The operations and planned expansion of existing practice affiliations,
including the addition of certain ancillary service facilities will require
ongoing capital expenditures. In addition, the Company's short-term liquidity is
affected by the amounts and timing of collections received on accounts
receivable balances. No assurance can be given that the collections will be
received on a timely basis or in amounts sufficient to meet the short-term
liquidity needs of the Company. The financing of ongoing operations and certain
business expansion is anticipated to be provided by a combination of certain
lease agreements, other financing vehicles, and cash flows from operations. The
Company believes that the combination of these sources will be sufficient to
meet its currently anticipated operating and capital expenditure requirements
and working capital needs through December 31, 1998.
The Company is exploring several alternatives to obtain additional working
capital and cash for operations and has retained a consulting firm to assist in
addressing these issues. One of the alternatives under consideration is a plan
to restructure the Company's arrangements with its affiliated practices and
physicians. The restructuring as currently contemplated would: (a) allow the
affiliated physicians to repurchase, for cash, the tangible practice
20
<PAGE>
assets and re-employ the practice personnel, thereby allowing the Company to
retire a substantial amount of its outstanding indebtedness; (b) shorten the
terms of the Company Management Services Agreements with the affiliated
practices and physicians; and, (c) lower the management service fees charged to
the affiliated practices. The restructuring would be contingent upon approval of
the Company's Board of Directors and its lenders as well as negotiation of
definitive agreements between the Company and the affiliated physicians. No
assurances can be given that the Company will be able to obtain these approvals
or negotiate these agreements in a timely manner, if at all. If the Company is
not able to timely and successfully implement such a plan as well as
satisfactorily resolve certain disputes with its physician groups, its operating
business, financial condition, cash flows and results of operations will be
materially and adversely affected.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
having time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions in a timely manner. As part of the Company's
organization and development, the software purchased and installed to date, as
well as the software under evaluation for future purchase and installation, has
been represented as Year 2000 compliant. Consequently, the Company does not
expect to incur any significant additional costs related to Year 2000
compliance. The Company is in the process of initiating formal communication
with all of the significant payors, affiliated physicians and third-party
insurers of its affiliated practices and ancillary service facilities to
determine the extent to which the interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. It is the
Company's belief that a significant number of its affiliated practices currently
are not Year 2000 compliant.There is no assurance the systems of other
companies, or the Company's affiliated practices on which the Company's systems
rely or interface, will be timely converted. Consequently, there is no assurance
that a material adverse effect on the Company's operations and cash flows will
not occur.
Reimbursement Rates
The health care industry is experiencing a trend toward cost containment as
payors seek to improve lower reimbursement and utilization rates with providers.
Further reductions in payments to health care providers or other changes in
reimbursement for health care services could adversely affect the practices with
which the Company is affiliated and adversely affect the Company's results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v.
Bone, Muscle & Joint, Inc., et al. was filed. In this action, in the United
States District Court for the Southern District of Texas, plaintiffs asserted
claims for breach of contract, common law fraud and promissory estoppel arising
out of an alleged restricted stock purchase agreement between plaintiffs and the
Company. Plaintiffs amended complaint seeks unspecified compensatory and
exemplary damages as well as specific performance for the delivery of 117,860
shares of the Company's Common Stock. On September 22, 1998, a Stipulation and
Order of Dismissal with Prejudice was entered in the United States District
Court for the Southern District of Texas pursuant to a settlement agreement
dated as of September 15, 1998.
On October 23, 1998, an action entitled Tri-City Orthopaedics, et al vs.
Bone, Muscle & Joint, Inc. was filed. In this action, which is currently pending
in the United States District Court for the South District of California,
plaintiffs have asserted claims for breach of contract, common law fraud and
securities fraud arising out of the Management Services Agreement between
plaintiffs and the Company. Plaintiffs' complaint seeks unspecified compensatory
and punitive damages as well as rescission of the Management Services Agreement.
The Company intends to defend against this action vigorously.
The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect. In addition, the Company may become subject to certain pending
claims as the result of successor liability in connection with the assumption of
certain liabilities of the Practices; nevertheless, the Company believes that
the ultimate resolution of such additional claims resulting from successor
liability will not have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has issued certain of its securities in transactions exempt
from registration under the Securities Act of 1933 (the "Act") as follows:
In reliance upon Section 4(2) of the Act, in July 1998 the Company
entered into a Management Services Agreement with Warren whereby the
Company is obligated to issue $140,000 of Series B which is convertible
into Common Stock. The Company did not issue any of these shares of
Series B during the period covered by this Quarterly Report on Form
10-Q.
In reliance upon Section 4(2) of the Act, in July 1998 the Company
entered into a Management Services Agreement with Miller, whereby the
Company has issued 2,323 shares of Series B which is convertible into
Common Stock.
In reliance upon Section 4(2) of the Act, in September 1998 the
Company issued 104,404 shares of Common Stock to Miller at a value of
$2.22 per share in connection with a Management Services Agreement. See
Note 6 to the Condensed Consolidated Financial Statements.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Credit Agreement, dated as of July 20, 1998 entered
into by and among the Company, the lenders names therein and Paribas, as agent.
10.2 Second Amendment to Credit Agreement, dated as of September 3, 1998
entered into by and among the Company, the lenders names therein and Paribas, as
agent.
10.3 Third Amendment to Credit Agreement, dated as of October 14, 1998
entered into by and among the Company, the lenders names therein and Paribas, as
agent.
10.4 Forth Amendment to Credit Agreement, dated as of November 2, 1998
entered into by and among the Company, the lenders names therein and Paribas, as
agent.
27.1 Financial data schedule
23
<PAGE>
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.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Donald J. Lothrop
---------------------------------------
President and Chief Executive Officer
By: /s/ David H. Fater
---------------------------------------
David H. Fater
Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
Date: November 14, 1998
24
FIRST AMENDMENT
to
CREDIT AGREEMENT
between
BMJ MEDICAL MANAGEMENT, INC.
THE LENDERS NAMED HEREIN
and
PARIBAS, as Agent
Dated as of July 20, 1998
<PAGE>
FIRST AMENDMENT
to
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment"), dated as of
July 20, 1998, is executed and entered into by and among BMJ Medical Management,
Inc., a Delaware corporation (the "Borrower"), the Lenders set forth on the
signature pages hereof, and Paribas, in its capacity as agent for the Lender's
(the "Agent").
RECITALS:
A. The Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated June 30, 1998 (hereinafter called the
"Agreement"; terms defined by the Agreement where used in this Amendment shall
have the same meanings herein as are prescribed by the Agreement.)
B. The Borrower, the Lenders and the Agent have agreed to
amend the Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Section References. Unless otherwise expressly
stated herein, all Section references herein shall refer to Sections of the
Agreement.
Section 2. Amendment to Definition of "Consolidated Interest
Expense". The definition of "Consolidated Interest Expense" contained in
Section 1.1 is hereby amended to read in its entirety as follows:
"Consolidated Interest Expense" shall mean, for any fiscal
period of the Borrower, the total interest expense (including, without
limitation, interest expense attributable to Capitalized Leases in
accordance with GAAP, amortization or write-off of debt discount and
debt issuance costs and commissions, other discounts and other fees
associated with Indebtedness (including the Loans) and the net amount
payable (or plus the net amount receivable) under interest rate
protection agreements) of the Borrower and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP;
provided that (i) Consolidated Interest Expense for each of the fiscal
quarters
2
<PAGE>
ending June 30, 1998, September 30, 1998, December 31, 1998,
March 3 1, 1999 and June 30, 1999 shall be calculated by multiplying
the actual Consolidated Interest Expense for such fiscal quarter by
four (4); (ii) Consolidated Interest Expense for the fiscal quarter
ending September 30, 1999 shall be calculated by multiplying the actual
Consolidated Interest Expense for the fiscal quarters ending June 30
and September 30, 1999 by two (2); (iii) Consolidated Interest Expense
for the fiscal quarter ending December 3 1, 1999 shall be calculated by
multiplying the actual Consolidated Interest Expense for the fiscal
quarters ending June 30, September 30 and December 31, 1999 by
four-thirds (4/3); and (iv) Consolidated Interest Expense for each
fiscal quarter thereafter shall be the actual Consolidated Interest
Expense for the last four fiscal quarters then ended.
Section 3. Amendment to Definition of "Pro Forma Consolidated
EBITDA". The definition of "Pro Forma Consolidated EBITDA" contained in Section
1.1 is hereby amended to read in its entirety as follows:
"Pro Forma Consolidated EBITDA" for any period shall mean
Consolidated EBITDA for such period, calculated in accordance with the
following:
(A) (i) Pro Forma Consolidated EBITDA for each of the fiscal
quarters ending June 30, 1998, September 30, 1998, December 31, 1998,
March 31, 1999 and June 30, 1999 shall be calculated by multiplying the
actual Consolidated EBITDA for such fiscal quarter by four (4); (ii)
Pro Forma Consolidated EBITDA for the fiscal quarter ending September
30, 1999 shall be calculated by multiplying the actual Consolidated
EBITDA for the fiscal quarters ending June 30 and September 30, 1999 by
two (2); (iii) Pro Forma Consolidated EBITDA for the fiscal quarter,
ending December 3 1, 1999 shall be calculated by multiplying the actual
Consolidated EBITDA for the fiscal quarters ending June 30, September
30 and December 31, 1999 by four-thirds (4/3); and (iv) Pro Forma
Consolidated EBITDA for each fiscal quarter thereafter shall be the
actual Consolidated EBITDA for the last four fiscal quarters then
ended; and
(B) Pro Forma Consolidated EBITDA for any Affiliated Medical
Entity acquired prior to the last day of any of the fiscal periods
which form the basis of the calculation pursuant to clause (A) above
shall be calculated as set forth on Schedule B. The amount so
determined shall be added to the
3
<PAGE>
annualized Consolidated EBITDA determined in accordance with
clause (A) above.
Section 4. Amendment of Schedule B. Schedule B is hereby
deleted in its entirety and replaced with Schedule B attached hereto.
Section 5. Amendment to Section 6. 1 (a) ("Leverage Ratio"),
Section 6. 1 (a) is hereby amended to read in its entirety as follows:
(a) Leverage Ratio. The Borrower shall not permit the ratio of
Consolidated Total Indebtedness to Pro Forma Consolidated EBITDA (the
"Leverage Ratio") to exceed, at the end of any fiscal quarter ending
during any period listed below, the ratio set forth opposite such
period:
Period Ratio
------ -----
Closing Date to and including
June 30, 2000 4.00:1.0
July 1, 2000 to and including
June 30, 2001 3.50:1.0
At any time after June 30, 2001 3.00:1.0
Section 6. Amendment to Section 6. 1 (b) ("Interest Coverage
Ratio"). Section 6. 1 (b) is hereby amended to read in its entirety as follows:
(b) Interest Coverage Ratio. The Borrower shall not permit the
ratio of Pro Forma Consolidated EBITDA to Consolidated Interest Expense
for any fiscal quarter ending during any period listed below, to be
less than the ratio set forth opposite such period:
Period Ratio
------ -----
Closing Date to and including
March 31, 1999 2.50:1.0
April 1, 1999 to and including
March 31, 2000 2.75:1.0
At any time after March 31, 2000 3.00:1.0
Section 7. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of each of the following conditions
precedent:
4
<PAGE>
(a) The Agent shall have received all of the following, each
dated the date of this Amendment (unless otherwise indicated), in form
and substance satisfactory to the Agent:
(i) Amendment Documents. This Amendment and any other
instrument, document or certificate required by the Agent to
be executed or delivered by the Borrower or any other Person
in connection with this Amendment, duly executed by such
Persons (the "Amendment Documents");
(ii) Resolutions. Resolutions of the board of directors
of the Borrower, certified by its Secretary or Assistant
Secretary, which authorize the execution, delivery and
performance by the Borrower of this Amendment and the other
Amendment Documents to which the Borrower is or is to be a
party hereunder;
(iii) Consent of Required Lenders. The written consent of
the Required Lenders to this Amendment; and
(iv) Additional Information. The Agent shall have
received such additional documents, instruments and
information as the Agent may reasonably request to effect the
transactions contemplated hereby.
(b) The representations and warranties contained herein and in
the Agreement shall be true and correct as of the date hereof as if
made on the date hereof (except for those which by their terms
specifically refer to a different date).
(c) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all other agreements,
documents and instruments executed and/or delivered pursuant hereto,
and all legal matters incident thereto, shall be satisfactory to the
Agent.
(d) No Default or Event of Default shall have occurred and be
continuing.
Section 8. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that as of the date of and
after giving effect to this Amendment, (a) the execution, delivery and
performance of this
5
<PAGE>
Amendment and any and all other Amendment Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of the Borrower and will not violate the Borrower's certificate of
incorporation or bylaws, (b) all representations and warranties set forth in the
Agreement and in any other Loan Document are true and correct as if made again
on and as of such date (except those, if any, which by their terms specifically
relate only to a different date), (c) no Default or Event of Default has
occurred and is continuing, and (d) the Agreement (as amended by this
Amendment), and all other Loan Documents are and remain legal, valid, binding
and enforceable obligations in accordance with the terms thereof.
Section 9. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or the Lenders, or any closing,
shall affect the representations and warranties or the fight of the Agent and
the Lenders to rely upon them.
Section 1O. Reference to Agreement. Each of the Loan
Documents, including the Agreement, and any and all other agreements, documents
or instruments now or hereafter executed and/or delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement, whether
direct or indirect, shall mean a reference to the Agreement as amended hereby.
Section 11. Governing Law. This Amendment shall be deemed to
be a contract made under and governed by and construed in accordance with the
internal laws (as opposed to the conflicts of laws provisions) of the State of
New York.
Section 12. Execution. This Amendment may be executed in
counterparts, each of which shall be an original and all of which, collectively,
shall constitute one instrument. Although for convenience this Amendment is
dated as of the date first above written, the actual date of execution hereof by
the parties hereto is the date set forth on the signature page hereto, and this
Amendment shall be effective on, and shall not be binding upon the Borrower, the
Lenders or the Agent until, the delivery of this Amendment.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their officers hereunder duly authorized as of
the date first above written.
BMJ MEDICAL MANAGEMENT,
INC., as the Borrower
By: /s/ David H. Fater
-----------------------------------
Name: David H. Fater
Title: Executive Vice President and CFO
7
<PAGE>
PARIBAS, as Agent and as Lender
By: /s/ CLARE BAILHE
-----------------------------------
Name: CLARE BAILHE
Title: Director
By: /s/ DON UNRUH
-----------------------------------
Name: DON UNRUH
Title: Vice President
8
<PAGE>
FLEET CAPITAL CORPORATION, as
a Lender
By: /s/ JAMES J. KARVOWSKY
-----------------------------------
Name: JAMES J. KARVOWSKY
Title: VICE PRESIDENT
9
<PAGE>
THE ING CAPITAL SENIOR
SECURED HIGH INCOME FUND, L.P.,
as a Lender
By: ING Capital Advisors, Inc., as
Investment Advisor
By: /S/ Michael D. Hatley
-----------------------------------
Name: Michael D. Hatley
Title: Senior Vice President
10
<PAGE>
SILICON VALLEY BANK, as a
Lender
By: /S/ Kittridge Chamberlain
-----------------------------------
Name: Kittridge Chamberlain
Title: Senior Vice President
11
<PAGE>
Schedule B
Partial Period Pro Forma EBITDA
Quarters ending 6/30/98, 9/30/98, 12/31/98, 3/31/99 and 6/30/99
CR * 1/12 * NQ * 0.85 * Relevant Management Fee Percentage* 4
CR = collected revenues during the 12-month period prior to acquisition
NQ = number of months in relevant quarter during which the Medical Group was not
affiliated
Relevant Management Fee Percentage = the management fee percentage payable to
the Borrower pursuant to the Management Services Agreement applicable to
the Affiliated Medical Group
Quarter ending 9/30/99
CR * 1/12 * N6 * 0.85 * Relevant Management Fee Percentage * 2
N6 = number of months in six month period ending 9/30/99 during which the
Medical Group was not affiliated
Quarter ending 12/31/99
CR * 1/12 * N9 * 0.85 * Relevant Management Fee Percentage * 4/3
N9 = number of months in nine month period ending 12/31/99 during which the
Medical Group was not affiliated
All quarters after 12/31/99
CR * 1/12 * N12 * 0.85 * Relevant Management Fee Percentage
N12 = number of months in twelve month period ending on the last day of each
quarter during which the Medical Group was not affiliated
SECOND AMENDMENT
to
CREDIT AGREEMENT
among
BMJ MEDICAL MANAGEMENT, INC.
as Borrower
THE LENDERS NAMED HEREIN
and
PARIBAS, as Agent for the Lenders
Dated as of September 3, 1998
<PAGE>
SECOND AMENDMENT
to
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of September 3, 1998, is executed and entered into by and among BMJ Medical
Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth
on the signature pages hereof, and Paribas, in its capacity as agent for the
Lenders (the "Agent").
RECITALS:
A. The Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated June 30, 1998 as amended as of July 20, 1998.
(hereinafter called the "Agreement"; terms defined by the Agreement, where used
in this Amendment, shall have the same meanings herein as are prescribed by the
Agreement),
B. The Borrower, the Lenders and the Agent have agreed to
amend the Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Section References. Unless otherwise expressly
stated herein, all Section references herein shall refer to Sections of the
Agreement.
Section 2. Amendment to Section 2.1 ("Tranche A Loans").
Section 2.1 is hereby amended to replace "$25,000,000" with "$20,000,000 in the
first sentence of such section.
Section 3. Amendment to Section 2.3 ("Revolving Loans").
Section 2.3 is hereby amended to replace "$10,000,000" with "$15,000,000" in the
second sentence of such section.
Section 4. Amendment to Section 5.13 ("Use of Proceeds").
Clause (iii) of the third sentence of Section 5.13 is hereby amended to add the
words "and/or finance" after "to acquire", with the remainder of such section
remaining unchanged.
2
<PAGE>
Section 5. Amendment to Schedule 1. Schedule 1 is hereby
deleted in its entirety and replaced with Schedule 1 attached hereto.
Section 6. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of each of the following conditions
precedent:
(a) The Agent shall have received all of the following, each
dated the date of this Amendment (unless otherwise indicated), in form and
substance satisfactory to the Agent:
(i) Amendment Documents. This Amendment and any other
instrument, document or certificate required by the Agent to be
executed or delivered by the Borrower or any other Person in connection
with this Amendment, duly executed by such Persons (the "Amendment
Documents");
(ii) Resolutions. Resolutions of the board of directors
of the Borrower, certified by its Secretary or Assistant Secretary,
which authorize the execution, delivery and performance by the Borrower
of this Amendment and the other Amendment Documents to which the
Borrower is or is to be a party hereunder;
(iii) Consent of Required Lenders. The written consent of
the Required Lenders to this Amendment; and
(iv) Additional Information. The Agent shall have
received such additional documents, instruments and information as the
Agent may reasonably request to effect the transactions contemplated
hereby.
(b) The representations and warranties contained herein and in
the Agreement shall be true and correct as of the date hereof as if made on the
date hereof (except for those which by their terms specifically refer to a
different date).
(c) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all other agreements, documents
and instruments executed and/or delivered pursuant hereto, and all legal matters
incident thereto, shall be satisfactory to the Agent.
3
<PAGE>
(d) No Default or Event of Default shall have occurred and
be continuing.
Section 7. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that as of the date of and
after giving effect to this Amendment, (a) the execution, delivery and
performance of this Amendment and any and all other Amendment Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate action on the part of the Borrower and will not violate the Borrower's
certificate of incorporation or bylaws, (b) all representations and warranties
set forth in the Agreement and in any other Loan Document are true and correct
as if made again on and as of such date (except those, if any, which by their
terms specifically relate only to a different date), (c) no Default or Event of
Default has occurred and is continuing, and (d) the Agreement (as amended by
this Amendment), and all other Loan Documents are and remain legal, valid,
binding and enforceable obligations in accordance with the terms thereof.
Section 8. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or the Lenders, or any closing,
shall affect the representations and warranties or the right of the Agent and
the Lenders to rely upon them.
Section 9. Reference to Agreement. Each of the Loan Documents,
including the Agreement, and any and all other agreements, documents or
instruments now or hereafter executed and/or delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement, whether
direct or indirect, shall mean a reference to the Agreement as amended hereby.
Section 10. Governing Law. This Amendment shall be deemed to
be a contract made under and governed by and construed in accordance with the
internal laws (as opposed to the conflicts of laws provisions) of the State of
New York.
Section 11. Execution. This Amendment may be executed in
counterparts, each of which shall be an original and all of which, collectively,
shall constitute one instrument. Although for convenience this Amendment is
dated as of
4
<PAGE>
the date first above written, the actual date of execution hereof by the parties
hereto is the date set forth on the signature page hereto, and this Amendment
shall be effective on, and shall not be binding upon the Borrower, the Lenders
or the Agent until, the delivery of this Amendment.
[signature pages follow]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their officers hereunder duly authorized as of
the date first above written.
BMJ MEDICAL MANAGEMENT,
INC., as the Borrower
By: /s/ DAVID H. FATER
-----------------------------------
Name: DAVID H. FATER
Title: Executive Vice President and CFO
S-1
<PAGE>
PARIBAS, as Agent and as Lender
By: /s/ CLARE BAILHE
-----------------------------------
Name: CLARE BAILHE
Title: DIRECTOR
By: /s/ SEAN T. CONION
-----------------------------------
Name: SEAN T. CONION
Title: DIRECTOR
S-2
<PAGE>
FLEET CAPITAL CORPORATION, as
a Lender
By: /s/ JAMES J. KARVOWSKY
-----------------------------------
Name: JAMES J. KARVOWSKY
Title: VICE PRESIDENT
S-3
<PAGE>
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
as a Lender
By: ING Capital Advisors, Inc. as
Investment Advisor
By: /s/ Helen Y. Rhee
-----------------------------------
Name: Helen Y. Rhee
Title: Vice President & Portfolio
Manager
S-4
<PAGE>
SILICON VALLEY BANK, as a
Lender
By: /s/ Kittridge Chamberlain
-----------------------------------
Name: Kittridge Chamberlain
Title: Senior Vice President
S-5
<PAGE>
Schedule 1 to
Credit Agreement
----------------
Lenders and Commitments
-----------------------
<TABLE>
<CAPTION>
Revolving Tranche A Tranche B
Name of Lender Commitment Commitment Commitment
- - -------------- ---------- ---------- ----------
<S> <C> <C> <C>
Paribas $5,565,000 $7,435,000 $5,000,000
Fleet Capital
Corporation $5,145,000 $6,855,000 $3,000,000
The ING Capital
Senior Secured
High Income Fund,
L.P. $ 0 $ 0 $10,000,000
Silicon Valley Bank $4,290,000 $5,710,000 $2,000,000
Paribas Capital Funding LLC $ 0 $ 0 $5,000,000
</TABLE>
THIRD AMENDMENT
to
CREDIT AGREEMENT
among
BMJ MEDICAL MANAGEMENT, INC.
as Borrower
THE LENDERS NAMED HEREIN
and
PARIBAS, as Agent for the lenders
Dated as of October 14, 1998
<PAGE>
THIRD AMENDMENT
to
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
October 14, 1998, is executed and entered into by and among BMJ Medical
Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth
on the signature pages hereof, and Paribas, in its capacity as agent for the
Lenders (the "Agent").
RECITALS:
A. The Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated June 30, 1998 as amended as of July 20, 1998 and
as of September 3, 1998 (hereinafter called the "Agreement"; terms defined by
the Agreement where used in this Amendment, shall have the same meanings herein
as are prescribed by the Agreement).
B. By letter dated September 22, 1998, the Borrower reduced the
Lenders' Tranche A Commitments pursuant to Section 2.12 of the Agreement
effective September 24, 1998.
C. The Borrower, the Lenders and the Agent have agreed to amend
the Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Section References. Unless otherwise expressly stated
herein, all Section references herein shall refer to Sections of the Agreement.
Section 2. Amendment to Section 5.1 ("Information Covenants").
Section 5.1 is hereby amended to add a new subsection (a) as setforth below,
with the existing subsections of such Section 5.1 being renumbered as
appropriate:
(a) Monthly Financial Statements. Beginning with October 1998, within 45
days after the close of each of month, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such month and the related
consolidated statements of income, cash flow and retained earnings
1
<PAGE>
for such month and for the elapsed portion of the fiscal year ended with the
last day of such month, and in each case setting forth comparative figures for
the related periods in the prior fiscal year.
Section 3. Amendment to Section 6. 1 (a) ("Leverage Ratio").
Section 6. 1 (a) is hereby amended to state that the Leverage Ratio for the
fiscal quarter ending September 30, 1998 may not exceed 5.0:1.O. The maximum
Leverage Ratio for each fiscal quarter ending after September 30, 1998 shall
remain unchanged.
Section 4. Amendment to Section 6. 1 (b) ("Interest Coverage
Ratio"). Section6.1(b)isherebyamendedtostatethattheratioofProForma Consolidated
EBITDA to Consolidated Interest Expense for the fiscal quarter ending September
30, 1998 may not be less than 2.0:1.O. The minimum ratio of Pro Forma
Consolidated EBITDA to Consolidated Interest Expense for each fiscal quarter
ending after September 30, 1998 shall remain unchanged.
Section 5. Amendment to Section 6.8 ("Capital Expenditures").
Section 6.8 is hereby amended to read in its entirety as follows:
The Borrower shall not make or incur (or commit to make or
incur) and shall not permit any of its Subsidiaries to make or incur
(or commit to make or incur) Capital Expenditures in fiscal year 1999
which exceed, in the aggregate, $5,000,000, and for any fiscal year
thereafter, $3,000,000; provided that Qualified Acquisitions shall not
be treated as Capital Expenditures for purposes of this Section 6.8;
and provided further that if the maximum amount set forth above for
any period exceeds the aggregate amount of Capital Expenditures made or
incurred (or committed to be made or incurred) during such period, then
the maximum amount set forth above for the following period (but not
any subsequent periods) shall be increased by the amount of such
excess.
Section 6. Amendment to Schedule 1. Schedule 1 is hereby deleted
in its entirety and replaced with Schedule 1 attached hereto.
Section 7. Amendment Fee. The Borrower hereby agrees to pay to
the Agent for the account of the Lenders an amendment fee of ten (10) basis
points on each Lender's Commitment. Such fee shall be due and payable on the
effective date of this Amendment.
2
<PAGE>
Section 8. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of each of the following conditions
precedent:
(a) The Agent shall have received all of the
following, each dated the date of this Amendment (unless otherwise indicated),
in form and substance satisfactory to the Agent:
(i) Amendment Documents. This Amendment and
any other instrument, document or certificate required by the Agent to be
executed or delivered by the Borrower or any other Person in connection with
this Amendment, duly executed by such Persons (the "Amendment Documents");
(11) Resolutions. Resolutions of the board
of directors of the Borrower, certified by its Secretary or Assistant Secretary,
which authorize the execution, delivery and performance by the Borrower of this
Amendment and the other Amendment Documents to which the Borrower is or is to be
a party hereunder;
(iii) Consent of the Required Lenders. The
written consent of the Required Lenders to this Amendment; and
(iv) Additional Information. The Agent shall
have received such additional documents, instruments and information as the
Agent may reasonably request to effect the transactions contemplated hereby.
(b) The representations and warranties contained
herein and in the Agreement shall be true and correct as of the date hereof
as if made on the date hereof (except for those which by their terms
specifically refer to a different date).
(c) All corporate proceedings taken in connection
with the transactions contemplated by this Amendment and all other
agreements, documents and instruments executed and/or delivered pursuant hereto,
and all legal matters incident thereto, shall be satisfactory to the Agent.
(d) No Default or Event of Default shall have
occurred and be continuing.
3
<PAGE>
Section 9. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that as of the date of and
after giving effect to this Amendment, (a) the execution, delivery and
performance of this Amendment and any and all other Amendment Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate action on the part of the Borrower and will not violate the Borrower's
certificate of incorporation or bylaws, (b) all representations and warranties
set forth in the Agreement and in any other Loan Document are true and correct
as if made again on and as of such date (except those, if any, which by their
terms specifically relate only to a different date), (c) no Default or Event of
Default has occurred and is continuing, and (d) the Agreement (as amended by
this Amendment), and all other Loan Documents are and remain legal, valid,
binding and enforceable obligations in accordance with the terms thereof
Section 1O. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or the Lenders, or any closing,
shall affect the representations and warranties or the right of the Agent and
the Lenders to rely upon them.
Section 11. Reference to Agreement. Each of the Loan
Documents, including the Agreement, and any and all other agreements, documents
or instruments now or hereafter executed and/or delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement whether
direct or indirect, shall mean a reference to the Agreement as amended hereby.
Section 12. Governing Law. This Amendment shall be deemed to be
a contract made under and governed by and construed in accordance with the
internal laws (as opposed to the conflicts of laws provisions) of the State of
New York.
Section 13. Execution. This Amendment may be executed in
counterparts, each of which shall be an original and all of which, collectively,
shall constitute one instrument.
Section 14. Limited Effect. This Amendment relates only to the
specific matters covered herein, shall not be considered to be a waiver of any
rights
4
<PAGE>
any Lender may have under the Agreement, and shall not be considered to create a
course of dealing or to otherwise obligate any Lender to execute similar
amendments or grant any waivers under the same or similar circumstances in the
future.
Section 15. Ratification By Guarantors. Each of the Guarantors
hereby agrees to this Amendment and acknowledges that such Guarantor's Guarantee
shall remain in full force and effect without modification thereto.
[signature pages follow]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their officers hereunder duly authorized as of
the date first above written.
BMJ MEDICAL MANAGEMENT,
INC., as the Borrower
BY: /s/ DAVID H. FATER
------------------------------
Name: DAVID H. FATER
Title: CFO
GUARANTORS:
BMJ of Bakersfield Inc.
BMJ of Bethlehem, Inc.
BMJ BROG. Inc.
BMJ Capital Corp.
BMJ of Chandler, Inc.
BMJ of Glendale, Inc.
BMJ IPA of Florida, Inc.
BMJ of Lake Tahoe, Inc.
BMJ of Nevada, Inc.
BMJ of North Broward, Inc.
BMJ of San Antonio, Inc.
BMJ of Santa Barbara, Inc.
Orthopaedic Management Network, Inc.
Valley Sports Surgeons, Inc.
All By: /s/ DAVID H. FATER
------------------------------
Name: CFO
Title:
S-1
<PAGE>
BMJ Surgical Associates of Bakers-
field, Limited Partnership
By: BMJ of Bakersfield, Inc. its general
partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
Surgical Associates of Lake Tahoe,
Limited Partnership
By: BMJ of Lake Tahoe, Inc., its general
partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
Surgical Associates of North Broward,
Limited Partnership
BY: BMJ of North Broward, Inc., its
general partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
S-2
<PAGE>
PARIBAS, as Agent and as a Lender
By: /s/ CLARE BAILHE
-----------------------
Name:
Title:
By: /s/ DON L. UNRUH
-----------------------
Name: VICE PRESIDENT
Title:
S-3
<PAGE>
FLEET CAPITAL CORPORATION, as
a Lender
By: /s/ JAMES J. KARVOWSKI
-----------------------
Name: JAMES J. KARVOWSKI
Title: VICE PRESIDENT
S-4
<PAGE>
THE ING CAPITAL SENIOR SE-
CURED HIGH INCOME FUND, L.P.
as a Lender
By: ING Capital Advisors, Inc., as in-
vestment Advisor
By: /s/ HELEN Y. RHEE
----------------------------------
Name: HELEN Y. RHEE
Title: VICE PRESIDENT & PORTFOLIO
MANAGER
S-5
<PAGE>
SILICON VALLEY BANK, as a
Lender
By: /s/ KITTRIDGE CHAMBERLAIN
----------------------------------
Name: KITTRIDGE CHAMBERLAIN
Title: SVP
(3rd Amendment)
S-6
<PAGE>
PARIBAS CAPITAL FUNDING LLC,
as a Lender
By: /s/ JEFFREY J. YOULE
----------------------------------
Name: JEFFREY J. YOULE
Title: DIRECTOR
S-7
<PAGE>
Schedule 1 to
Credit Agreement
----------------
<TABLE>
<CAPTION>
Lenders and Commitments
-----------------------
Revolving Tranche A Tranche B
Name of Lender Commitment Commitment Commitment
- - -------------- ---------- ---------- ----------
<S> <C> <C> <C>
Paribas $5,565,000 $3,158,600 $5,000,000
Fleet Capital
Corporation $5,145,000 $2,913,800 $3,000,000
The ING Capital
Senior Secured
High Income Fund,
L.P. $0 $0 $10,000,000
Silicon Valley Bank $4,290,000 $2,427,600 $2,000,000
Paribas Capital Funding LLC $0 $0 $5,000,000
</TABLE>
FOURTH AMENDMENT
to
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of November 2, 1998, is executed and entered into by and among BMJ Medical
Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth
on the signature pages hereof, and Paribas, in its capacity as agent for the
Lenders (the "Agent").
RECITALS:
A. The Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated June 20, 1998 as amended as of July 20, 1998,
September 3, 1998 and October 14, 1998 (hereinafter called the "Agreement";
terms defined by the Agreement, where used in this Amendment, shall have the
same meanings herein as are prescribed by the Agreement).
B. The Borrower has received a financing proposal from Copelco
Capital for a non-recourse credit facility in an amount not to exceed $2 million
(the "Copelco Financing") to provide for improvements to an Ancillary Service
Facility located in Bakersfield, California (the "Bakersfield ASF") and owned by
BMJ Surgical Associates of Bakersfield, Limited Partnership ("BMJ Bakersfield
LP").
C. BMJ of Bakersfield, Inc., a subsidiary of the Borrower ("BMJ
Bakersfield"), is the general partner and 50% owner of BMJ Bakersfield LP.
D. In connection with the Copelco Financing, the Borrower has
requested that the Lenders release their security interest in the Collateral
consisting of the assets located at the Bakersfield ASF and consent to the
taking of a lien by Copelco Capital on the general partnership interest of BMJ
Bakersfield in BMJ Bakersfield LP (the "GP Interest").
E. The Borrower has informed the Lenders that pursuant to a,
resolution of the Borrower's Board of Directors, the Borrower will be initiating
a restructure plan which may involve, among other things, reducing the number of
its acquisitions, terminating a portion of its Management Services Agreements or
otherwise changing the Borrower's business focus (the "Restructure").
1
<PAGE>
F. The Borrower, the Lenders and the Agent have agreed to amend
the Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
Section 1. Section References. Unless otherwise expressly stated
herein, all Section references herein shall refer to Sections of the Agreement.
Section 2. Amendment to Definition of "Indebtedness". The
definition of Indebtedness is hereby amended by striking the parenthetical
contained in clause (i) of such definition and replacing it with the following:
(other than the Copelco Financing and trade payables incurred in
the ordinary course of business of such Person)
Section 3. Release of Collateral, Consent to Lien. Each of the
Lenders hereby agrees that, upon the closing of the Copelco Financing pursuant
to documentation satisfactory in form and substance to the Lenders, all of the
assets located at the Bakersfield ASF shall be released as Collateral for the
Obligations under the Agreement. Each of the Lenders further agrees to instruct
the Agent to take all necessary action to effect such release of Collateral. In
addition, each of the Lenders hereby consents to the taking of a lien by Copelco
Capital on the GP Interest pursuant to documentation satisfactory in form and
substance to the Lenders.
Section 4. Required Consent for Restructure. The Borrower
acknowledges that the Restructure may materially impact the future financial
condition of the Borrower and hereby agrees that, notwithstanding anything to
the contrary which may be contained in Section 9.5 of the Agreement, the
Restructure shall not be initiated without the prior written consent of all of
the Lenders. This requirement may only be modified by the written consent of all
of the Lenders.
Section 5. Consent for Additional Tranche A Loans. The parties
hereto agree that from and after the effective date of this Amendment, the
Borrower may not borrow Tranche A Loans without the prior written consent of all
of the Lenders. This requirement may only be modified by the written consent of
all of the Lenders.
2
<PAGE>
Section 6. Consent for Changes to Section 6.8 ("Capital Expendi-
tures"). Notwithstanding anything to the contrary which may be contained in
Section 9.5 of the Agreement, the parties hereto agree that from and after the
effective date of this Amendment, Section 6.8 of the Agreement may not be
amended, modified or waived without the prior written consent of all of the
Lenders.
Section 7. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of each of the following conditions
precedent:
(a) The Agent shall have received all of the following,
each dated the date of this Amendment (unless otherwise indicated),
in form and substance satisfactory to the Agent:
(i) Amendment Documents. This Amendment and any other
instrument, document or certificate required by the Agent to be
executed or delivered by the Borrower or any other Person in connection
with this Amendment, duly executed by such Persons (the "Amendment
Documents");
(ii) Resolutions. Resolutions of the board of directors of the
Borrower, certified by its Secretary or Assistant Secretary, which
authorize the execution, delivery and performance by the Borrower of
this Amendment and the other Amendment Documents to which the Borrower
is or is to be a party hereunder;
(iii) Consent of the Lenders. The written consent of the
Lenders to this Amendment; and
(iv) Additional Information. The Agent shall have received such
additional documents, instruments and information as the Agent may
reasonably request to effect the transactions contemplated hereby.
(b) Other than as heretofore disclosed to the Lenders,
the representations and warranties contained herein and in the Agreement shall
be true and correct as of the date hereof as if made on the date hereof (except
for those which by their terms specifically refer to a different date).
3
<PAGE>
(c) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all other agreements,
documents and instruments executed and/or delivered pursuant hereto, and all
legal matters incident thereto, shall be satisfactory to the Agent.
(d) No Default or Event of Default shall have occurred
and be continuing.
Section 8. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that, as of the date of and
after giving effect to this Amendment, (a) the execution, delivery and
performance of this Amendment and any and all other Amendment Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate action on the part of the Borrower and will not violate the Borrower's
certificate of incorporation or bylaws, (b) other than as heretofore disclosed
to the Lenders, all representations and warranties set forth in the Agreement
and in any other Loan Document are true and correct as if made again on and as
of such date (except those, if any, which by their terms specifically relate
only to a different date), (c) no Default or Event of Default has occurred and
is continuing, and (d) the Agreement (as amended by this Amendment), and all
other Loan Documents are and remain legal, valid, binding and enforceable
obligations in accordance with the terms thereof.
Section 9. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or the Lenders, or any closing,
shall affect the representations and warranties or the right of the Agent and
the Lenders to rely upon them.
Section 10. Reference to Agreement. Each of the Loan Documents,
including the Agreement, and any and all other agreements, documents or
instruments now or hereafter executed and/or delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement, whether
direct or indirect, shall mean a reference to the Agreement as amended hereby.
Section 11. Governing Law. This Amendment shall be deemed to be
a contract made under and governed by and construed in accordance with the
internal laws (as opposed to the conflicts of laws provisions) of the State of
New York.
4
<PAGE>
Section 12. Execution. This Amendment may be executed in
counterparts, each of which shall be an original and all of which, collectively,
shall constitute one instrument.
Section 13. Ratification By Guarantors. Each of the Guarantors
hereby agrees to this Amendment and acknowledges that such Guarantor's Guarantee
shall remain in full force and effect without modification thereto.
[signature pages follow]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their officers hereunder duly authorized as of
the date first above written.
BMJ MEDICAL MANAGEMENT,
INC., as the Borrower
BY: /s/ DAVID H. FATER
------------------------------
Name:
Title:
GUARANTORS:
BMJ of Bakersfield Inc.
BMJ of Bethlehem, Inc.
BMJ BROG. Inc.
BMJ Capital Corp.
BMJ of Chandler, Inc.
BMJ of Glendale, Inc.
BMJ IPA of Florida, Inc.
BMJ of Lake Tahoe, Inc.
BMJ of Nevada, Inc.
BMJ of North Broward, Inc.
BMJ of San Antonio, Inc.
BMJ of Santa Barbara, Inc.
Orthopaedic Management Network, Inc.
Valley Sports Surgeons, Inc.
All By: /s/ DAVID H. FATER
------------------------------
Name:
Title:
S-1
<PAGE>
BMJ Surgical Associates of Bakers-
field, Limited Partnership
By: BMJ of Bakersfield, Inc. its general
partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
Surgical Associates of Lake Tahoe,
Limited Partnership
By: BMJ of Lake Tahoe, Inc., its general
partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
Surgical Associates of North Broward,
Limited Partnership
BY: BMJ of North Broward, Inc., its
general partner
By: /s/ DAVID H. FATER
-----------------------
Name:
Title:
S-2
<PAGE>
PARIBAS, as Agent and as a Lender
By: /s/ CLARE BAILHE
-----------------------
Name: CLARE BAILHE
Title: DIRECTOR
By: /s/ SEAN T. CONION
-----------------------
Name: SEAN T. CONION
Title: DIRECTOR
(4th Amendment)
BMJ MEDICAL MGT.
NOV. 2, 1998
S-3
<PAGE>
FLEET CAPITAL CORPORATION, as
a Lender
By: /s/ JAMES J. KARVOWSKI
-----------------------
Name: JAMES J. KARVOWSKI
Title: VICE PRESIDENT
S-4
<PAGE>
THE ING CAPITAL SENIOR SE-
CURED HIGH INCOME FUND, L.P,
as a Lender
By: ING Capital Advisors, Inc., as In-
vestment Advisor
By: /s/ HELEN Y. RHEE
-----------------------
Name: HELEN Y. RHEE
Title: VICE PRESIDENT & PORTFOLIO
MANAGER
S-5
<PAGE>
SILICON VALLEY BANK, as a Lender
By: /s/ KITTRIDGE CHAMBERLAIN
----------------------------
Name: KITTRIDGE CHAMBERLAIN
Title: SVP
BMJ Medical Management
(4th Amendment)
S-6
<PAGE>
PARIBAS CAPITAL FUNDING LLC,
as a Lender
By: /s/ JEFFREY J. YOULE
----------------------------
Name: JEFFREY J. YOULE
Title: DIRECTOR
S-7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BMJ
MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 613,000
<SECURITIES> 0
<RECEIVABLES> 54,981,000
<ALLOWANCES> (27,979,000)
<INVENTORY> 0
<CURRENT-ASSETS> 36,533,000
<PP&E> 15,230,000
<DEPRECIATION> 1,798,000
<TOTAL-ASSETS> 117,322,000
<CURRENT-LIABILITIES> 11,168,000
<BONDS> 0
0
4,957,000
<COMMON> 18,000
<OTHER-SE> 57,958,000
<TOTAL-LIABILITY-AND-EQUITY> 117,322,000
<SALES> 0
<TOTAL-REVENUES> 38,114,000
<CGS> 0
<TOTAL-COSTS> 38,120,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,010,000
<INCOME-PRETAX> (2,016,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,016,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,038,000)
<CHANGES> 0
<NET-INCOME> (5,054,000)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0<F1>
<FN>
<F1> AMOUNT IS ANTI-DILUTIVE
</FN>
</TABLE>
