<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1999
REGISTRATION NO. 333-80337
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO THE
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEAM HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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TENNESSEE 8099 62-1562558
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1900 WINSTON ROAD
KNOXVILLE, TENNESSEE 37919
(800) 342-2898
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
C/O DAVID JONES
CHIEF FINANCIAL OFFICER
1900 WINSTON ROAD, SUITE 300
KNOXVILLE, TENNESSEE 37919
(800) 342-2898
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
JOSHUA KORFF, ESQ.
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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ALLIANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WEST VIRGINIA 8099 55-0739050
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
CHARLES L. SPRINGFIELD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 94-2713012
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
CLINIC MANAGEMENT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1453392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DANIEL & YEAGER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ALABAMA 8099 63-1009913
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DRS. SHEER, AHEARN & ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 59-1237521
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
EMERGENCY COVERAGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1130266
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
EMERGENCY MANAGEMENT SPECIALISTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WEST VIRGINIA 8099 55-0632298
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
EMERGENCY PHYSICIAN ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW JERSEY 8099 22-2213199
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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EMERGENCY PHYSICIANS OF MANATEE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0051890
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
EMERGENCY PROFESSIONAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 8099 94-2460636
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
EMERGICARE MANAGEMENT, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-0881710
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
FISCHER MANGOLD PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 94-1731121
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
HERSCHEL FISCHER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 94-3262291
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
HOSPITAL BASED PHYSICIAN SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1535401
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
IMBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0622847
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET ANESTHESIA OF WEST VIRGINIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WEST VIRGINIA 8099 65-0746470
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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INPHYNET CONTRACTING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0622862
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET HOSPITAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0622855
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET JOLIET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0086608
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET LOUISIANA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0125286
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET MEDICAL MANAGEMENT INSTITUTE
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0652251
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INPHYNET SOUTH BROWARD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0726225
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
KARL G. MANGOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 91-1775707
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
MED: ASSURE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1304911
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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METROAMERICAN RADIOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NORTH CAROLINA 8099 56-1657199
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
MT. DIABLO EMERGENCY PHYSICIANS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 68-0049611
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
NEO-MED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0456767
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
NORTHWEST EMERGENCY PHYSICIANS, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WASHINGTON 8099 91-1753075
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PARAGON ANESTHESIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 59-2092416
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PARAGON CONTRACTING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0622859
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PARAGON HEALTHCARE LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0426893
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PARAGON IMAGING CONSULTANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0410357
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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QUANTUM PLUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 8099 94-3259635
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
REICH, SEIDELMAN, & JANICKI CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 8099 34-1245634
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ROSENDORF, MARGULIES, BORUSHOK & SHOENBAUM RADIOLOGY ASSOCIATES OF HOLLYWOOD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 59-1226776
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SARASOTA EMERGENCY MEDICAL
CONSULTANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 65-0195332
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SOUTHEASTERN EMERGENCY PHYSICIANS OF MEMPHIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1453389
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SOUTHEASTERN EMERGENCY PHYSICIANS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1266047
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
TEAM HEALTH BILLING SERVICES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1727916
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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TEAM HEALTH FINANCIAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TENNESSEE 8099 62-1727919
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
TEAM HEALTH SOUTHWEST, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 8099 63-1201377
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
TEAM RADIOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NORTH CAROLINA 8099 56-1844186
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
THBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 8099 62-1727916
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
THE EMERGENCY ASSOCIATES FOR MEDICINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 8099 59-2862461
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
VIRGINIA EMERGENCY PHYSICIANS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
VIRGINIA 8099 54-1629761
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED , 1999
PROSPECTUS
, 1999
TEAM HEALTH, INC.
EXCHANGE OFFER FOR $100,000,000 12% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR $100,000,000 12% SERIES B SENIOR SUBORDINATED NOTES DUE 2009.
- - The exchange offer expires at 5:00 p.m. New York City time on ,
1999, unless we extend this date.
- - If you decide to participate in this exchange offer, the exchange notes you
receive will be the same as old notes, except the exchange notes will be
registered with the Securities and Exchange Commission and you will be able to
offer and sell them freely to any potential buyer. This is beneficial to you
since your old notes are not registered with the Securities and Exchange
Commission and may not be offered or sold without registration or an exemption
from registration under federal securities laws.
- - There is no public market for the old notes or the exchange notes. However,
the old notes and the exchange notes can be traded in The Portal Market.
- - You will not owe additional federal income taxes if you exchange your notes.
- - We will not receive any proceeds from the exchange of these notes.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
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Prospectus Summary............... 1
Risk Factors..................... 9
The Recapitalization
Transactions................... 20
Use of Proceeds.................. 26
Capitalization................... 26
Selected Historical Financial
Data........................... 27
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 30
Business......................... 42
Management....................... 59
Ownership of Securities.......... 66
Relationships and Related
Transactions................... 67
Description of Capital Stock..... 70
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Description of Senior Bank
Facilities..................... 71
Description of Exchange Notes.... 75
The Exchange Offer............... 113
United States Federal Income Tax
Considerations................. 121
Plan of Distribution............. 121
Legal Matters.................... 122
Experts.......................... 122
Available Information............ 123
Index to Unaudited Pro Forma
Condensed Financial
Information.................... P-1
Index to Audited Financial
Statements..................... F-1
Index to Unaudited Financial
Statements..................... F-20
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PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It probably does not contain all the information that is important to you. For a
more complete understanding of this exchange offer, we encourage you to read
this entire document and the documents we have referred you to.
In addition, our management has estimated the market share percentages
provided in this prospectus. We believe these estimates to be reliable, but
these numbers have not been verified by an independent source.
THE OLD NOTE OFFERING
Old Notes..................... We sold the old notes to Donaldson, Lufkin &
Jenrette, an investment banking firm, on March
5, 1999. DLJ subsequently resold the old notes
to qualified institutional buyers under Rule
144A of the Securities Act of 1933.
Registration Rights
Agreement..................... We and Donaldson, Lufkin & Jenrette entered
into a registration rights agreement on March
12, 1999. This agreement grants the holder of
the old notes exchange and registration rights.
We intend for the exchange offer to satisfy
these exchange rights. The exchange rights
terminate upon the consummation of the exchange
offer.
THE EXCHANGE OFFER
Securities Offered............ Up to $100,000,000 of 12% series B senior
subordinated notes due 2009. The terms of the
exchange notes and old notes are identical in
all significant respects, except for some
transfer restrictions and registration rights
relating to the old notes.
The Exchange Offer............ We are offering to exchange the old notes for
exchange notes that are equal in principal
amount. You may exchange old notes only in
integral principal multiples of $1,000.
Expiration Date; Withdrawal
of Tender................... Our exchange offer will expire on 5:00 p.m.,
New York City time, on , 1999, or at
a later date and time as we may extend. You may
withdraw your tender of old notes at any time
prior to the expiration date. We will return to
you any old notes not accepted by us for
exchange for any reason without expense to you
as promptly as possible after the expiration or
termination of our exchange offer.
Conditions to the Exchange
Offer......................... We believe, based on an interpretation by the
staff of the Securities and Exchange Commission
set forth in no-action letters that the staff
of the Securities and Exchange Commission has
issued to third parties, that you may offer for
resale, resell or otherwise transfer the
exchange notes without complying with the
registration and prospectus delivery provisions
of the Securities Act of 1933, provided that:
- the exchange notes are acquired in the
ordinary course of your business,
- you do not intend to participate and
have no arrangement or understanding
with any person to participate in the
distribution of the exchange notes and
- you are not our "affiliate" within the
meaning of Rule 405 under the
Securities Act of 1933.
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Our obligation to accept for exchange, or to
issue the exchange notes in exchange for, any
old notes is subject to:
- customary conditions relating to
compliance with any applicable law,
- any applicable interpretation by any
staff of the Securities and Exchange
Commission, or
- any order of any governmental agency
or court of law.
We currently expect that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange
Offer -- Conditions."
Procedures for Tendering Old
Notes......................... Each holder of old notes wishing to accept the
exchange offer must complete, sign and date the
accompanying letter of transmittal, or a
facsimile of the letter of transmittal,
following the instructions. The holder must
mail or otherwise deliver the letter of
transmittal, or the facsimile, together with
the old notes and any other required
documentation to the exchange agent at the
address set forth in the section "The Exchange
Offer" under the heading "Procedures for
Tendering Old Notes."
Use of Proceeds............... We will not receive any cash proceeds from the
exchange of notes in our exchange offer.
Exchange Agent................ United States Trust Company of New York is
serving as the exchange agent in connection
with our exchange offer.
Federal Income Tax
Consequences.................. The exchange of old notes under the terms of
the exchange offer should not be a taxable
event to you for federal income tax purposes.
See "United States Federal Income Tax
Considerations."
THE EXCHANGE NOTES
The terms of the exchange notes are identical in all significant respects
to the terms of the old notes, except that the old notes differed with respect
to their restrictions and their registration rights.
Issuer........................ Team Health, Inc.
Total Amount of Exchange Notes
Offered..................... Up to $100.0 million in principal amount of 12%
series B senior subordinated notes, referred to
throughout this document as the "exchange
notes."
Maturity Date................. March 15, 2009.
Interest...................... Annual Rate: 12%.
Payment Frequency: every six months on March 15
and September 15.
First Payment: September 15, 1999
Optional Redemption........... After March 15, 2004, we may redeem some or all
of the exchange notes and any outstanding old
notes at any time at the redemption prices
described in the section "Description of
Exchange Notes" under the heading "Optional
Redemption."
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Before March 15, 2002, we may be able to redeem
up to 33 1/3% of the exchange notes and old
notes with the proceeds of offerings of our
equity at the price listed in the section
"Description of Exchange Notes" under the
heading "Optional Redemption." If less than
66 2/3% of the exchange notes and old notes
will remain outstanding immediately after a
redemption, we may not effect that redemption.
Change of Control
Repurchase.................... If we sell certain of our assets or experience
specific kinds of changes in control, we must
offer to repurchase the exchange notes at a
price equal to 101% of the aggregate principal
amount of any exchange notes purchased plus
accrued and unpaid interest on the exchange
notes purchased. We cannot assure you, however,
that we will have sufficient funds to
repurchase the exchange notes if a change of
control occurs. Moreover, the restrictions in
our senior bank facilities may not allow a
repurchase at the time a change of control
occurs. See "Risk Factors -- Financing of
Change of Control Offer." As of May 31, 1999,
we would be in default on approximately $245
million of our indebtedness if we were required
to make a change of control repurchase as of
that date and were unable to do so.
Subsidiary Guarantees......... Each subsidiary guarantor will fully guarantee
the exchange notes on a joint and several
unsecured, senior subordinated basis. Each
subsidiary guarantor is our subsidiary and a
principal operating subsidiary. As of the date
of this prospectus, all of our direct and
indirect subsidiaries act as guarantors of the
exchange notes. Some of our future domestic
subsidiaries will also guarantee the exchange
notes. Under the circumstances permitted in the
indenture governing the exchange notes, our
board of directors may relieve some of our
subsidiaries of their obligations as guarantors
of the exchange notes by designating them as
Unrestricted Subsidiaries. We have not included
separate financial statements for each of the
subsidiary guarantors because we do not believe
that this information is material to our
investors.
If we cannot make payments on the exchange
notes when they are due, the subsidiary
guarantors must make them instead.
The subsidiary guarantors are also guarantors
of our senior bank facilities and are jointly
and severally liable with us on a senior basis
for such obligations.
To secure the obligations under our senior bank
facilities, we pledged the capital stock of
Team Health and our guarantor subsidiaries. We
and the guarantor subsidiaries also granted
security interests in, or liens on,
substantially all other tangible and intangible
assets of Team Health and our guarantor
subsidiaries.
Ranking of the Exchange
Notes......................... These exchange notes and the subsidiary
guarantees will be senior subordinated debts,
as are the old notes.
3
<PAGE> 13
Assuming we had completed this offering on May
31, 1999 and applied the proceeds as intended,
the exchange notes and the subsidiary
guarantees would have been subordinated to
approximately $147.5 million of senior
indebtedness. No debt of ours having an equal
ranking with the exchange notes and the
subsidiary guarantees or which is subordinate
to the exchange notes and the subsidiary
guarantees would have been outstanding at that
date.
They rank:
- behind all of our and our guarantor
subsidiaries' current and future
senior indebtedness, other than trade
payables;
- behind any other indebtedness that we
or our subsidiary guarantors are
permitted to incur under the terms of
the indenture, unless the indebtedness
expressly provides that it is not
senior to the exchange notes;
- equal with all of our and our
subsidiary guarantors' other senior
subordinated indebtedness; and
- ahead of our and our subsidiary
guarantors' other current and future
indebtedness that expressly provides
that it is not senior to the exchange
notes and the subsidiary guarantees.
Basic Covenants of the
Indenture..................... We will issue the exchange notes under an
indenture with United States Trust Company of
New York, as trustee. The indenture will, among
other things, place limitations on our ability,
and the ability of some of our subsidiaries,
to:
- borrow money or make restricted
payments,
- pay dividends on stock or repurchase
stock,
- make investments,
- enter into transactions with
affiliates,
- use assets as security in other
transactions,
- create liens,
- sell some of our assets or merge with
or into other companies,
- enter into sale and leaseback
transactions, and
- change the nature of our business.
For a more details, see the section
"Description of Exchange Notes" under the
heading "Covenants and Asset Sales."
Transfer Restrictions......... The exchange notes are new securities, and
there is currently no established market for
them. We do not intend to list the exchange
notes on any securities exchange.
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN EXPLANATION
OF SOME RISKS OF INVESTING IN THE EXCHANGE NOTES.
4
<PAGE> 14
TEAM HEALTH, INC.
We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and clinics in the
United States, with 375 hospital contracts in 25 states. Our regional operating
model includes comprehensive programs for emergency medicine, radiology,
inpatient care, pediatrics and other hospital departments. We provide a full
range of physician staffing and administrative services, including the:
- staffing, recruiting and credentialing of clinical and non-clinical
medical professionals;
- provision of administrative support services, such as payroll,
insurance coverage and continuing education services; and
- billing and collection of fees for services provided by the medical
professionals.
Since our inception in 1979, we have focused primarily on providing outsourced
services to hospital emergency departments and urgent care centers, which
accounted for approximately 80% of our net revenue in 1998. We generally target
larger hospitals with high volume emergency departments and urgent care centers
whose patient volume is more than 15,000 patient visits per year. In higher
volume emergency departments and urgent care centers, we believe we can generate
attractive margins, establish stable long-term relationships, obtain attractive
payor mixes and recruit and retain high quality physicians. In 1998, we
generated net revenue of $547.8 million.
THE RECAPITALIZATION TRANSACTIONS
Team Health was recapitalized in a transaction in which Team Health
Holdings, L.L.C. acquired 92.7% of our common stock and 94.3% of our outstanding
preferred stock. Team Health Holdings is a holding company the equity of which
is owned by the equity sponsors described in the section immediately below and
some members of our management. In the recapitalization, MedPartners, Inc., our
indirect parent company prior to the recapitalization, received total
consideration of $336.9 million, consisting of $327.6 million in cash, $6.8
million in equity retained by MedPartners, Inc.'s wholly-owned subsidiary,
Pacific Physician Services, Inc., and the assumption of $2.5 million of existing
indebtedness of MedPartners, Inc. The $327.6 million in cash paid to MedPartners
included an $8.7 million cash payment to some members of our management by Team
Health on behalf of MedPartners with respect to accrued management bonuses owed
by MedPartners to those members of our management. In addition, Team Health
assumed liability for some contingent earnout payments, which we believe will
not exceed a total of $19.8 million. The recapitalization was funded by:
(1) the net proceeds from the offering of our series A 12% senior
subordinated notes referred to in this prospectus as the old notes;
(2) $150.0 million of borrowings by us under the term loan facilities of a
senior credit facility;
(3) a $99.7 million cash equity investment in Team Health Holdings by
affiliates of each of Cornerstone Equity Investors, LLC, Madison
Dearborn Partners, Inc. and Beecken Petty & Company, LLC;
(4) a cash equity investment in Team Health Holdings by our senior
management of approximately $8.5 million; and
(5) the equity of Team Health retained by Pacific Physician Services, Inc.
with a fair market value of $6.8 million.
See "The Recapitalization Transactions."
5
<PAGE> 15
THE EQUITY SPONSORS
The recapitalization was jointly sponsored by Madison Dearborn Partners,
Inc., Cornerstone Equity Investors, LLC and Beecken Petty & Company, LLC.
Affiliates of Madison Dearborn and Cornerstone each contributed 45% of the
equity capital invested by the equity sponsors in the recapitalization, and an
affiliate of Beecken Petty provided 10%. The investment by the equity sponsors
represents an indirect ownership interest in our common equity of approximately
78.7%. The equity sponsors have a history of investing together in healthcare
services companies, including investments in companies as Health Management
Associates and Spectrum Healthcare Services, Inc.
Madison Dearborn Partners, Inc. is a private equity firm that focuses on
investments in private companies primarily in the healthcare, communications,
natural resources, consumer and industrial sectors. Madison Dearborn
professionals currently manage three funds, with aggregate committed capital of
over $3.5 billion. Prior to forming Madison Dearborn in 1993, its principals
managed the $2.4 billion management buyout and venture capital portfolio of
First Chicago Corporation. Since 1980, Madison Dearborn professionals have
invested in more than 120 management buyout and equity transactions, including
investments in healthcare services companies such as Health Management
Associates, Spectrum Healthcare Services, Inc., Cerner Corporation and Genesis
Health Ventures. In other industries, Madison Dearborn has made investments in
companies such as Nextel Communications, Inc., Buckeye Cellulose Corporation,
General Nutrition Companies, Inc., Allegiance Telecom, Inc. and Tuesday Morning
Corporation. The funds for Madison Dearborn's equity investment in Team Health
Holdings, L.L.C. came from its second private equity fund, Madison Dearborn
Capital Partners II, L.P., a fund with $925 million of committed capital.
Cornerstone Equity Investors, LLC is a private equity firm that focuses on
investments in middle-market companies, primarily in the healthcare services,
business services, consumer and technology industries. Since 1984, Cornerstone
has managed four funds with aggregate committed capital of $1.2 billion and has
invested in over 80 companies through management buyouts and expansion
financings. Cornerstone has invested in a number of healthcare services
companies, such as Health Management Associates, Spectrum Healthcare Services,
Inc., VIPS Healthcare Information Solutions, Inc., Interim Healthcare, Inc., and
Guardian Care. In other industries, Cornerstone has invested in companies such
as Dell Computer, Card Establishment Services, Crossland Mortgage and True
Temper Sports, Inc. The funds for Cornerstone's equity investment in Team Health
Holdings, L.L.C. came from its fourth private equity fund, Cornerstone Equity
Investors IV, L.P., a fund with $555 million of committed capital.
Beecken Petty & Company, LLC is a private equity firm that focuses
exclusively on the healthcare services industry. Since 1995, Beecken Petty has
invested in a wide range of healthcare services companies, including Spectrum
Healthcare Services, Inc., DentalCare Partners, and Alternative Living Services.
The funds for Beecken Petty's equity investment in Team Health Holdings, L.L.C.
came from Healthcare Equity Partners, L.P. and Healthcare Equity Q.P. Partners,
L.P., which together represent $150 million of committed capital.
6
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are our summary historical and pro forma financial data.
(1) We have derived the historical financial data for the three months
ended March 31, 1999 and 1998 from, and you should read the data in
conjunction with, our unaudited financial statements and related notes
to the unaudited financial statements included elsewhere in this
prospectus. Results for the interim periods are not necessarily
indicative of the results to be expected for the full year or any other
future period.
(2) We have derived the historical financial data for each of the three
fiscal years ended December 31, 1998 from, and you should read the data
in conjunction with, our audited financial statements and related notes
to the audited financial statements included elsewhere in this
prospectus.
(3) We have derived the historical financial data for the fiscal year ended
December 31, 1995 from, and you should read the data in conjunction
with, our audited financial statements and the notes to the audited
financial statements not included in this prospectus.
(4) We have derived the historical financial data for the fiscal year ended
December 31, 1994 from, and you should read the data in conjunction
with, our unaudited financial statements.
(5) We have derived the unaudited pro forma financial data derived from,
and you should read the data in conjunction with, the Unaudited Pro
Forma Financial Information and the related notes to the Unaudited Pro
Forma Financial Information included elsewhere in this prospectus. The
pro forma data as of and for the periods presented give effect to the
recapitalization transactions as if they were consummated at the
beginning of the period indicated.
See "The Recapitalization Transactions," "Unaudited Pro Forma Financial
Information," "Selected Historical Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the historical
financial statements and the related notes to the historical financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................... $351,857 $411,695 $463,380 $511,236 $547,785 $133,026 $137,877
Professional expenses.......... 278,585 316,526 353,593 398,738 430,362 104,886 108,388
-------- -------- -------- -------- -------- -------- --------
Gross profit................... 73,272 95,169 109,787 112,498 117,423 28,140 29,489
General and administrative
expenses..................... 48,479 52,241 62,441 61,642 58,362 15,127 15,744
Depreciation and
amortization................. 3,673 4,808 5,628 6,455 9,740 2,038 2,351
Net income (loss).............. $ 19,272 $ 21,560 $ 18,955 $ 2,266 $ 20,526 $ 5,534 $ (7,460)
OTHER DATA:
EBITDA(1)...................... $ 24,793 $ 42,928 $ 47,346 $ 50,856 $ 59,061 $ 13,013 $ 13,745
Net cash provided by (used in):
Operating Activities......... 23,777 7,560 12,405 43,342 43,370 13,016 8,330
Investing Activities......... (14,440) (6,241) (11,423) (34,339) (22,864) (10,719) (1,799)
Financing Activities......... (5,545) 17,414 (3,432) (9,122) (22,080) 5,932 10,324
Capital expenditures........... 2,504 6,620 6,854 7,474 5,015 1,112 1,537
Ratio of earnings to fixed
charges(2)................... 10.0x 13.6x 10.9x 3.8x 17.2x 10.0x (4.6x)
THREE MONTHS
ENDED
MARCH 31,
1999
--------
PRO FORMA DATA:
EBITDA (3)................................................................ $ 54,268 12,506
Net cash provided by (used in):
Operating Activities.................................................... 30,726 5,123
Investing Activities.................................................... (22,864) (1,799)
Financing Activities.................................................... (27,643) 10,324
Cash interest expense (4)................................................. 24,932 6,234
</TABLE>
7
<PAGE> 17
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,894 $ 20,327
Working capital........................................... 99,469 102,877
Total assets.............................................. 229,956 370,671
Total debt................................................ 2,544 247,508
Total shareholders' equity................................ 99,953 37,147
</TABLE>
- ------------------------------
(1) EBITDA represents income before income taxes plus depreciation and
amortization, interest expense and what we consider non-operational charges
such as goodwill impairment, MedPartners' management fees, Novation Program
expense, merger expense, other expenses and recapitalization expense. We
have included information concerning EBITDA because we believe that EBITDA
is generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared under generally accepted accounting principles ("GAAP") in the
United States and is not indicative of operating income or cash flow from
operations as determined under GAAP. We understand that while EBITDA is
frequently used by securities analysts in the evaluation of companies,
EBITDA, as used in this prospectus, is not necessarily comparable to other
similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(2) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes plus fixed
charges. For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expensed or capitalized and the portion of
rental expenses we believe is representative of the interest component of
rental expenses. Our income before income taxes for the three months ended
March 31, 1999, was not sufficient by approximately $9,698 to cover the
fixed charges for the period. This deficiency was directly related to
expenses incurred as a result of the recapitalization transactions.
(3) Pro forma EBITDA represents EBITDA less estimated stand-alone costs plus the
effects of some non-recurring transactions in 1998. Pro forma EBITDA has not
been reduced by a management fee payable under the Management Services
Agreement, which is contractually subordinated to all obligations under the
exchange notes and the senior bank facilities.
(4) Cash interest expense excludes amortization of deferred financing fees and
other non-cash interest expenses.
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<PAGE> 18
RISK FACTORS
An investment in the exchange notes is subject to a number of risks. You
should carefully consider the following factors, as well as the more detailed
descriptions cross-referenced to the body of the prospectus and the other
matters described in this prospectus.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD HAVE A
SIGNIFICANT NEGATIVE EFFECT ON THE FINANCIAL HEALTH OF OUR COMPANY AND PREVENT
US FROM FULFILLING OUR OBLIGATIONS UNDER THESE EXCHANGE NOTES. We have a
significant amount of indebtedness. The following chart is presented assuming we
had completed the recapitalization transactions as of the dates or at the
beginning of the periods specified below and applied the proceeds as intended:
<TABLE>
<CAPTION>
AT MAY 31, 1999
(IN MILLIONS)
<S> <C>
Total indebtedness.......................................... $247.5
Indebtedness senior to the exchange notes................... $147.5
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult to pay our debts as they become due during
general negative economic and market industry conditions;
- increase our vulnerability to general negative economic and industry
conditions;
- require a substantial portion of our cash flow from operations for debt
payments, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, acquisitions and other general
corporate purposes; and
- limit our ability to borrow additional funds.
ABILITY TO SERVICE DEBT -- WE MAY NOT HAVE SUFFICIENT CASH FROM CASH FLOW
FROM OPERATIONS, AVAILABLE CASH AND AVAILABLE BORROWINGS UNDER OUR SENIOR BANK
FACILITIES TO SERVICE OUR INDEBTEDNESS, WHICH WILL REQUIRE A SIGNIFICANT AMOUNT
OF CASH. Our ability to make payments on and to refinance our indebtedness,
including these exchange notes, and to fund planned capital expenditures will
depend on our ability to generate cash in the future as well as general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. We cannot assure you that our cash flow from operations,
available cash and available borrowings under our senior bank facilities will be
adequate to meet our future liquidity needs for at least the next few years.
In addition, if our business were significantly negatively affected by
events related to the risks described in this prospectus, we may need to
refinance all or a portion of our indebtedness, including these exchange notes,
on or before maturity. We might not be able to refinance any of our
indebtedness, including our senior bank facilities and these exchange notes, on
commercially reasonable terms or at all.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE EXCHANGE NOTES IS
JUNIOR TO MOST OF OUR EXISTING INDEBTEDNESS AND POSSIBLY MOST OF OUR FUTURE
BORROWINGS. FURTHER, THE GUARANTEES OF THESE EXCHANGE NOTES ARE JUNIOR TO MOST
OF OUR SUBSIDIARY GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR
FUTURE BORROWINGS. These exchange notes and the subsidiary guarantees rank
behind all of our and the subsidiary guarantors' existing indebtedness, other
than trade payables, and all of our and their future borrowings, except any
future indebtedness that expressly provides that it ranks equal with, or
subordinated in right of payment to, the exchange notes and the guarantees. As a
result, upon any distribution to our creditors or the creditors of the
subsidiary guarantors in a bankruptcy or similar proceeding relating to us or
the guarantors, the holders of senior debt of Team Health and the subsidiary
guarantors will be entitled to be paid in full in cash before any payment may be
made with respect to these exchange notes or the subsidiary guarantees.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to Team Health or the subsidiary guarantors, holders of the
exchange notes will participate with all other holders of our subordinated
indebtedness and the subsidiary guarantors in the assets remaining after we and
the
9
<PAGE> 19
subsidiary guarantors have paid all of the senior debt. Because our senior debt
must be paid first, you may receive proportionately less than trade creditors in
any proceeding. In any of these cases, we and the subsidiary guarantors may not
have sufficient funds to pay all of our creditors, therefore, holders of these
exchange notes may receive ratably less than trade creditors.
RESTRICTIONS IMPOSED BY THE SENIOR BANK FACILITIES AND THE INDENTURE -- WE
ARE SUBJECT TO RESTRICTIONS CONTAINED IN OUR SENIOR BANK FACILITIES AND IN THE
INDENTURE. FAILURE TO COMPLY WITH ANY OF THE RESTRICTIONS COULD RESULT IN
ACCELERATION OF OUR DEBT. Our senior bank facilities and the indenture restrict
our ability, and the ability of some of our subsidiaries, to take various
actions and enter into various types of transactions commonly undertaken by
business entities including our ability to:
- borrow money or make restricted payments,
- pay dividends on stock or repurchase stock,
- make investments,
- enter into transactions with affiliates,
- use assets as security in other transactions,
- create liens,
- sell some of our assets or merge with or into other companies,
- enter into sale and leaseback transactions, and
- change the nature of our business.
In addition, we must maintain minimum debt service and maximum leverage
ratios under the senior bank facilities. A failure to comply with the
restrictions contained in the senior bank facilities and indenture could lead to
an event of default which could result in an acceleration of that indebtedness,
and we may not have enough available cash to immediately repay such
indebtedness. An acceleration under our senior credit facilities would also
constitute an event of default under the indenture relating to these exchange
notes.
RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY
INSURANCE -- WE COULD BE SUBJECT TO MEDICAL MALPRACTICE LAWSUITS, SOME OF WHICH
WE MAY NOT BE FULLY INSURED AGAINST. In recent years, physicians, hospitals and
other participants in the healthcare industry have become subject to an
increasing number of lawsuits alleging medical malpractice and related legal
theories such as negligent hiring, supervision and credentialing, and vicarious
liability for acts of their employees or independent contractors. Many of these
lawsuits involve large claims and substantial defense costs. Although we do not
principally engage in the practice of medicine or provide medical services nor
control the practice of medicine by our affiliated physicians or the compliance
with regulatory requirements applicable to the physicians and physician groups
with which we contract, we cannot assure you that we will not become involved in
this type of litigation in the future. In addition, through our management of
hospital departments and provision of non-physician healthcare personnel, we
could be named in actions involving care rendered to patients by physicians
employed by or contracting with medical organizations and physician groups with
which we contract. We maintain professional and general liability insurance and
other coverage deemed necessary by us. Nevertheless, we cannot assure you that
the limits of coverage will be adequate to cover losses in all instances.
We are liable for claims against our affiliated physicians for incidents
incurred but not reported during periods for which the related risk was covered
by claims-made insurance. Under GAAP, the cost of medical malpractice claims,
which includes costs associated with litigating or settling claims, is accrued
when the incidents that give rise to the claims occur. The accrual includes an
estimate of the losses that will result from incidents which occurred during the
claims-made period, but were not reported during that period. These claims are
referred to as incurred-but-not-reported claims. We provide insurance to cover
such incurred-but-not-reported claims. This type of insurance is generally
referred to as "tail coverage." With respect to those physicians for whom we
provide tail coverage, we accrue professional insurance expenses based on
estimates of the cost of procuring tail coverage. We cannot assure you that a
future
10
<PAGE> 20
claim will not exceed the limits of available insurance coverage or such accrual
will be sufficient to cover any risks assumed by Team Health.
FUTURE LEGISLATION, REGULATION AND INTERPRETATION -- CHANGES IN THE CURRENT
REGULATORY ENVIRONMENT COULD ADVERSELY AFFECT OUR OPERATIONS BY FORCING US TO
RESTRUCTURE OUR ARRANGEMENTS WITH THE PHYSICIANS AND CLIENTS WITH WHOM WE
CONTRACT. Numerous proposals have been or may be introduced into the United
States Congress and state legislatures relating to healthcare reform in response
to various healthcare issues. We cannot assure you as to the ultimate content,
timing or effect of any healthcare reform legislation, nor is it possible at
this time to estimate the impact of potential legislation. Further, although we
exercise care in structuring our arrangements with physicians to comply in all
significant respects with the above-referenced laws, we cannot assure you that
(1) government officials charged with responsibility for enforcing those
laws will not assert that we or transactions into which we have entered
are in violation of those laws or
(2) those laws will ultimately be interpreted by the governmental entities
or courts in a manner consistent with our interpretation.
The continual flux of healthcare rules and regulations at the federal,
state and local level, could revise the future of our relationships with the
hospitals and physicians with whom we contract.
In addition to the regulations referred to above, aspects of our operations
are also subject to state and federal statutes and regulations governing
workplace health and safety and, to a small extent, the disposal of medical
waste. Our operations may also be affected by changes in ethical guidelines and
operating standards of professional and trade associations and private
accreditation commissions such as the American Medical Association and the Joint
Commission on Accreditation of Healthcare Organizations. Accordingly, changes in
existing laws and regulations, adverse judicial or administrative
interpretations of these laws and regulations or enactment of new legislation
could force us to restructure our relationships with hospitals or physicians.
This could cause our operating costs to increase significantly. A restructuring
could also result in a loss of contracts. Moreover, if we are required to modify
our structure and organization to comply with these laws, such modifications may
not be permitted under the terms of our financing agreements, including the
indenture or the senior bank facilities, thereby requiring us to obtain the
consent of the holders of such indebtedness or requiring the refinancing of such
indebtedness.
COLLECTION RISK -- WE MAY BE UNABLE TO COLLECT A PORTION OF OUR
REVENUE. Our revenue is derived from fees that are either billed and collected
by the hospital, which remits a negotiated amount to us monthly, or, with
respect to our fee-for-service contracts, fees that are billed and collected
separately by us directly or indirectly through our affiliated physicians. Under
fee-for-service contracts, we assume the financial risks related to changes in
patient volume, payor mix and third party reimbursement rates. Our
fee-for-service contractual arrangements also involve a credit risk related to
services provided to uninsured individuals -- a risk exacerbated in the hospital
emergency department or urgent care center physician staffing context by federal
law which requires hospital emergency departments and urgent care centers to
treat all patients regardless of the severity of illness or injury. In 1998, 76%
of our net revenue was generated from fee-for-service contracts. See Notes 2 and
3 of Notes to Consolidated Financial Statements for information concerning
historical allowance for uncollectibles related in large part to fee-for-service
business. In addition, fee-for-service contracts also have less favorable cash
flow characteristics in the start-up phase than traditional flat-rate contracts
due to longer collection periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
GOVERNMENT REGULATION -- REGULATORY MATTERS COULD IMPACT OUR ABILITY TO
CONDUCT OUR BUSINESS BY FORCING US TO MODIFY OUR STRUCTURE IN ORDER TO COMPLY
WITH THESE REGULATORY REGIMES. Our operations and arrangements with healthcare
providers are subject to extensive government regulation, including numerous
laws directed at preventing fraud and abuse and laws regulating billing and
collection of reimbursement from governmental programs, such as the Medicare and
Medicaid programs. Of particular importance are:
(1) provisions of the Omnibus Budget Reconciliation Act of 1993, commonly
referred to as Stark II, that, subject to limited exceptions, prohibit
the referral of Medicare patients by a physician to an
11
<PAGE> 21
entity for the provision of certain "designated health services" if the
physician or a member of such physician's immediate family has a direct or
indirect financial relationship (including a compensation arrangement) with the
entity;
(2) provisions of the Social Security Act, commonly referred to as the
"anti-kickback statute," that prohibit the offering or payment of any
bribe, kickback, rebate or other remuneration in return for the
referral or recommendation of patients for items and services covered
by federal health care programs, such as Medicare and Medicaid;
(3) provisions of the Health Insurance Portability and Accountability Act
of 1996 that prohibit knowingly and willfully executing a scheme or
artifice to defraud any healthcare benefit program or falsifying,
concealing or covering up a material fact or making any material false,
fictitious or fraudulent statement in connection with the delivery of
or payment for healthcare benefits, items, or services;
(4) the federal False Claims Act that imposes civil and criminal liability
on individuals or entities that submit false or fraudulent claims for
payment to the government;
(5) reassignment of payment rules that prohibit certain types of billing
and collection practices in connection with claims payable by the
Medicare and Medicaid programs; and
(6) similar state law provisions pertaining to anti-kickback, self-referral
and false claims issues.
Violations of these laws could subject us to severe fines, civil monetary
penalties and possible exclusion from participation in government sponsored
programs such as Medicare and Medicaid. Any such penalties, if applied to us or
our affiliated physicians, could have a significant negative effect on our
operating results and financial condition. The Stark II law, the anti-kickback
statute, the Health Insurance Portability and Accountability Act, the False
Claims Act, the reassignment of payment rules and some similar state law
provisions may have related rules and regulations which are subject to
interpretation and may not provide definitive guidance as to the application of
those laws, rules or regulations to our operations, including our arrangements
with hospitals, physicians and professional corporations. We have structured our
operations and arrangements with third parties to substantially comply with
these laws, rules and regulations based upon what we believe are reasonable and
defensible interpretations of these laws, rules and regulations. However, we
cannot assure you that our interpretation as to the applicability of these laws,
rules and regulations as they relate to our operations and arrangements with
third parties will not be successfully challenged by the government. If the
government challenges our operations or arrangements with third parties which
have been structured based upon our interpretation of these laws, rules and
regulations, the challenge could potentially disrupt our business operations and
result in our incurring substantial defense costs, even if we successfully
defend our interpretation of these laws, rules and regulations. Moreover, if we
are required to modify our structure and organization to comply with these laws,
such modifications may not be permitted under the terms of our financing
agreements, including the indenture or the senior bank facilities, thereby
requiring us to obtain the consent of the holders of this indebtedness or
requiring the refinancing of this indebtedness. Any restructuring would also
negatively impact our operations because our management's time and attention
would be diverted from running our business in the ordinary course. See
"Business -- Regulatory Matters."
DEBT COLLECTION REGULATION -- OUR INTERNAL COLLECTION AGENCY AND OUR DEBT
COLLECTION PRACTICES COULD BE AFFECTED BY LAWS REGULATING DEBT COLLECTION
PRACTICES. Certain of our operations are subject to compliance with the federal
Fair Debt Collection Practices Act and comparable statutes in many states. Under
the Fair Debt Collection Practices Act, a third-party collection company is
restricted in the methods it uses in contacting consumer debtors and eliciting
payments with respect to placed accounts. Requirements under state collection
agency statutes vary, with most requiring compliance similar to that required
under the Fair Debt Collection Practices Act. Although we believe that we are in
substantial compliance with the Fair Debt Collection Practices Act and
comparable state and municipal statutes, we cannot assure you that our debt
collection practices, including operation of our internal collection agency,
will not violate such statutes in the future.
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REIMBURSEMENT RISK -- OUR REVENUE COULD DECREASE BECAUSE OF LAWS REGULATING
PAYMENTS FOR MEDICAL SERVICES BY GOVERNMENT SPONSORED HEALTHCARE PROGRAMS. In
1998, approximately 30% of the net revenue of our affiliated physician groups
was derived from payments made by government sponsored healthcare programs such
as Medicare and state reimbursed programs. There are increasing public and
private sector pressures to restrain healthcare costs and to restrict
reimbursement rates for medical services. Any change in reimbursement policies,
practices, interpretations, regulations or legislation that places limitations
on reimbursement amounts or practices could materially adversely affect
hospitals, and consequently affect our operations unless we are able to
renegotiate satisfactory contractual arrangements with our hospital clients and
contracted physicians. See "Business -- Regulatory Matters." In addition, while
we seek to comply substantially with applicable Medicare and Medicaid
reimbursement regulations, there can be no assurance that we would be found to
be in compliance in all respects with such regulations. A determination that we
are in violation of such regulations could result in decreased revenues if we
were unable to cure any such condition or if the violation results in a
determination that a substantial amount of money must be repaid by us.
We believe that regulatory trends in cost containment will continue to
result in a reduction from historical levels in per-patient revenue for
physician services. The federal government has implemented, through the Medicare
program, a payment methodology for physician services that sets physician fees
according to a fee schedule that, except for certain geographical and other
adjustments, pays similarly situated physicians the same amount for the same
services. The fee schedule used is known as the "Resource Based Relative Value
System." The Resource Based Relative Value System is adjusted each year and is
subject to increases or decreases at the discretion of Congress. To date, the
implementation of the Resource Based Relative Value System has reduced payment
rates for some of the procedures historically provided by hospital emergency
department or urgent care center physicians and radiologists. Effective January
1, 1999, new Medicare regulations were adopted to provide for reductions in
payments for physician services over a four-year period ending in 2002. The new
regulations provide for the implementation of a resource-based methodology for
payment of physician practice expenses under the physician fee schedule. With
respect to radiology services and services provided in hospital emergency
departments and urgent care centers, there has been a cumulative reduction of
10% in the payments for these physician services. This reduction will be phased
in over a four year period beginning in 1999 with reductions of 2.5% each year
until 2002. These reductions will offset the increases in payments for emergency
department, urgent care center and radiology physician services tied to the
medical economics index and implemented by the Medicare program, which
historically have been approximately 2.5% per year. We cannot assure you,
however, that Medicare will continue to implement the increases tied to the
medical economics index. Consequently, we believe that, with respect to
emergency department, urgent care center and radiology physician services, the
portion of our revenues effected by the Resource Based Relative Value System
will remain constant over the next four years rather than increasing. Over the
last several years, with respect to emergency department, urgent care center and
radiology physician services, approximately $90 to $100 million of our revenues
were derived from sources that will be effected by the Resource Based Relative
Value System. We cannot assure you that we will be able to offset reduced
operating margins through cost reductions, increased volume, the introduction of
additional procedures or otherwise. In addition, we cannot assure you that there
will not be further reductions in the Medicare physician fee schedule in the
future and such reductions could reduce our revenues.
The Medicare program prohibits the reassignment of Medicare payments due to
a physician or other healthcare provider to any other person or entity unless
the billing arrangement between that physician or other healthcare provider and
the other person or entity falls within an enumerated exception to the Medicare
reassignment prohibition. Because there is no exception that allows us to
receive Medicare payments related to the services of independent contractor
physicians, we utilize a "lockbox" model that we believe is in compliance with
the Medicare reassignment rules. Further, as of January 1, 1998, we implemented
a program for compliance with the reassignment regulation and Medicare carriers
have been notified regarding the content of the compliance program. With respect
to independently contracted physicians, the payment for the physician services
are paid into a "lockbox" account under the control of the physician and
subsequently directed into a company account in exchange for our provision of
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management and administrative services to or on behalf of the physician or
physician group. With respect to physicians employed by physician-controlled
professional corporations, the payment for physician services are paid to a
group account under our control. However, we cannot assure you that the lockbox
model utilized by us will not be subject to challenge or scrutiny as a result of
changes in the applicable statutes and regulations or new interpretations of
existing statutes and regulations. We are reviewing our billing arrangements
involving physician-controlled professional corporations and, to ensure
compliance with the Medicare reassignment rules, we may modify those billing
arrangements so that the payment for services provided by employed physicians
are paid into a "lockbox" account under the control of the physician-controlled
professional corporation and subsequently directed into a company account in
exchange for our provision of management and administrative services to or on
behalf of the physician-controlled professional corporation. This change would
create additional costs related to the opening and maintenance of additional
bank accounts.
FACILITY RULES AND REGULATIONS -- WE COULD BE FORCED TO MODIFY OUR
STRUCTURE BY CHANGES IN THE FACILITY RULES AND REGULATIONS TO WHICH MANY OF OUR
CLIENTS ARE SUBJECT. Because we perform services at hospitals, outpatient
facilities and other types of healthcare facilities, we and our affiliated
physicians may be subject to laws which are applicable to such entities. For
example, we are subject to the provisions of the Emergency Medical Treatment and
Active Labor Act of 1986. The Emergency Medical Treatment and Active Labor Act
of 1986 addresses the issue of hospital emergency department or urgent care
center "patient dumping"-- in effect requiring the hospital and emergency
department or urgent care center physicians to provide care to any patient
presenting to the emergency department or urgent care center in an emergent
condition regardless of the patient's ability to pay. Many states in which we
operate, including California, also have similar state law provisions concerning
patient-dumping. In addition to the Emergency Medical Treatment and Active Labor
Act of 1986 and its state law equivalents, our operations and performance of
services are subject to any and all state and federal statutes and regulations
governing workplace health and safety. Our operations are subject to the
American Medical Association's and the Joint Commission Accreditation of
Healthcare Organizations' guidelines. Accordingly, if any of these laws,
regulations or guidelines are amended or a new enactment occurs or standards in
the community change, these changes could have a material adverse effect on the
performance of services by us and force us to modify our relationship with
future and present clients; therefore, this could have an effect on our overall
financial condition. Moreover, if we are required to modify our structure and
organization to comply with any of these changes, such modifications may not be
permitted under the terms of the indenture or the senior bank facilities,
thereby requiring us to obtain the consent of the holders of such indebtedness
or requiring the refinancing of such indebtedness.
ANTITRUST -- WE COULD EXPERIENCE A LOSS OF CONTRACTS WITH OUR PHYSICIANS OR
BE REQUIRED TO SEVER RELATIONSHIPS WITH OUR AFFILIATED PROFESSIONAL CORPORATIONS
IN ORDER TO COMPLY WITH ANTITRUST LAWS. Our contracts with physicians include
contracts with physicians organized as separate legal professional entities
(e.g. professional medical corporations) and as individuals. As such, each such
physician/practice is deemed to be separate, both from Team Health and from each
other, under the antitrust laws and, accordingly, subject to a wide range of
laws that prohibit anti-competitive conduct among separate legal entities or
individuals. A review or action by regulatory authorities or the courts which is
negative in nature as to the relationship between our company and the
physicians/practices with which we contract could force us to terminate our
contractual relationships with physicians and affiliated professional
corporations. Since we derive a significant portion of our revenues from these
relationships, our revenues could substantially decrease. Moreover, if we are
required to modify our structure and organization to comply with such action or
review, such modifications may not be permitted under the terms of the indenture
or the senior bank facilities, thereby requiring us to obtain the consent of the
holders of such indebtedness or requiring the refinancing of such indebtedness.
ADVERSE TAX OR OTHER CONSEQUENCES IF INDEPENDENT CONTRACTOR PHYSICIANS ARE
RECLASSIFIED AS EMPLOYEES -- WE COULD BE FORCED TO PAY RETROACTIVE TAXES AND
PENALTIES IF TAX AUTHORITIES RECLASSIFY OUR INDEPENDENT CONTRACTOR
PHYSICIANS. As of March 31, 1999, we contracted with approximately 1,465
affiliated physicians as full time equivalent independent contractors to fulfill
our contractual obligations to
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clients. Because we consider many of the physicians with whom we contract to be
independent contractors, as opposed to employees, we do not withhold federal or
state income or other employment related taxes, make federal or state
unemployment tax or Federal Insurance Contributions Act payments, except as
described below, or provide workers' compensation insurance with respect to such
affiliated physicians. Rather, the payment of taxes is a contractual
responsibility of such physicians. The classification of physicians as
independent contractors depends upon the facts and circumstances of the
relationship. In the event of a determination by federal or state taxing
authorities that the physicians engaged as independent contractors are
employees, we may be adversely affected and subject to retroactive taxes and
penalties. Under current federal tax law, a "safe harbor" from reclassification,
and consequently retroactive taxes and penalties, is available if our current
treatment is consistent with a long-standing practice of a significant segment
of our industry and if we meet certain other requirements. If challenged, we may
not prevail in demonstrating the applicability of the safe harbor to our
operations. Further, proposals have been made in the recent past, and could be
made in the future, to eliminate the safe harbor.
LOSS OF CONTRACTS -- OUR REVENUE COULD BE ADVERSELY AFFECTED BY A NET LOSS
OF CONTRACTS. The average term of our contracts with clients is approximately 3
years. These contracts are generally renewable automatically under the same
terms and conditions unless either party gives notice of an intent not to renew
and are generally terminable by either of the parties thereto upon notice of as
little as 30 days. These contracts may not be renewed or, if renewed, may
contain terms that are not as favorable to us as our current contracts. In 1998,
we experienced a net loss of eight contracts. Sixty-one of our contracts were
either not renewed or were terminated in that year. There can be no assurance
that we will not experience a net loss of contracts in the future and that any
such net loss would not have a material adverse effect on our operating results
and financial condition.
EXECUTION OF GROWTH STRATEGY; INTEGRATION OF NEW CONTRACTS AND
ACQUISITIONS -- WE MAY NOT BE ABLE TO FIND SUITABLE ACQUISITION CANDIDATES OR
SUCCESSFULLY INTEGRATE COMPLETED ACQUISITIONS INTO OUR CURRENT OPERATIONS IN
ORDER TO PROFITABLY OPERATE OUR CONSOLIDATED COMPANY. Obtaining new contracts
with hospitals and managed care companies, which increasingly involves a
competitive bidding process, requires that we accurately assess the costs we
will incur in providing services in order to realize adequate profit margins or
otherwise meet our objectives. The integration of new contracts, as well as the
maintenance of existing contracts, is made more difficult by increasing
pressures from healthcare payors to restrict or reduce reimbursement rates at a
time when the costs of providing medical services continue to increase.
A significant portion of our growth in net revenue has resulted from, and
is expected to continue to result from, the acquisition of healthcare
businesses. We engage in evaluations of potential acquisitions and are in
various stages of discussion regarding possible acquisitions, certain of which,
if consummated, could be significant to us. There are currently no definitive
agreements or letters of intent with respect to any material acquisition. Our
strategy of growing through acquisitions has presented some challenges in the
past. Some of the difficulties we have encountered include, problems identifying
all service and contractual commitments of the acquired entity, evaluating the
stability of the acquired entity's hospital contracts, integrating financial and
operational software, and accurately projecting physician and employee costs.
Moreover, because we have grown by acquisitions, we have had some difficulty
achieving consistent implementation of a compliance plan in the area of
physician documentation, procedure coding, and billing practices. Our strategy
of growing through acquisitions is also subject to the risk that we may not be
able to identify suitable acquisition candidates in the future, we may not be
able to obtain acceptable financing or we may not be able to consummate any
future acquisitions, any of which could inhibit our growth. In addition,
acquisitions may require the consent of third parties who have contracts with
the entity to be acquired, such as managed care companies or hospitals
contracting with the entity. Such consents may not be obtained in a potential
acquisition. Any failure by us to integrate acquired operations, manage the cost
of providing our services or price our services appropriately may have a
material adverse effect on our operating results. Finally, as a result of our
acquisitions of other healthcare businesses, we may be subject to the risk of
unanticipated business uncertainties or legal liabilities relating to such
acquired businesses for which we may not be indemnified by the sellers of the
acquired businesses.
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COMPETITION FOR MEDICAL PERSONNEL -- WE MAY NOT BE ABLE TO SUCCESSFULLY
RECRUIT AND RETAIN QUALIFIED PHYSICIANS TO SERVE AS OUR INDEPENDENT CONTRACTORS
OR EMPLOYEES. Our performance at hospitals with whom we contract and at urgent
care clinics is significantly affected by our ability to recruit and retain
affiliated physicians and qualified personnel. The demand for physicians and
other healthcare professionals presently exceeds the supply of qualified
personnel. As a result, we experience competitive pressures for the recruitment
and retention of qualified physicians and other healthcare professionals to
deliver clinical services. Our future success depends on our ability to recruit
and retain competent physicians to serve as our employees or independent
contractors. We may not be able to attract and retain a sufficient number of
competent physicians and other healthcare professionals to continue to expand
our operations. In addition, there can be no assurance that our non-competition
contractual arrangements with affiliated physicians and professional
corporations will not be successfully challenged in certain states as
unenforceable. In such event, we would be unable to prevent former affiliated
physicians and professional corporations from competing with us -- potentially
resulting in the loss of some of our hospital contracts and other business.
DEPENDENCE UPON KEY PERSONNEL -- A LOSS OF KEY PERSONNEL MAKE IT MORE
DIFFICULT FOR US TO GENERATE CASH FLOW FROM OPERATIONS AND SERVICE OUR
INDEBTEDNESS. Our success depends in large part on the services of our senior
management team. The loss of any of our key executives could materially
adversely affect our company and seriously impair our ability to implement our
strategy. Our ability to manage our anticipated growth will depend on our
ability to identify, hire and retain additional qualified management personnel.
We may be unsuccessful in attracting and retaining such personnel and such
failure could have a significant negative effect on us. Team Health does not
have key man life insurance policies on any of its officers or directors.
COMPETITION -- THE HIGH LEVEL OF COMPETITION IN OUR INDUSTRY COULD
ADVERSELY AFFECT OUR CONTRACT AND REVENUE BASE. The provision of outsourced
physician staffing and administrative services to hospitals and clinics is
characterized by a high degree of competition. Such competition could adversely
affect our ability to obtain new contracts, retain existing contracts and
increase our profit margins. We compete with both national and regional
enterprises, some of which have substantially greater financial and other
resources available to them. In addition, some of these firms may have greater
access than us to physicians and potential clients. We also compete against
local physician groups and self-operated EDs for satisfying staffing and
scheduling needs. See "Business -- Strategy."
CONTROL BY PRINCIPAL STOCKHOLDERS -- THE INTERESTS OF OUR CONTROLLING
SHAREHOLDERS MAY BE IN CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE
NOTES. THIS COULD RESULT IN CORPORATE DECISION MAKING THAT INVOLVES
DISPROPORTIONATE RISKS TO THE HOLDERS OF THE EXCHANGE NOTES, INCLUDING OUR
ABILITY TO SERVICE OUR INDEBTEDNESS OR PAY THE PRINCIPAL AMOUNT OF INDEBTEDNESS
WHEN DUE. The holding company through which the equity sponsors invested in our
company owns securities representing approximately 92.0% of the voting power of
our outstanding common stock immediately after giving effect to the
recapitalization transactions and indirectly controls the affairs and policies
of our company. This holding company is controlled by the equity sponsors.
Consequently, the equity sponsors indirectly control the affairs and policies of
our company. Circumstances may occur in which the interests of the equity
sponsors could be in conflict with the interests of the holders of these
exchange notes. In addition, the equity sponsors may have an interest in
pursuing acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of these exchange notes.
RISKS RELATING TO TRANSITION SERVICES -- AFTER THE RECAPITALIZATION, WE MAY
BE UNABLE TO ADEQUATELY REPLACE SOME SERVICES PROVIDED TO US BY
MEDPARTNERS. Prior to the recapitalization we operated within and were
controlled by MedPartners Corporate Compliance Program, which was designed to
reduce the likelihood of noncompliant activities by us. Now, we must implement
our own compliance program. MedPartners also provided us with certain corporate
services, including legal services, risk management, administration of certain
employment benefits, tax advice and preparation of tax returns, software support
services, and certain financial and other services. No long-term agreement for
the supply of certain of these services by MedPartners currently exists. Our
failure to obtain replacement services in a timely
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manner or the failure of such services to adequately replace existing systems
could interfere with the operation of our business and detract management's
attention from the business.
In connection with the recapitalization, MedPartners and Physician Services
agreed to indemnify us and Team Health Holdings, subject to some limitations, in
respect of some types of losses relating to:
- breaches of representations and warranties and covenants made by each
of MedPartners and Physician Services in connection with the
Recapitalization;
- some claims or audits by governmental authorities; and
- some litigation to the extent such litigation is not covered by third
party insurance, including some medical malpractice litigation.
Under the recapitalization agreement, each of MedPartners and Physician
Services have indemnified, jointly and severally, subject to some limitations,
Team Health Holdings and us against losses resulting from:
(1) any misrepresentation or breach of any warranty or covenant of
MedPartners or Physician Services contained in the recapitalization
agreement, a claim for which is made in most cases within the 18 months
following the closing of the recapitalization;
(2) some claims or audits by governmental authorities; and
(3) some litigation matters, including some medical malpractice claims to
the extent not covered by third-party insurance.
With respect to some matters, we are only indemnified if our losses from
all indemnification claims exceed $3.7 million and do not exceed a total of $50
million. There is no basket or limit on the total payments with respect to other
specified misrepresentations or breaches of warranties and some litigation
matters.
A significant negative change in the financial condition of MedPartners
could prevent MedPartners from fulfilling its indemnification obligations. As
such, with respect to the indemnification rights granted to us in connection
with the recapitalization, we are subject to MedPartners' credit risk.
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE AND FEE
SPLITTING ARRANGEMENTS -- OUR OPERATIONS ARE SUBJECT TO STATE LAWS AND
REGULATIONS THAT RESTRICT THE MANNER IN WHICH WE CONDUCT OUR BUSINESS AND WHICH
VARY FROM STATE TO STATE. We currently provide outsourced physician staffing and
administrative services to hospitals and clinics in 25 states. The laws and
regulations relating to our operations vary from state to state. The laws of
many states, including California, from which approximately 8% of our net
revenue was derived in 1998, prohibit general business corporations, such as us,
from practicing medicine, exercising control over physicians who practice
medicine or engaging in some practices such as fee splitting with physicians.
The laws of other states, including Florida, from which approximately 26% of our
net revenue was derived in 1998, do not prohibit non-physician entities from
practicing medicine but generally retain a ban on some types of fee splitting
arrangements.
Our current operating practice is to contract directly with hospitals,
physician groups and independent physicians to provide staffing of physicians
and other administrative services. In states where we employ physicians to
service our contracts with hospital-clients, payment for such services is made
directly to us or one of our regional operating units. In states such as
California that prohibit non-physician entities from practicing medicine, the
physicians providing services to our clients are either independent contractors
of our company or employees or independent contractors of physician-controlled
professional corporations with which we contract to provide clinical management
and administrative services.
While we seek to comply substantially with existing applicable laws
relating to the corporate practice of medicine and fee splitting, we cannot
assure you that our existing organization and our contractual arrangements,
including noncompetition agreements, with physicians, professional corporations
and hospitals will not be successfully challenged in certain states as
unenforceable or as constituting the unlicensed practice of medicine or
prohibited fee-splitting. In the event of action by any regulatory authority
limiting or prohibiting us from carrying on our business as presently conducted
or from
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expanding our operations to certain jurisdictions, structural and organizational
modifications of Team Health and/or its contractual arrangements with
physicians, professional corporations and hospitals may be required. Such an
action could result in significant increased operational costs, or the loss of
certain hospital contracts. The occurrence of any of the above results could
have a significant negative effect on our operating results, financial condition
and our ability to pay the principal and interest of the exchange notes when
due. Moreover, such structural and organizational modifications may not be
permitted under the terms of the indenture or the senior bank facilities,
thereby requiring us to obtain the consent of the holders of such indebtedness
or requiring the refinancing of such indebtedness. We have not obtained an
opinion of counsel with regard to our compliance with applicable state laws and
regulations, and information contained herein regarding our compliance with
applicable state laws and regulations should not be construed as being based on
an opinion of counsel.
YEAR 2000 ISSUE -- OUR BUSINESS COULD BE DISRUPTED IF OUR YEAR 2000
PROBLEMS ARE SIGNIFICANT. The "Year 2000 Issue" refers generally to the
problems that some software may have in determining the correct century for the
year. For example, software with date-sensitive functions that is not Year 2000
compliant may not be able to distinguish whether "00" means 1900 or 2000, which
may result in failures or the creation of erroneous results. Currently, many
computer systems and software products are coded to accept only two-digit
entries in the date code field. These date code fields will need to accept four
digit entries to distinguish between dates before and after January 1, 2000. As
a result, many companies' software and computer systems may need to be upgraded
or replaced in order to comply with such "Year 2000" requirements. If we, or
third parties with which we do business, fail to make each of our software
systems Year 2000 compliant in a timely manner, our company could be negatively
and significantly impacted.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE
THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE. On the occurrence of specific kinds of change of control events
described in the section entitled "Description of Exchange Notes -- Change of
Control," we will be required to offer to repurchase all outstanding exchange
notes. However, it is possible that we will not have sufficient funds at the
time of the change of control to make the required repurchase of exchange notes
or that restrictions in our senior bank facilities will not allow such
repurchases. Our failure to make a required repurchase of exchange notes would
be an event of default under the indenture governing the exchange notes and
would allow the indebtedness evidenced by the exchange notes to be accelerated.
This would constitute an event of default under our senior bank facilities and
could result in an acceleration of the indebtedness under the senior bank
facilities. Under these circumstances, the subordination provisions of the
indenture would restrict us from making payments to the holders of exchange
notes.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES, SUBORDINATE CLAIMS IN RESPECT
OF THE EXCHANGE NOTES AND REQUIRE EXCHANGE NOTE HOLDERS TO RETURN PAYMENTS
RECEIVED FROM GUARANTORS. Under the federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, the guarantees of our subsidiary
guarantors could be voided, or claims in respect of the exchange notes or the
subsidiary guarantees could be subordinated to all of our other debts or all
other debts of a subsidiary guarantor or a subsidiary guarantee could be voided
and required to be returned if, generally speaking,
(1) we or the subsidiary guarantor, at the time it incurred the
indebtedness evidenced by its guarantee, received less than fair
consideration for the issuance of such guarantee, and we or the
guarantor was insolvent or rendered insolvent by reason of such
incurrence, or we or the guarantor were engaged in a business or
transaction for which our or the guarantor's remaining assets
constituted unreasonably small capital, or
(2) we or the subsidiary guarantor intended to incur or believed that we or
it would incur, debts beyond our or its ability to pay such debts as
they mature.
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The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor
would be considered insolvent if:
(1) the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets,
(2) if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature, or
(3) it could not pay its debts as they become due.
We cannot assure you as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions as to the
legality of the subsidiary guarantees.
NO PRIOR MARKET FOR EXCHANGE NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE
TRADING MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES WHICH COULD LIMIT THE
LIQUIDITY OF YOUR EXCHANGE NOTES. Prior to this offering, there was no public
market for these exchange notes. We have been informed by the underwriter that
it intends to make a market in these exchange notes after this offering is
completed. However, the underwriter may cease its market-making at any time. In
addition, the liquidity of the trading market in these exchange notes, and the
market price quoted for these exchange notes, may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally.
This prospectus includes "forward looking statements" including, in
particular, the statements about Team Health's plans, strategies, and prospects
under the headings "Prospectus Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we cannot assure you that we
will achieve the plans, intentions or expectations. Important factors that could
cause actual results to differ materially from the forward-looking statements we
make in this prospectus are set forth elsewhere in this prospectus. All
forward-looking statements attributable to Team Health or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
contained in this "Risk Factors" section.
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THE RECAPITALIZATION TRANSACTIONS
THE RECAPITALIZATION
Under a recapitalization agreement that was executed on January 25, 1999 by
and among us, MedPartners, Inc., Pacific Physician Services, Inc., a wholly
owned subsidiary of MedPartners, and Team Health Holdings, L.L.C., the holding
company through which Madison Dearborn Partners, Inc., Cornerstone Equity
Investors, LLC and Beecken Petty & Company, LLC., and some members of our
management invested in Team Health, Team Health was recapitalized in a
transaction which closed on March 12, 1999 in which:
(1) prior to the closing of the recapitalization, MedPartners caused some
of its subsidiaries to become our subsidiaries by contributing or
causing to be contributed their capital stock to us or to one of our
subsidiaries. As a result, following the recapitalization transactions,
the capital structure of our subsidiaries was as displayed on the
diagram entitled "Team Health and Our Subsidiaries" on page 23 below;
(2) Physician Services contributed to us 100 shares of our existing common
stock in exchange for 100,000 shares of our class A preferred stock and
150,492,442.67 shares of our common stock as shown in Step 1 of the
diagram entitled "Recapitalization of Team Health" on page 22 below;
(3) Team Health Holdings issued the following of its units to the following
entities in exchange for the following amounts of cash:
- 3,519,529 common units and 39,386.917 preferred units to an
affiliate of Madison Dearborn in exchange for $44,666,210.50;
- 3,519,529 common units and 39,386.917 preferred units to an
affiliate of Cornerstone in exchange for $44,666,210.50;
- 782,119 common units and 8,752.65 preferred units to two
affiliates of Beecken Petty in exchange for $9,925,827.50;
- 5,508.059 preferred units to Team Health, Inc. Equity Deferred
Compensation Plan Trust in exchange for $5,508,659; and
- 1,446,096 common units and 1,264.549 preferred units to the
members of our management who participated in the recapitalization
in exchange for $3,433,693;
each as shown in Step 2 of the chart entitled "Recapitalization of Team
Health" on page 22 below.
(4) Team Health Holdings purchased from Physician Services 94,299.1 shares
of class A preferred stock and 9,267,273 shares of common stock for the
total consideration of $108.2 million as shown in Step 3 of the diagram
entitled "Recapitalization of Team Health" on page 22 below;
(5) Team Health used the net proceeds of the offering of the old notes and
borrowings under the senior bank facilities to purchase from Physician
Services 140,942,442.67 shares of new common stock for $210,738,664 as
shown in Steps 4 and 5 of the diagram entitled "Recapitalization of
Team Health" on page 22 below; and
(6) Team Health paid $8.7 million to some members of our management on
behalf of MedPartners with respect to accrued management bonuses owed
by MedPartners to those members of our management.
Madison Dearborn, Cornerstone, Beecken Petty, and the members of our
management that participated in the recapitalization engaged in the
recapitalization in order to acquire a controlling interest in Team Health and
its subsidiaries from Medpartners. The debt incurred by Team Health as part of
the recapitalization transactions was used to fund a portion of the purchase
price paid to MedPartners for Team Health and its subsidiaries.
20
<PAGE> 30
As a result of the recapitalization, Team Health Holdings owns securities
representing approximately 92.0% of the voting power of our outstanding capital
stock and Physician Services owns securities representing approximately 8.0% of
the voting power of our outstanding capital stock. In connection with the
recapitalization, MedPartners received aggregate consideration of $336.9
million, consisting of $327.6 million in cash, $6.8 million in equity retained
by Physician Services and the assumption of $2.5 million of existing
indebtedness of MedPartners. In addition, we assumed some contingent earnout
payments. The $327.6 million in cash paid to MedPartners included an $8.7
million cash payment to some members of our management by Team Health on behalf
of MedPartners with respect to accrued management bonuses owed by MedPartners to
those members of our management. These earnout payments may be paid over the
next 5 years to the sellers of various acquired groups in the event that those
acquired groups achieve designated financial targets. We believe these earnout
payments will not exceed a total of $19.8 million. The transactions that
occurred under the recapitalization agreement were funded by:
(1) the net proceeds from the offering of the old notes as shown in Step 5
of the diagram entitled "Recapitalization of Team Health" on page 22
below;
(2) $150.0 million of borrowings by us under the senior bank facilities as
shown in Step 5 of the diagram entitled "Recapitalization of Team
Health" on page 22 below;
(3) a $99.7 million cash equity investment in Team Health Holdings by
affiliates of each of Cornerstone Equity Investors, LLC, Madison
Dearborn Partners, Inc. and Beecken Petty & Company, LLC (the "Equity
Sponsor Contribution");
(4) a contribution by some of our members of management of approximately
$8.5 million (the "Management Contribution"); and
(5) equity of Team Health retained by Physician Services having a fair
market value of $6.8 million (the "Retained Equity" and, together with
the Equity Sponsor Contribution and the Management Contribution, the
"Equity Contribution").
Following the completion of the recapitalization transactions, our capital
structure was as displayed in the diagram entitled "Team Health Equity Structure
Following the Recapitalization Transactions" on page 24 below.
21
<PAGE> 31
RECAPITALIZATION OF TEAM HEALTH
RECAPITALIZATION OF TEAM HEALTH FLOW CHART
*"Management" refers to those members of our management that participated in the
recapitalization individually and the Team Health, Inc. Equity Deferred
Compensation Plan Trust.
22
<PAGE> 32
TEAM HEALTH AND OUR SUBSIDIARIES
[TEAM HEALTH AND OUR SUBSIDIARIES FLOW CHART]
23
<PAGE> 33
TEAM HEALTH, INC.
EQUITY STRUCTURE FOLLOWING THE RECAPITALIZATION TRANSACTIONS
[TEAM HEALTH INC. STRUCTURE FLOW CHART]
*"Management" refers to those members of our management that participated in the
recapitalization individually and the Team Health, Inc. Equity Deferred
Compensation Plan Trust.
24
<PAGE> 34
SENIOR BANK FACILITIES
As part of the recapitalization transactions, we entered into a credit
agreement (the "senior bank facilities") with a syndicate of financial
institutions for which Fleet National Bank and NationsBanc Montgomery Securities
LLC act as co-arrangers, Donaldson, Lufkin & Jenrette Securities Corporation
acts as documentation agent, NationsBanc Montgomery Securities LLC acts as
syndication agent and Fleet National Bank acts as administrative agent. The
senior bank facilities are comprised of a five-year revolving credit facility of
up to $50.0 million, including a swing line sub-facility of $5.0 million and a
letter of credit sub-facility of $5.0 million, none of which was drawn at
closing, and a term loan facility of up to $150.0 million, consisting of a $60.0
million 5-year tranche A term loan facility and a $90.0 million 6-year tranche B
term loan facility. The senior bank facilities will provide financing for future
working capital, acquisitions, capital expenditures and other general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Senior Bank Facilities."
SOURCES AND USES
The sources and uses of proceeds in connection with the recapitalization
transactions were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES FUNDS:
Senior bank facilities:
Revolving credit facility............................. $ --
Term loan facility.................................... 150.0
Series A 12% senior subordinated notes.................. 100.0
Equity Contribution(1).................................. 115.0
Assumption of existing debt............................. 2.5
------
Total sources................................. $367.5
======
USES OF FUNDS:
Recapitalization(2)..................................... $336.9
Recapitalization transaction expenses(3)................ 18.5
Excess cash............................................. 12.1
------
Total uses.................................... $367.5
======
</TABLE>
- ---------------
(1) Comprised of gross proceeds from the Equity Sponsor Contribution of $99.7
million, the Management Contribution of $8.5 million and the Retained Equity
having an imputed fair market value of $6.8 million.
(2) Includes an equity valuation of $334.4 million plus $2.5 million of assumed
indebtedness.
(3) Reflects fees and expenses related to the recapitalization transactions.
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<PAGE> 35
USE OF PROCEEDS
The net proceeds from the sale of the old notes, after deducting expenses
of the offering, including discounts to Donaldson, Lufkin & Jenrette were
approximately $97.0 million. The net proceeds from the offering of the old
notes, together with borrowings under the senior bank facilities and the Equity
Contribution was used to consummate the recapitalization and to pay fees and
expenses in connection therewith.
CAPITALIZATION
The following table sets forth our historical capitalization as of March
31, 1999. This table should be read in conjunction with the "Selected Historical
Financial Data," our financial statements and related notes and our Unaudited
Pro Forma Financial Information and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................... $ 20.3
=======
Total debt:
Senior bank facilities:
Revolving credit facility................................. $ --
Term loan facility........................................ 145.0
Series A 12% senior subordinated notes...................... 100.0
Other debt.................................................. 2.5
-------
Total debt........................................ 247.5
Shareholders' equity........................................ 37.1
-------
Total capitalization.............................. $ 284.6
=======
</TABLE>
26
<PAGE> 36
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of Team Health for
the five fiscal years ended December 31, 1998 and the three months ended March
31, 1998 and 1999.
(1) We have derived the historical financial data for the three months
ended March 31, 1999 and 1998 from, and you should read the data in
conjunction with, our unaudited financial statements and related notes
to the unaudited financial statements included elsewhere in this
prospectus. Results for the interim periods are not necessarily
indicative of the results to be expected for the full year or any other
future period.
(2) We have derived the historical financial information for each of the
three fiscal years ended December 31, 1998 from, and you should read
the data in conjunction with, our audited financial statements and
related notes to the audited financial statements included elsewhere in
this prospectus.
(3) We have derived the historical financial information for the fiscal
year ended December 31, 1995 from, and you should read the data in
conjunction with, our audited financial statements and related notes to
the audited financial statements not included in this prospectus.
(4) We have derived the historical financial information for the fiscal
year ended December 31, 1994 is derived from unaudited financial
statements.
(5) In February 1996 and June 1997, MedPartners, Inc. ("MedPartners")
combined with Pacific Physician Services, Inc. ("Physician Services")
and InPhyNet Medical Management, Inc. ("InPhyNet"), respectively. In
addition, MedPartners merged with several physician groups during 1996
and 1997. These business combinations were accounted for as poolings of
interests by MedPartners. During the second half of 1997, MedPartners
combined the operations of the Hospital Services Division ("Hospital
Services") of InPhyNet and the physician groups with Team Health, Inc.
a wholly-owned subsidiary of Physician Services. The selected financial
data below reflects the operations of these combinations for all
periods included.
(6) During 1997 and 1996, Team Health, Inc. acquired the operating assets
of several emergency staffing companies. The results of the selected
historical financial data do not reflect these acquisitions as though
they had occurred at the beginning of each of the fiscal years
presented. The accompanying notes of our audited financial statements
reflect our pro forma results as though the acquisitions had occurred
at the beginning of the years presented.
See "The Recapitalization Transactions," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements and the related notes thereto included elsewhere in this prospectus.
27
<PAGE> 37
SELECTED HISTORICAL FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $ 351,857 $ 411,695 $ 463,380 $ 511,236 $ 547,785
Professional expenses..... 278,585 316,526 353,593 398,738 430,362
--------------- --------------- --------------- --------------- ---------------
Gross profit.............. 73,272 95,169 109,787 112,498 117,423
General and administrative
expenses................ 48,479 52,241 62,441 61,642 58,362
Depreciation and
amortization............ 3,673 4,808 5,628 6,455 9,740
Novation program expense
allocation.............. -- -- -- 11,000 --
Merger expenses........... -- 519 11,525 22,927 --
MedPartners' management
fees.................... -- 594 1,055 1,660 2,941
Interest expense, net..... -- 2,256 535 886 5,301
Goodwill impairment
charge.................. -- -- -- -- 2,992
Recapitalization
expenses................ -- -- -- -- --
Other expenses (income)... 1,194 392 (204) 768 871
--------------- --------------- --------------- --------------- ---------------
Income (loss) before
income taxes............ 19,926 34,358 28,807 7,160 37,216
Income tax expense
(benefit)............... 654 12,798 9,852 4,894 15,778
--------------- --------------- --------------- --------------- ---------------
Income (loss) before
cumulative effect of a
change in accounting
principle............... 19,272 21,560 18,955 2,266 21,438
Cumulative effect of a
change in accounting
principle............... -- -- -- -- 912
--------------- --------------- --------------- --------------- ---------------
Net income (loss)......... $ 19,272 $ 21,560 $ 18,955 $ 2,266 $ 20,526
=============== =============== =============== =============== ===============
OTHER DATA:
EBITDA(1)................. $ 24,793 $ 42,928 $ 47,346 $ 50,856 $ 59,061
Net cash provided by
(used in):
Operating Activities.... 23,777 7,560 12,405 43,342 43,370
Investing Activities.... (14,440) (6,241) (11,423) (34,339) (22,864)
Financing Activities.... (5,545) 17,414 (3,432) (9,122) (22,080)
Capital expenditures...... 2,504 6,620 6,854 7,474 5,015
Ratio of earnings to fixed
charges(2).............. 10.0x 13.6x 10.9x 3.8x 17.2x
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents............. $ (12,238) $ 6,458 $ 5,550 $ 5,468 $ 3,894
Working capital........... 21,672 64,276 86,703 91,987 99,469
Total assets.............. 89,655 131,160 161,364 199,534 229,956
Total debt................ 15,096 12,074 2,303 7,820 2,544
Total shareholders'
equity.................. 26,747 73,288 101,378 97,893 99,953
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $ 133,026 $ 137,877
Professional expenses..... 104,886 108,388
--------------- ---------------
Gross profit.............. 28,140 29,489
General and administrative
expenses................ 15,127 15,744
Depreciation and
amortization............ 2,038 2,351
Novation program expense
allocation.............. -- --
Merger expenses........... -- --
MedPartners' management
fees.................... 735 25
Interest expense, net..... 505 1,572
Goodwill impairment
charge.................. -- --
Recapitalization
expenses................ -- 21,513
Other expenses (income)... 218 105
--------------- ---------------
Income (loss) before
income taxes............ 9,517 (11,821)
Income tax expense
(benefit)............... 3,983 (4,361)
--------------- ---------------
Income (loss) before
cumulative effect of a
change in accounting
principle............... 5,534 (7,460)
Cumulative effect of a
change in accounting
principle............... -- --
--------------- ---------------
Net income (loss)......... $ 5,534 $ (7,460)
=============== ===============
OTHER DATA:
EBITDA(1)................. $ 13,013 $ 13,745
Net cash provided by
(used in):
Operating Activities.... 13,016 8,330
Investing Activities.... (10,719) (1,799)
Financing Activities.... 5,932 10,324
Capital expenditures...... 1,112 1,537
Ratio of earnings to fixed
charges(2).............. 10.0x (4.6x)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents............. $ 20,327
Working capital........... 102,877
Total assets.............. 370,671
Total debt................ 247,508
Total shareholders'
equity.................. 37,147
</TABLE>
- ---------------
(1) EBITDA represents income before income taxes plus depreciation and
amortization, interest expense and what we consider non-operational charges
such as goodwill impairment, MedPartners' management fees, Novation Program
expense, merger expense, other expenses and recapitalization expense. We
have included information concerning EBITDA because we believe that EBITDA
is
28
<PAGE> 38
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP in the United States and is not indicative
of operating income or cash flow from operations as determined under GAAP.
We understand that while EBITDA is frequently used by securities analysts in
the evaluation of companies, EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
(2) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes plus fixed
charges. For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expensed or capitalized and the portion of
rental expense we believe is representative of the interest component of
rental expenses. Our income before income taxes for the three months ended
March 31, 1999, was not sufficient by approximately $9,698 to cover the
fixed charges for the period. This deficiency was directly related to
expenses incurred as a result of the recapitalization transactions.
29
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information in the historical financial statements and unaudited pro
forma financial information including the related notes to the historical
financial statements and unaudited pro forma financial information, appearing
elsewhere in this prospectus.
INTRODUCTION
We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and clinics in the
United States, with 375 hospital contracts in 25 states. Since our inception in
1979, we have focused primarily on providing outsourced services to hospital
emergency departments and urgent care centers, which accounted for approximately
80% of our net revenue in 1998. Our regional operating model includes
comprehensive programs for emergency medicine, radiology, inpatient care,
pediatrics and other hospital departments. We provide a full range of physician
staffing and administrative services.
CONTRACTS. Our growth has historically resulted from increases in the
number of patient visits and fees for services provided under existing contracts
and the addition and acquisition of new contracts. Our 375 hospital contracts
with hospitals typically have terms of three years and are generally
automatically renewable under the same terms and conditions unless either party
to the contract gives notice of their intent not to renew the contract. Our
average contract tenure exceeds 6.8 years.
Approximately 76% of our net revenue is generated from fee-for-service
contracts under which we bill and collect the professional fees for the services
provided at a particular hospital department. Conversely, under our flat-rate
contracts, hospitals pay us a fee based on the hours of physician coverage
provided, but the hospital is responsible for its own billing and collection.
Because of our billing and collection expertise, our fee-for-service contracts
typically result in higher margins. In states where physician employees service
our contracts directly because there is no prohibition against such
arrangements, Medicare payments for such services are made directly to us. In
states where the physician providing services are independent contractors of us,
Medicare payments for those services are paid into a lockbox account in the name
of the independent contractor physician and subsequently directed into a company
account.
ACQUISITIONS. Since 1996, we have successfully acquired and integrated the
contracts of 17 hospital-based physician groups. Those contracts acquired from
emergency department and urgent care center physician groups were generally with
hospitals in large markets with an average patient volume exceeding 15,000 per
year.
Prior to June 1997, acquisitions were financed primarily with MedPartners'
stock. Subsequent acquisitions were financed through a combination of cash and
earnouts. Eight of our acquisitions were accounted for using the purchase method
of accounting. As such, operating results of those eight acquired businesses are
included in our consolidated and combined financial statements as of their
respective dates of acquisitions. The remaining acquisitions, however, have been
accounted for using the pooling method of accounting whereby the historical
results of the acquired company are included in our consolidated and combined
financial statements. Following each acquisition, we have converted the acquired
group's financial accounting systems to our systems infrastructure.
Strategic acquisitions continue to be a core component of our growth
strategy. The market for outsourced medical services is highly fragmented and
served primarily by small, local and regional physician groups which represent
over 75% of the market and generally lack the resources and depth of services
necessary to compete with national providers. Our acquisition strategy is to
target those companies with strong clinical reputations and quality contracts
with larger hospitals.
NET REVENUES. Revenues are recorded in the period the services are
rendered as determined by the respective contract with the healthcare providers.
As is standard in the healthcare industry, revenue is reported on an accrual
basis, net of estimated third party contractual adjustments. Further adjustments
are
30
<PAGE> 40
recorded to reflect amounts estimated to be uncollectible based upon individual
contract experience. As a result, gross and net revenue differ considerably. Our
revenue recognition policy is based largely on historical receipts of gross
receivables. We update and record reserves on an ongoing basis based on the age
of receivables and our experience with payors depending on the location and
service provided. Revenue in all of our financial statements is reported on a
net basis. See Notes 2 and 3 to the Consolidated and Combined Audited Financial
Statements.
Approximately 30% of our net revenue from fee-for-service contracts is
derived from payments made by government sponsored healthcare programs,
principally, Medicare and Medicaid. These programs are subject to substantial
regulation by the federal and state governments. Funds received under Medicare
and Medicaid are subject to audit, and accordingly, retroactive adjustments of
these revenues may occur. We, however, have never had any substantial
retroactive adjustment due to a Medicare or Medicaid audit. Reimbursable fee
payments for Medicare and Medicaid patients for some services are defined and
limited by Health Care Financing Administration and some state laws and
regulations.
ANTICIPATED IMPACT ON NET REVENUES OF THE RESOURCE BASED RELATIVE VALUE
SYSTEM. The federal government has implemented, through the Medicare program, a
payment methodology for physician services that sets physician fees according to
a fee schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The fee
schedule used is known as the "Resource Based Relative Value System." The
Resource Based Relative Value System is adjusted each year and is subject to
increases or decreases at the discretion of Congress. To date, the
implementation of the Resource Based Relative Value System has reduced payment
rates for some of the procedures historically provided by hospital emergency
department or urgent care center physicians and radiologists. Effective January
1, 1999, new Medicare regulations were adopted to provide for reductions in
payments for physician services over a four-year period ending in 2002. The new
regulations provide for the implementation of a resource-based methodology for
payment of physician practice expenses under the physician fee schedule. With
respect to radiology services and services provided in hospital emergency
departments and urgent care centers, there has been a cumulative reduction of
10% in payments for these physician services. This reduction will be phased in
over a four year period beginning in 1999 with reductions of 2.5% each year
until 2002. These reductions will offset the increases in payments for emergency
department, urgent care center and radiology physician services tied to the
medical economics index and implemented by the Medicare program, which
historically have been approximately 2.5% per year. We cannot assure you,
however, that Medicare will continue to implement the increases tied to the
medical economics index. Consequently, we believe that, with respect to
emergency department, urgent care center and radiology physician services, the
portion of our revenues effected by the Resource Based Relative Value System
will remain constant over the next four years rather than increasing. Over the
last several years, with respect to emergency department, urgent care center and
radiology physician services, approximately $90 to $100 million of our revenues
were derived from sources that will be effected by the Resource Based Relative
Value System. We cannot assure you that we will be able to offset reduced
operating margins through cost reductions, increased volume, the introduction of
additional procedures or otherwise. In addition, we cannot assure you that there
will not be further reductions in the Medicare physician fee schedule in the
future and such reductions could reduce our revenues.
PROFESSIONAL EXPENSES. Professional expenses primarily consist of fees
paid to physicians under contract with us, outside collection fees relating to
independent billing contracts, operating expenses of our internal billing
centers and professional liability insurance premiums for physicians under
contract. Approximately 67% of our physicians are independently contracted
physicians who are not employed by us, and the remainder are our employees. We
typically pay emergency department and urgent care center physicians a flat
hourly rate for each hour of coverage provided. We pay radiologists and primary
care physicians an annual salary. The hourly rate varies depending on whether
the physician is independently contracted or an employee. Independently
contracted physicians are required to pay a self-employment tax, social security
and expenses that we pay for employed physicians. As such, employed physicians
typically receive a lower flat hourly rate.
31
<PAGE> 41
Medical malpractice liability expenses are recorded under professional
expenses. Under GAAP, the cost of medical malpractice claims, which includes
costs associated with litigating or settling claims, is accrued when the
incidents that give rise to the claims occur. Estimated losses from asserted and
unasserted claims are accrued either individually or on a group basis, based on
the best estimates of the ultimate costs of the claims and the relationship of
past reported incidents to eventual claim payments. The accrual includes an
estimate of the losses that will result from incidents which occurred during the
claims made period, but were not reported that period. These claims are referred
to as incurred-but-not-reported claims. Our historical statements of operations
include a medical malpractice liability expense that is comprised of three
components including insurance premiums, incurred-but-not-reported claims
estimates, and self-insurance costs.
MedPartners agreed as a condition of the recapitalization transactions to
purchase insurance policies covering all liabilities and obligations for any
claim for medical malpractice arising at any time in connection with our
operation, our subsidiaries and any of the affiliated physicians or other
healthcare providers prior to the closing date of the recapitalization
transactions for which we or any of our subsidiaries become liable. This has
resulted in our being insured for any malpractice liabilities originating prior
to the recapitalization transactions. As a result, our cash expense for medical
malpractice in 1999 is expected to be substantially less than our accrued
expense of approximately $21.3 million. See "Relationships and Related
Transactions." Additionally, medical malpractice expense under GAAP includes
estimates of non-cash expenses relating to incurred-but-not-reported claims and
self-insured costs. To the extent that any estimates are included, our 1999 cash
medical malpractice expense will likely be less than our 1999 GAAP medical
malpractice expense.
We have entered into an agreement with a major national provider of medical
malpractice insurance, for a medical malpractice expense insurance policy that
will cover us for all claims made during the term of the agreement, which is a
minimum of two years. The policy does not cover incidents that occur during such
term, but for which no claim is made during the term. In March 2001, we will
have the option to purchase a policy from the insurer that will cover the
liability for all medical malpractice claims relating to incidents that occur
during the term of the policy but for which no claim is made during that period.
To the extent that we purchase such a tail policy, our cash and GAAP medical
malpractice expense in 1999 and 2000 will be essentially equivalent. To the
extent that we do not purchase such a tail policy, our cash medical malpractice
expense will continue to be substantially less than our GAAP medical malpractice
expense until such a policy is purchased or future medical malpractice claims
estimated in our incurred-but-not-reported claims are actually payable.
NOVATION PROGRAM. Prior to closing the InPhyNet Medical Management, Inc.
merger, MedPartners and InPhyNet developed a program, the "Novation Program," to
provide a form of medical malpractice insurance for InPhyNet's physician
services, government services and hospital-based businesses. The program was
designed to protect MedPartners from InPhyNet's malpractice exposure for all
periods prior to the MedPartners merger and to allow InPhyNet to begin with new
first-year claims made insurance coverage as of the effective date of the
merger. Reserves for liabilities within the Novation Program are recorded on
MedPartners balance sheet and not on our balance sheet. A related non-cash
charge of $11.0 million, however, was allocated to us in the year ended December
31, 1997 and is included in the line item for Novation Program expense
allocation on the consolidated and combined statements of operations. We did not
assume these liabilities in the recapitalization. Moreover, under the
recapitalization agreement, MedPartners agreed to purchase, at its sole cost and
expense, for the benefit of Team Health Holdings, insurance policies covering
all liabilities and obligations for any claims for medical malpractice arising
at any time in connection with our operations and those of our subsidiaries
prior to the closing date of the recapitalization transactions for which we or
any of our subsidiaries or physicians become liable.
PARENT MANAGEMENT FEE. Prior to the recapitalization, MedPartners provided
us with certain corporate services, including legal services, risk management,
administration of some employment benefits, tax advice and preparation of tax
returns, software support services and some financial and other services. These
fees were allocated to us based on MedPartners' estimate of the approximate
costs incurred. The amounts recorded by us for these allocations on the
consolidated and combined financial statements were
32
<PAGE> 42
$1.1 million, $1.7 million and $2.9 million for the years ended December 31,
1996, 1997 and 1998, respectively. The amounts allocated are not necessarily
indicative of the actual costs which may have been incurred. These expenses are
expected to be significantly higher on a stand-alone basis. Management and
independent consultants have carefully examined the costs we expect to incur as
a stand-alone entity and estimates those costs would have been approximately
$5.9 million in 1998.
MERGER COSTS. We incurred non-recurring merger costs that were included in
income from operations in association with the pooling acquisitions that
occurred in 1996 and 1997. These costs included:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Investment banking and professional fees.................... $ 4,495 $ 5,198
Other transition costs...................................... 2,077 1,042
Severance costs and related benefits........................ 123 6,735
Impairment of assets........................................ -- 2,846
Conforming accounting policies.............................. 500 4,741
Operational restructuring................................... -- 280
Other charges............................................... 4,330 2,085
------- -------
$11,525 $22,927
======= =======
</TABLE>
OPERATIONS IMPROVEMENT PROGRAM. In 1998, we engaged an independent
consulting firm to coordinate a process improvement study, which focused largely
on our billing and collections services and on controllable costs. The process
improvement study indicated opportunities for improvement through, among other
things, a combination of insourcing all billing and collections functions and
improving productivity. In order to capitalize on these opportunities, we are
implementing a comprehensive program to maximize productivity and improve
profitability. The three primary initiatives of the operations improvement
program include:
- integrating our twelve billing locations into a national network of
four billing centers operating on the uniform IDX billing system;
- consolidating call centers from four locations to one central location;
and
- reducing controllable costs.
In the past two years, we have experienced a 22% increase in collection
rates on delinquent accounts receivable and a 220% increase in the rate paid to
us by third party factoring agents on closed accounts receivable. We began the
operations improvement program in the second half of 1998, and we expect
substantially all of the initiatives to be fully implemented by the end of 1999.
INCOME TAXES. Prior to the recapitalization, we were included as a part of
some state and local tax returns and the consolidated federal tax return of
MedPartners. As a result, the provision for income taxes was calculated and
allocated to us from MedPartners. The amounts allocated are not necessarily
indicative of the actual costs which may have been incurred by us on a
stand-alone basis.
338(h)(10) ELECTION. In conjunction with the recapitalization, we made an
election under section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. As a result, we will realize an increase in our deferred tax assets as
the recapitalization is expected to be treated as a taxable business combination
for federal and state income tax purposes, which results in a step-up in our tax
basis. This higher basis will result in an anticipated cash tax benefit of
approximately $6.7 million per year over each of the next 15 years, if fully
utilized.
RESULTS OF OPERATIONS
The following discussion provides an analysis of our results of operations
and should be read in conjunction with our consolidated and combined financial
statements and notes included elsewhere in this prospectus. The operating
results of the periods presented were not significantly affected by inflation.
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<PAGE> 43
The following table sets forth the components of net income and EBITDA as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Professional expenses...................... 76.3 78.0 78.6 78.9 78.6
General and administrative expenses........ 13.5 12.1 10.7 11.4 11.4
Depreciation and amortization.............. 1.2 1.3 1.8 1.5 1.7
Novation program expense................... -- 2.2 -- -- --
Merger expenses............................ 2.5 4.5 -- -- --
MedPartners' management fee................ 0.2 0.3 0.5 0.6 --
Interest expense, net...................... 0.1 0.2 1.0 0.4 1.2
Goodwill impairment charge................. -- -- 0.5 -- --
Other expenses............................. -- 0.2 0.2 -- --
Income tax expense (benefit)............... 2.1 1.0 2.9 3.0 (3.2)
Net income (loss)..................... 4.1 0.4 3.7 4.2 (5.4)
Other Financial Data
EBITDA(1)................................ 10.2 9.9 10.8 9.8 10.0
Net cash provided by (used in):
Operating Activities.................. 2.7 8.5 7.9 9.8 6.0
Investing Activities.................. (2.5) (6.7) (4.2) (8.1) (1.3)
Financing Activities.................. (0.7) (1.8) (0.9) 0.8 7.5
</TABLE>
- ---------------
(1) See footnote 1 to the "Summary Historical and Pro Forma Financial Data" for
a discussion of how we calculated EBITDA and of the significance of EBITDA.
FIRST QUARTER ENDED MARCH 31, 1999 COMPARED TO THE FIRST QUARTER ENDED MARCH
31, 1998
NET REVENUE. Revenues for 1999 increased $4.9 million or 3.7% to $137.9
million from $133.0 million in 1998. Same contract revenue increased $7.7
million, or 7.0% to $118.4 million in 1999 from $110.7 million in 1998. Same
contract revenue consists of revenue derived from contracts under management
from the beginning of the prior period through the end of the subsequent period.
Acquisitions contributed $9.5 million of the increase in net revenue. Revenue
generated from new contracts obtained through internal sales contributed $6.8
million. The increase in revenues was partially offset by a net decrease of
$16.0 million associated with contracts terminated during the period.
Additionally, revenue growth is offset by a decline of $3.2 million attributable
to the adoption of a new accounting rule that restricts our ability to
consolidate the revenue of an affiliate operation beginning in 1999.
PROFESSIONAL EXPENSES. Professional expenses for 1999 increased 3.3% to
$108.4 million from $104.9 million in 1998. This increase was due primarily to
normal expected cost increases in professional and medical support costs. As a
percentage of net revenue, professional expenses declined slightly from 78.6% in
1999 from 78.9% in 1998.
GROSS PROFIT. Gross profit increased to $29.5 million in 1999 from $28.1
million in 1998. Gross profit as a percentage of revenues was 21.4% during 1999
and 21.2% during 1998 due to the factors described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1999 increased slightly to $15.7 million from $15.1 million in 1998. General
and administrative expenses as a percent of revenues remained flat at 11.4% in
the 1999 and the 1998 periods.
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<PAGE> 44
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1999
increased 15.4% to $2.4 million from $2.0 million in 1998. The increase was due
primarily to additional depreciation associated with equipment purchases and
goodwill associated with acquisitions during 1998.
RECAPITALIZATION EXPENSES AND MANAGEMENT FEES. Recapitalization expenses
and management fees for 1999 were $21.5 million compared to $0.7 million in
1998. This increase was primarily due to expenses of $21.5 million incurred in
1999 to effect the recapitalization.
INTEREST EXPENSE. Interest expense in 1999 increased to $1.6 million from
$0.6 million in 1998. The increase in interest expense is due to the senior bank
facility and old notes issued during 1999.
INCOME TAX BENEFIT/EXPENSE. Income tax benefit in 1999 was $4.4 million as
compared to income tax expense in 1998 of $4.0 million. The benefit in 1999 was
due primarily to the expenses incurred in the recapitalization.
NET LOSS/INCOME. Net loss for 1999 was $7.5 million as compared to net
income of $5.5 million in 1998. This change was primarily due to the factors
described above.
EBITDA. EBITDA for 1999 increased 5.4% to $13.7 million from $13.0 million
in 1998. EBITDA margin increased to 10.0% in the 1999 period from 9.8% in the
1998 period. The increase in EBITDA and EBITDA margin were due to the factors
described above. Net cash provided by operating activities for the 1999 period
decreased 36.0% to $8.3 million from $13.0 million in the 1998 period. Net cash
used in investing activities for the 1999 period decreased 83.2% to $1.8 million
from $10.7 million in the 1998 period. Net cash provided by financing activities
for the 1999 period increased 74.5% to $10.3 million from $5.9 million in the
1998 period. See footnote 1 to the "Summary Historical and Pro Forma Financial
Data" for a discussion of how we calculated EBITDA and for a discussion of the
significance of EBITDA.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET REVENUE. Net revenue for 1998 increased 7.1% to $547.8 million from
$511.2 million for 1997. Same contract revenue increased $22.9 million, or 5.7%
to $424.8 million in 1998 from $401.9 million in 1997. Same contract revenue
consists of revenue derived from contracts under management from the beginning
of the prior period throughout the end of the subsequent period. Acquisitions
contributed $40.3 million of the increase in net revenue. Revenue generated from
new contracts obtained through incremental sales contributed $29.0 million. The
increase in revenues was partially offset by a net decrease of $55.6 million
associated with contracts terminated in 1998. We believe the net loss of
contracts during 1998 is primarily attributable to issues related to the
perceived financial condition of MedPartners, uncertainty regarding our
potential sale, and the termination of a number of low margin contracts
associated with InPhyNet.
PROFESSIONAL EXPENSES. Professional expenses for 1998 increased 7.9% to
$430.4 million from $398.7 million in 1997. This increase was due primarily to
the net growth in contracts requiring additional medical professionals as well
as expected cost increases in professional and medical support costs. As a
percentage of net revenue, professional expenses increased to 78.6% in 1998 from
78.0% in 1997.
GROSS PROFIT. Gross profit for 1998 increased 4.4% to $117.4 million from
$112.5 million in 1997. Gross profit as a percentage of revenue decreased to
21.4% in 1998 from 22% in 1997, primarily due to the factors described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1998 decreased 5.3% to $58.4 million from $61.6 million in 1997. General and
administrative expenses as a percentage of revenues decreased to 10.7% in 1998
from 12.1% in 1997. The decrease in general and administrative expenses was due
primarily to the ability to grow revenue while eliminating duplicative corporate
overhead expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1998
increased 50.9% to $9.7 million from $6.5 million in 1997. The increase was due
primarily to additional depreciation associated with equipment purchases and
increases in goodwill amortization associated with acquisitions.
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<PAGE> 45
MERGER EXPENSES, NOVATION PROGRAM EXPENSE ALLOCATION, AND PARENT'S
MANAGEMENT FEES. Merger expenses, Novation Program expense allocation, and
parent's management fees for 1998 decreased to $2.9 million from $35.6 million
in 1997. This decrease was primarily due to a combination of the following:
- a decrease in merger expenses of $22.9 million from 1997 to 1998
associated with acquisitions;
- an $11.0 million non-recurring charge in 1997 from MedPartners for the
Novation Program associated with InPhyNet's professional liability
insurance coverage; and
- an increase of $1.3 million in parent's management fees from 1997 to
1998.
NET INCOME. Net income for 1998 increased to $20.5 million from $2.3
million in 1997. This increase was primarily due to the factors described above
with an offset from an increase of $4.4 million in interest expense from 1997 to
1998. The increase in interest expense was the result of our parent company
internally assessing interest on the balance of the intercompany account during
1998 which was not a consistent practice by our parent in 1997. Also offsetting
the increase in net income was an increase in income tax expense of $10.9
million from 1997 to 1998.
EBITDA. EBITDA for 1998 increased 16.1% to $59.1 million from $50.9
million for 1997. EBITDA margin increased to 10.8% in 1998 from 9.9% in 1997.
The increase in EBITDA and EBITDA margin were due to the factors described
above. Net cash provided by operating activities in 1998 increased 0.64% to
$43.4 million from $43.3 million in 1997. Net cash used in investing activities
in 1998 decreased 33.4% to $22.9 million from $34.3 million in 1997. Net cash
used in financing activities in 1998 increased 142.1% to $22.8 million from $9.1
million in 1997. See footnote 1 to the "Summary Historical and Pro Forma
Financial Data" for a discussion of how we calculated EBITDA and of the
significance of EBITDA.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
NET REVENUE. Net revenue for 1997 increased 10.3% to $511.2 million from
$463.4 million in 1996. Same contract revenue increased $20.4 million, or 4.9%
to $436.0 million in 1997 from $415.6 million in 1996. Same contract revenue
consists of revenue derived from contracts under management from the beginning
of the prior period through the end of the subsequent period. Acquisitions
contributed $19.6 million of the increase in net revenue. Revenue generated from
new contracts obtained through incremental sales contributed $21.2 million. The
increase in revenues was partially offset by a net decrease of $13.4 million
associated with contracts terminated in 1997.
PROFESSIONAL EXPENSES. Professional expenses for 1997 increased 12.8% to
$398.7 million from $353.6 million in 1996. This increase was due primarily to
the net growth in contracts requiring additional medical professionals as well
as normal expected cost increases in professional and medical support costs. As
a percentage of net revenue, professional expenses increased to 78.0% in 1997
from 76.3% in 1996.
GROSS PROFIT. Gross profit for 1997 increased 2.5% to $112.5 million from
$109.8 million for 1996. Gross profit as a percentage of revenues decreased to
22.0% in 1997 from 23.7% in 1996. Gross profit increased primarily due to
additional staffing contracts. Gross profit as a percentage of revenues
decreased primarily due to the factors described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1997 decreased 1.3% to $61.6 million from $62.4 million in 1996. As a
percentage of revenue, general and administrative expenses decreased 12.1% in
1997 from 13.5% in 1996. The decrease in general and administrative expenses was
due primarily to the ability to grow revenue while eliminating duplicative
corporate overhead expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997
increased 14.7% to $6.5 million from $5.6 million in 1996. The increase was due
primarily to additional depreciation associated with equipment purchases and
increases in goodwill amortization associated with acquisitions.
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<PAGE> 46
MERGER EXPENSES, NOVATION PROGRAM EXPENSE ALLOCATION, AND PARENT'S
MANAGEMENT FEES. Merger expenses, Novation Program expense allocation, and
parent's management fees for 1997 increased to $35.6 million from $12.6 million
in 1996. This increase was primarily due to a combination of the following:
- an increase in merger expenses of $11.4 million from 1996 to 1997
associated with the InPhyNet merger;
- an $11.0 million non-recurring charge in 1997 from MedPartners for the
Novation Program associated with InPhyNet's professional liability
insurance coverage; and
- an increase of $0.6 million in parent's management fees from 1996 to
1997.
NET INCOME. Net income for 1997 decreased to $2.3 million from $19.0
million in 1996. This decrease was due primarily to the factors described above
with an offset from a decrease of $5.0 million in income tax expense from 1996
to 1997.
EBITDA. EBITDA for 1997 increased 7.4% to $50.9 million from $47.3 million
for 1996, and EBITDA margin decreased to 9.9% in 1997 from 10.2% in 1996. The
decreases in EBITDA and EBITDA margin were due to the factors described above.
Net cash provided by operating activities in 1997 increased 249.4% to $43.3
million from $12.4 million in 1996. Net cash used in investing activities in
1997 increased 200.6% to $34.3 million from $11.4 million in 1996. Net cash used
in financing activities in 1997 increased 165.8% to $9.1 million from $3.4
million in 1996. See footnote 1 of the "Summary Historical and Pro Forma
Financial Data" for a discussion of how we calculated EBITDA and of the
significance of EBITDA.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Historically, funds generated from operations, together with funds
available from MedPartners, have been sufficient to meet our working capital
requirements and debt obligations and to finance any necessary capital
expenditures. Expansion of our business through acquisitions may require
additional funds, which to the extent not provided by internally generated
sources, cash and the senior bank facilities, will require us to seek additional
external financing.
As of March 31, 1999, we had $102.9 million in working capital, as compared
to $99.5 million as of December 31, 1998. Our principal sources of liquidity
consisted of:
(1) cash, cash equivalents, and marketable equity securities aggregating
$20.3 million as of March 31, 1999 and $3.9 million as of December 31,
1998,
(2) accounts receivable totaling $151.5 million as of March 31, 1999 and
$148.4 million as of December 31, 1998 and
(3) $50.0 million of borrowing capacity under the revolving credit facility
of the senior bank facility.
For the three months ended March 31, 1999, $8.3 million in cash was
provided by operations resulting from a net loss and negative change in
operating assets and liabilities offset by recapitalization expenses. The
negative change in operating assets and liabilities consists of an increase in
accounts receivable and income tax receivable offset by an increase in accounts
payable and other liabilities. Cash of $1.8 million was used in investing
activities for the three months ended March 31, 1999 related to purchases of
property and equipment. Cash of $10.3 million was provided by financing
activities for the three months ended March 31, 1999 as proceeds from borrowings
under the senior bank facilities and old notes exceeded payments made to
MedPartners in connection with recapitalization and the transaction costs of the
recapitalization. Additionally, we repaid $5.0 million of the term loans shortly
after closing the recapitalization.
For the three months ended March 31, 1998, $13.0 million in cash was
provided by operations due to net income, non-cash charges such as depreciation
and amortization, and a positive change in operating
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<PAGE> 47
assets and liabilities. The positive change in operating assets was driven by
growth in malpractice reserves and accrued compensation offset by growth in
accounts receivable resulting from acquisitions during the quarter. Cash of
$10.7 million was used in investing activities for the three months ended March
31, 1998 related to payments for business acquisitions and purchases of property
and equipment. Cash of $5.9 million was provided by financing activities for the
three months ended March 31, 1999 due to working capital transfers from
MedPartners offset by the repayment of long-term debt.
As of December 31, 1998 and 1997, we had $99.5 million and $92.0 million in
working capital, as compared to $86.7 million as of December 31, 1996. Our
principal sources of liquidity consisted of:
(1) cash and cash equivalents of $3.9 million as of December 31, 1998, $5.5
million as of December 31, 1997 and $5.6 million as of December 31,
1996,
(2) accounts receivable totaling $148.4 million as of December 31, 1998,
$130.8 million as of December 31, 1997 and $110.3 million as of
December 31, 1996 and
(3) the ability to access working capital through transfers from
MedPartners.
For the year ended December 31, 1998, $43.4 million in cash was provided by
operations due to positive net income combined with non-cash charges such as
depreciation, amortization, goodwill impairment charge, parent's management
fees, the cumulative effect of an accounting change, and a positive change in
operating assets and liabilities. During this period, we began to liquidate the
accounts receivable that were built up in prior periods due to independent
contractor physician provider application issues. Cash of $22.9 million was used
in investing activities for the year ended December 31, 1998 related to payments
for merger activities, business acquisitions, and purchases of property and
equipment. Cash of $22.1 million was used in financing activities for the year
ended December 31, 1998 as a result of working capital transfers to MedPartners
offset by a positive change in tax accounts.
For the year ended December 31, 1997, $43.3 million in cash was provided by
operations due to positive net income combined with non-cash charges such as
depreciation and amortization, merger charges, Novation Program expense
allocation, and parent's management fees that more than offset the negative
change in operating assets and liabilities. The negative change in operating
assets and liabilities of $1.9 million was primarily due to an increase in
accounts receivable, resulting from the start up of several new billing
contracts during 1997, as well as a continuation of the delay in fee-for-service
reimbursement due to the Health Care Financing Administration's temporary
moratorium on issuing provider numbers for independent contractor physicians
which began in the middle of 1996. Cash of $34.3 million was used in investing
activities for the year ended December 31, 1997 related to payments for merger
charges, business acquisitions, and purchases of property and equipment. Cash of
$9.1 million was used in financing activities for the year ended December 31,
1997 due to working capital transfers to MedPartners and the repayment of
long-term debt.
For the year ended December 31, 1996, $12.4 million in cash was provided by
operations as net income and non-cash charges such as amortization and
depreciation, merger charges, and parents' management fees were greater than the
significant negative change in operating assets and liabilities. A primary
component of the negative change in operating assets and liabilities of $25.0
million related to an increase in accounts receivable resulting from the start
up of several new billing contracts during 1996, as well as a slowdown in
fee-for-service reimbursement due to the Health Care Financing Administration's
temporary moratorium on issuing provider numbers for independent contractor
physicians. Cash of $11.4 million was used in investing activities for the year
ended December 31, 1996 related to payments for merger activities and purchases
of property and equipment. Cash of $3.4 million was used in financing activities
for the year ended December 31, 1996 as the repayment of long-term debt and
negative change in tax accounts combined to exceed the working capital transfers
from MedPartners.
FOLLOWING THE RECAPITALIZATION
We have and following the offering of the exchange notes will continue to
have significant amounts of scheduled debt payments, including interest and
principal repayments on the exchange notes and under the
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<PAGE> 48
senior bank facilities. In addition, we may be required to make earnout payments
assumed by us in connection with the recapitalization. We believe that the
aggregate amount of these earnout payments will not exceed $19.8 million. We
intend to fund our future working capital, capital expenditures and debt service
requirements through cash flow generated from operations and borrowings under
the senior bank facilities. For the year ended December 31, 1998, we generated
cash from operations of approximately $43.4 million and made net capital
expenditures of approximately $5.0 million.
We believe that cash flow from operations and availability under the senior
bank facilities will provide adequate funds for our working capital needs,
planned capital expenditures, potential earnout payments and debt service
obligations for approximately one year. Any future acquisitions, joint ventures
or similar transactions will likely require additional capital and we cannot
assure you that any such capital will be available to us on acceptable terms or
at all. Our ability to fund our working capital needs, planned capital
expenditures and debt service obligations, to refinance indebtedness and to
comply with all of the financial covenants under our debt agreements, depends on
our future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond our control.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000
Our information technology department consists of an in-house staff of 56
professionals. This department provides support for all of the regional
operating units through a centralized, integrated network. For selected regional
operating units with more complex needs, members of our professional staff are
located on site to provide support.
We support our business operations through a wide area network. Based on
the commonality of functions across the business units, the wide area network
enhances the support of the business applications, facilitates communication
across the enterprise and allows flexibility in addressing changing business
needs and technology advancements. In addition, we are in the process of
upgrading our core applications to enhance the integration of the business
units.
We are in the process of formulating and implementing a plan designed to
ensure that all application software and hardware used in connection with our
management information systems, including internally developed systems and
software purchased from outside vendors, will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such dates. Due to the
fact that existing software often defines each year with two digits rather than
four digits, our computers that have date-sensitive software may recognize a
date using "00" as occurring in the year 1900 rather than the year 2000. This
phenomenon could result in abnormalities and inaccuracies and cause a disruption
of our operations, including a temporary inability to process customer orders,
send invoices or engage in other normal business activities.
We are making satisfactory progress with our year 2000 compliance plan,
which consists of the following stages:
(1) Production of an inventory of our hardware and software systems.
(2) Identification of where problems exist.
(3) Diagnosis of solutions to problems.
(4) Implementation of solutions.
(5) Confirmation from major suppliers and customers that they will be year
2000 compliant by the end of 1999.
We have completed the production of an inventory of our hardware and
software systems and identified several areas in which either our software or
hardware is not year 2000 compliant. In most instances, we will replace
noncompliant systems with compliant ones. We have established project timetables
for our remediation efforts and hold weekly progress meetings to review progress
made on the
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<PAGE> 49
remediation efforts. Our project timetables project completion of our
remediation efforts in October 1999. Our remediation efforts are on schedule
with the project timetables.
Under the recapitalization agreement, MedPartners agreed to provide us with
some transition services. Some of these transition services will involve our use
of MedPartners' hardware and software systems. Thus, we will be subject to the
risk that these MedPartners systems are not Year 2000 compliant. In February
1999, we mailed a letter to MedPartners requesting compliance.
In addition to identifying and remedying our own noncompliant systems, we
have requested that each of our customers and suppliers take steps to ensure
that their own systems are year 2000 compliant. In February 1999, letters
requesting compliance were mailed to each of our customers and suppliers.
The total cost of achieving year 2000 compliance is forecast to be $1.9
million. As of March 31, 1999, we have spent approximately $827,000 in
connection with our year 2000 compliance plan.
Implementation of our remediation efforts is reviewed on a weekly basis. If
it becomes apparent that automated processes cannot be made year 2000 compliant,
we will resort to manual processes, utilizing temporary staffing in order to
perform the additional workload resulting from year 2000 related malfunctions.
Risks from Year 2000 Issues
We believe that we have an effective plan to address and remediate the year
2000 issues for systems of Team Health. Although we believe that we will
complete our action plan by September, 1999, as noted above, we have not yet
completed all the necessary phases of our year 2000 systems program.
In the event we do not successfully complete our internal year 2000
program, we may experience disruptions in our ability to provide services to our
clients and support for our independent contractors and employee physicians. If
these disruptions are significant, they could cause a significant negative
effect to the results of our operations. However, based upon our current
assessment of our year 2000 program, Team Health does not expect to experience
any significant disruptions to its ability to conduct normal business activities
that would have a significant long term effect on the results of its business
operations.
In addition to our own internal risk factors, we, like most companies, are
subject to a wide variety of external risk factors associated with the year 2000
issue. In the opinion of management, these risk factors are so numerous and
nebulous that management cannot provide a meaningful and quantifiable estimate
of how these external risk factors may impact our company. Although we have no
reason to believe that this will occur, in a "worst case scenario," a wide scale
downturn in the domestic and/or international economies could occur if year 2000
problems caused significant disruptions to banking services, and power and
communication utilities, or shipping and transit systems. Should this occur, it
would probably have a significant negative effect on our business operations.
Although we do not subscribe to this "worst case scenario," we could
experience some degree of negative impact to our business operations if key
clients or service providers suffer year 2000 problems. Team Health has 375
contracts with clients, and in 1998 our largest contract accounted for less than
1.5% of our net revenue. With such a diverse contract base, the risk for an
negative impact on our business operations resulting from the year 2000 problems
of a single customer is reduced, but not eliminated. In addition, we cannot
guarantee you that several of our key customers will not have year 2000 problems
despite their own internal remediation efforts.
In summary, we may or may not incur a significant negative impact to our
business operations depending on the magnitude and duration of any disruptions
to our internal systems and/or the systems of our trading partners. We believe
that the diversity of our contract base reduces the overall exposure and expects
that the consequences of any unsuccessful remediation will not be significant.
However, we cannot assure you that our efforts or those of other entities will
be successful, or that any potential failure would not have a significant
negative effect on our operating results or financial condition.
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Contingency Plans
We are in the process of developing contingency plans and actions for year
2000 issues related to both internal and external systems. As part of this
planning, we are evaluating the incremental cost of the contingency alternatives
as compared to the perceived level of risk for year 2000 problems. In some cases
we have determined that the perceived level of risk does not justify the cost of
the contingency alternative. Contingency plans involve consideration of a number
of possible actions, including, to the extent necessary or justified, the
selection of alternative service providers and adjustments to staffing
strategies. We plan to continue developing and modifying our contingency plans
throughout 1999 as we monitor and evaluate the progress of our internal and
external year 2000 compliance program.
SEASONALITY
Historically, our sales and operating results have reflected minimal
seasonal variations due to our geographic diversification.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. SFAS No. 131 will
have no effect on our results of operations, financial position or cash flows.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures About Pensions and Other Post-retirement Benefits."
SFAS No. 132 revises employers' disclosures about pension and other
post-retirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that no longer are
useful. SFAS No. 132 is effective for financial statements for fiscal years
beginning after December 15, 1997. SFAS No. 132 has no impact on our results of
operations, financial position, or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value are
required to be recognized immediately in net income (loss) to the extent the
derivatives are not effective as hedges. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000 and is effective for interim periods in the
initial year of adoption. At the present time, we do not feel the adoption of
SFAS No. 133 will have a significant effect on our results of operations,
financial position, or cash flows.
In March 1998, the EITF concluded its discussion on Issue No. 97-2 related
to the Application of APB Opinion No. 16, Business Combinations, and FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to Physician
Practice Management Entities. The Task Force established the criteria for
determining when a Physician Practice Management Entity could consolidate or
combine with a physician's practice. We have adopted the EITF as of December 31,
1998, and believe a controlling financial interest exists with regards to our
contracts.
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BUSINESS
The market and industry data we present in this prospectus are based upon
third party data or have been derived from sources of industry data. While we
believe that these estimates are reasonable and reliable, in some cases, these
estimates cannot be verified by information available from independent sources.
Accordingly, we cannot assure you that the market share data are accurate in all
significant respects.
VBS(TM), WaitLoss(TM) and TeamWorks(TM) are our trademarks. Team Health(R),
InPhyNet Medical Management(R), InPhyNet(R), MetroAmerican Radiology(R), M and
Design(R), Park Med(R), SEP(R), Southeastern Emergency Physicians(R), Emergency
Coverage Corporation(R) and ECC(R) are our service marks. TeamWorks(TM) and
VBS(TM) are our proprietary software systems. Tradenames and trademarks of other
companies appearing in this prospectus are the property of their respective
holders.
INTRODUCTION
We are the largest national provider of outsourced physician staffing and
administrative services to hospitals and clinics in the United States, with 375
hospital contracts in 25 states. Our regional operating model includes
comprehensive programs for emergency medicine, radiology, inpatient care,
pediatrics and other hospital departments. We provide a full range of physician
staffing and administrative services, including the:
- staffing, recruiting and credentialing of clinical and non-clinical
medical professionals;
- provision of administrative support services, such as payroll,
insurance coverage and continuing education services; and
- billing and collection of fees for services provided by the medical
professionals.
Since our inception in 1979, we have focused primarily on providing
outsourced services to emergency department and urgent care centers, which
accounted for approximately 80% of our net revenue in 1998. We generally target
larger hospitals with high volume hospital emergency departments and urgent care
centers whose patient volume is more than 15,000 patient visits per year. In
higher volume emergency departments and urgent care centers, we believe we can
generate attractive margins, establish stable long-term relationships, obtain
attractive payor mixes and recruit and retain high quality physicians. In 1998,
we generated net revenue of $547.8 million.
The healthcare environment is becoming increasingly complex due to changes
in regulations, reimbursement policies and the evolving nature of managed care.
As a result, hospitals are under significant pressure to improve the quality and
reduce the cost of care. In response, hospitals have increasingly outsourced the
staffing and management of multiple clinical areas to contract management
companies with specialized skills and standardized models to improve service,
increase the quality of care and reduce administrative costs. Specifically,
hospitals have become increasingly challenged to manage hospital emergency
departments and urgent care centers effectively due to:
- increasing patient volume;
- complex billing and collection procedures; and
- the legal requirement that hospital emergency departments and urgent
care centers examine and treat all patients.
We believe we are well positioned to continue to capitalize on the current
outsourcing trends as a result of our:
- national presence;
- sophisticated information systems and standardized procedures that
enable us to efficiently manage our staffing and administrative
services as well as the complexities of the billing and collections
process;
- demonstrated ability to improve productivity, patient satisfaction and
quality of care while reducing overall cost to the hospital; and
- successful record of recruiting and retaining high quality physicians.
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In addition, our regional operating model allows us to deliver locally focused
services while benefitting from the operating efficiencies, infrastructure and
capital resources of a large national provider.
We believe we are well positioned to capitalize on the growth of the
overall healthcare industry as well as the growth of the hospital emergency
department and urgent care center sector. According to the Health Care Financing
Administration, national healthcare spending is expected to increase from 13.6%
of gross domestic product, or $1.0 trillion, in 1996 to 16.4% of gross domestic
product, or $2.1 trillion, by the year 2007, representing a 6.8% compound annual
growth rate. Hospital services have historically represented the single largest
component of these costs, accounting for approximately 34% of total healthcare
spending in 1997. According to industry sources, in 1997, approximately 5,000
U.S. hospitals operated hospital emergency departments and urgent care centers
and 80% of these hospitals outsourced their hospital emergency departments and
urgent care centers. In the same year, hospital emergency department and urgent
care center expenditures were approximately $20 billion, with hospital emergency
department and urgent care center physician services accounting for
approximately $7 billion. According to the American Hospital Association,
hospital emergency departments and urgent care centers handle approximately 100
million patient visits annually and nearly 40% of all hospital inpatient
admissions originate in the hospital emergency department and urgent care
center. In addition, the average number of patient visits per hospital emergency
department and urgent care center increased at a compound annual growth rate of
approximately 3.0% between 1988 and 1996.
COMPETITION
The healthcare services industry is highly competitive and, especially in
recent years, has been subject to continuing changes in how services are
provided and how providers are selected and paid. Competition for outsourced
physician staffing and administrative service contracts is based primarily on
- the ability to improve department productivity and patient satisfaction
while reducing overall costs;
- the breadth of staffing and management services offered;
- the ability to recruit and retain qualified physicians; and
- billing and reimbursement expertise.
Our national competitors in the provision of staffing and administrative
services to hospital emergency departments and urgent care centers include
EmCare, Inc. and Spectrum Emergency Care, Inc., both of which are subsidiaries
of Laidlaw, Inc., Sheridan Healthcare, Inc., Coastal Physician Group, Inc.,
National Emergency Services and Sterling Healthcare Group, a subsidiary of FPA
Medical Management. American Physician Partners, Inc. is our principal national
competitor in the provision of radiology staffing and administrative services.
There are also many local and regional companies which provide physician
staffing and administrative services. We also compete against the traditional
structure of hospital management for its physician staffing and scheduling
needs.
We believe that evolution of the healthcare industry will tend to blur
traditional distinctions among industry segments. We expect that other companies
in other healthcare industry segments, such as managers of other hospital-based
specialties and large physician group practices, some of which have financial
and other resources greater than ours, may become competitors in the delivery of
physician staffing and administrative services.
COMPETITIVE STRENGTHS
Although the healthcare services industry is highly competitive, we believe
we are able to compete effectively due to the following strengths:
LEADING MARKET POSITION. We are the largest national provider of
outsourced emergency physician staffing and administrative services in the
United States. In addition, we are the second largest provider of outsourced
radiology staffing and administrative services and have a growing presence in
other hospital
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departments. We believe our ability to spread the relatively fixed costs of our
corporate infrastructure over a broad national contract and revenue base
generates significant cost efficiencies that are generally not available to
smaller competitors. As a full-service provider with a comprehensive
understanding of changing healthcare regulations and policies and the management
information systems that provide support to manage these changes, we believe we
are well positioned to gain market share from less sophisticated local and
regional service providers. Furthermore, we have a geographically diverse base
of 375 hospital contracts, with an average contract tenure of approximately 6.8
years. In 1998, no single contract accounted for more than 1.5% of our net
revenue, and as a result, the loss of any contract would not significantly
impact our financial performance.
REGIONAL OPERATING MODEL SUPPORTED BY A NATIONAL INFRASTRUCTURE. We
service our client hospitals from 13 regional operating units, which allows us
to deliver locally focused services with the resources and sophistication of a
national provider. Our local presence creates closer relationships with
hospitals, resulting in responsive service and high physician retention rates.
Our strong relationships in local markets enable us to effectively market our
services to local hospital administrators, who generally make decisions
regarding contract awards and renewals. Our regional operating units are
supported by our national infrastructure, which includes integrated information
systems and standardized procedures that enable us to efficiently manage the
operations and billing and collections processes. We also provide each of our
regional operating units with centralized staffing support, purchasing economies
of scale, payroll administration, coordinated marketing efforts and risk
management. We believe our regional operating model supported by our national
infrastructure improves productivity and quality of care while reducing the cost
of care.
SIGNIFICANT INVESTMENT IN INFORMATION SYSTEMS AND PROCEDURES. Our
proprietary information systems link our billing, collection, recruiting,
scheduling, credentialing and payroll functions among our regional operating
units, allowing our best practices and procedures to be delivered and
implemented nationally while retaining the familiarity and flexibility of a
locally-based service provider. Over the last five years, we have spent over $10
million to develop and maintain integrated, advanced systems to facilitate the
exchange of information among our regional operating units and clients. These
systems include our IDX Billing System, our VBS(TM) patient information system,
our WaitLoss(TM) process improvement program, our TeamWorks(TM) physician
database and software package and the company-wide application of best
practices. As a result of this investment, we believe our average cost per
patient billed and average cost per physician recruited are among the lowest in
the industry. The strength of our information systems has enhanced our ability
to collect patient payments and reimbursements in an orderly and timely fashion
and has increased our billing and collections productivity. In the past two
years, we have experienced a 22% increase in collection rates on delinquent
accounts and a 220% increase in the rates paid to us by third party factoring
agents on closed accounts receivable.
ABILITY TO RECRUIT AND RETAIN HIGH QUALITY PHYSICIANS. A key to our
success has been our ability to recruit and retain high quality physicians to
service our contracts. While our local presence gives us the knowledge to
properly match physicians and hospitals, our national presence and
infrastructure enable us to provide physicians with a variety of attractive
hospital locations, advanced information and reimbursement systems and
standardized procedures. Furthermore, we offer physicians substantial
flexibility in terms of geographic location, type of facility, scheduling of
work hours, benefits packages and opportunities for relocation and career
development. This flexibility, combined with fewer administrative burdens,
improves physician retention rates and stabilizes our contract base. We believe
we have among the highest physician retention rates in the industry.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. Our senior
management team has extensive experience in the outsourced physician staffing
and administrative services industry. Our Chief Executive Officer, Lynn
Massingale, M.D., has been with us since our inception in 1979. Our top 23
executives have an average of over 20 years experience in the outsourced
physician staffing and medical services industry. Twenty members of our
management team contributed an aggregate of $8.5 million in connection with the
recapitalization, which, together with performance based options, represents an
indirect fully diluted ownership interest of approximately 18.5%. As a result of
its substantial equity interest, we
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believe our management team will have significant incentive to continue to
increase our sales and profitability.
GROWTH STRATEGY
The key elements of our growth strategy are as follows:
INCREASE REVENUE FROM EXISTING CUSTOMERS. We have a strong record of
increasing revenue from existing customers. In 1997 and 1998, net revenue from
continuing contracts grew by approximately 5% and 6%, respectively. We plan to
continue to increase revenue from existing customers by
- improving documentation of care delivered, capturing full reimbursement
for services provided;
- implementing fee schedule increases, where appropriate;
- capitalizing on increasing patient volumes;
- increasing the scope of services offered within contracted departments;
and
- cross-selling services to other hospital departments.
CAPITALIZE ON INDUSTRY TRENDS TO WIN NEW CONTRACTS. We seek to obtain new
contracts by
- replacing contract management companies at hospitals that currently
outsource their services and
- winning new contracts from hospitals that do not currently outsource.
We believe the number of high volume hospital emergency departments and urgent
care centers will grow as patient visits increase and hospital consolidation
continues.
Furthermore, we believe that our market share of larger volume hospital
emergency departments and urgent care centers is likely to increase as a result
of our
- national presence;
- sophisticated information systems and standardized procedures that
enable us to efficiently manage our core staffing and administrative
services as well as the complexities of the billing and collections
process;
- demonstrated ability to improve productivity, patient satisfaction and
quality of care while reducing overall cost to the hospital; and
- successful record of recruiting and retaining high quality physicians.
Since 1996, we have won 89 new outsourced contracts.
GROW THROUGH ACQUISITIONS. We intend to continue to pursue strategic
acquisitions of contracts currently held by local and regional physician groups.
Many of these physician groups are faced with increasing pressure to provide the
systems and services of a larger organization. The market for outsourced
hospital emergency department and urgent care center physician staffing services
is highly fragmented. Approximately 75% of the market is served primarily by
small, local and regional physician groups who generally lack the resources and
depth of services necessary to compete with national providers. We have
developed and implemented a disciplined acquisition methodology utilized by our
dedicated in-house mergers and acquisitions team. Since 1996, we have completed
17 acquisitions. We expect to continue to fund acquisitions with a combination
of cash and earnout payments based on future operating performance.
IMPLEMENT OPERATIONS IMPROVEMENT PROGRAM. We have recently initiated a
comprehensive program to maximize productivity and improve profitability in our
administrative areas. Our operations improvement program was approved in the
second quarter of 1998. The three primary initiatives of the operations
improvement program include:
- integrating our twelve billing locations into a national network of
four billing centers operating on the uniform IDX billing system;
- consolidating call centers from four locations to one central location;
and
- reducing controllable costs.
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We have already experienced increased profitability where our operations
improvement program has been implemented. In the past two years, we have
experienced a 22% increase in collection rates on delinquent accounts receivable
and a 220% increase in the rate paid to us by third party factoring agents on
closed accounts receivable. We began the operations improvement program in the
second half of 1998. We expect substantially all of the initiatives to be fully
implemented by the end of 1999.
INDUSTRY
According to Health Care Financing Administration, national healthcare
spending is expected to increase from 13.6% of gross domestic product, or $1.1
trillion, in 1997 to 15.9% of gross domestic product, or $1.8 trillion, by the
year 2005, representing a 6.4% compound annual growth rate. Hospital services
have historically represented the single largest component of these costs,
accounting for more than 40% of total healthcare spending. In the increasingly
complex healthcare regulatory, managed care and reimbursement environment,
hospitals are under significant pressure from the government and private payors
both to improve the quality and reduce the cost of care. In response, hospitals
have increasingly outsourced the staffing and management of multiple clinical
areas to contract management companies with specialized skills and a
standardized model to improve service, increase the overall quality of care and
reduce administrative costs.
In addition, the healthcare industry is experiencing an increasing trend
towards outpatient therapy rather than the traditional inpatient treatment.
Healthcare reform, such as the Health Care Financing Administration
reimbursement code reforms and the advent of managed care, places an increasing
emphasis on reducing the time patients spend in hospitals. As a result, the
severity of illnesses and injuries treated in the emergency department and
urgent care center is likely to increase when these patients require emergency
medical attention.
HOSPITAL EMERGENCY DEPARTMENTS AND URGENT CARE CENTERS. According to
industry sources, in 1997 approximately 5,000 U.S. hospitals operated hospital
emergency departments and urgent care centers and 80% of these hospitals had
outsourced their hospital emergency department and urgent care center
departments. According to the American Hospital Association, hospital emergency
departments and urgent care centers handle nearly 100 million patient visits
annually, and nearly 40% of all hospital inpatient admissions originate in the
hospital emergency department and urgent care center. According to the American
Hospital Association, the average number of patient visits per hospital
emergency department and urgent care center increased at a compound annual
growth rate of 3.0% between 1988 and 1996. The market for outsourced hospital
emergency department and urgent care center medical services is highly
fragmented. Approximately 80% of the market is served by a large number of
small, local and regional physician groups. These local providers generally lack
the depth of services and administrative and systems infrastructure necessary to
compete with national providers in the increasingly complex healthcare business
and regulatory environment.
RADIOLOGY. According to the 1998-1999 Medical and Healthcare Marketplace
Guide, total spending on radiology services in the U.S. in 1998 was estimated at
$69 billion or approximately 5% of annual healthcare expenditures, with 70% of
this spending in hospital settings. According to the American College of
Radiology, there were approximately 3,200 radiology groups in the U.S. in 1996,
representing approximately 27,000 radiologists who performed approximately 350
million radiological procedures in 1995. As with outsourced hospital emergency
department and urgent care center medical services, the market for outsourced
radiology services is highly fragmented and served by a large number of small
local and regional radiology groups. Competition for outsourced radiology
services contracts is intense and based on the ability of the radiology group to
provide a high level of medical and non-medical services. Smaller radiology
groups are often at a competitive disadvantage since they often lack the
capital, range of medical equipment and information systems required to meet the
increasingly complex needs of hospitals.
INPATIENT SERVICES. Hospitalists, physicians whose practice is solely
hospital based, care for admitted patients who lack a private physician or whose
private physician practices solely in the outpatient setting. According to
industry sources, less than 10% of inpatient care services are outsourced by
hospitals, and
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there are only 3,000 hospitalists practicing today. Hospitalists, however, have
demonstrated an ability to reduce inpatient costs while maintaining high quality
care and patient satisfaction, and industry sources have projected a potential
need for 34,000 hospitalists by the year.
CONTRACTUAL ARRANGEMENTS
HOSPITALS. We provide outsourced physician staffing and administrative
services to hospitals under fee-for-service contracts and flat-rate contracts.
Hospitals entering into fee-for-service contracts agree, in exchange for
granting our affiliated physicians medical staff privileges and exclusivity for
services, to authorize us to bill and collect the professional component of the
charges for medical services rendered by our contracted and employed physicians.
Under the fee-for-service arrangements, we receive direct or indirect
disbursements from patients and payors of the amounts collected. Depending on
the magnitude of services provided to the hospital and payor mix, we may also
receive supplemental revenue from the hospital. In a fee-for service
arrangement, we accept responsibility for billing and collection.
Under flat-rate contracts, the hospital performs the billing and collection
services of the professional component and assumes the risk of uncollectibility.
In return for providing the physician staffing and administrative services, the
hospital pays a contractually negotiated fee for physician coverage.
In 1998, approximately 76% of our net revenue was generated from
fee-for-service contracts. Our contracts with hospitals do not require any
significant financial outlay, investment obligation or equipment purchase by us
other than the professional expenses associated with staffing the contracts.
Contracts with hospitals generally have terms of three years and are
generally automatically renewable under the same terms and conditions unless
either party gives notice of an intent not to renew. While most contracts are
terminable by either of the parties upon notice of as little as 30 days, the
average tenure of our contracts is approximately 6.8 years.
PHYSICIANS. We contract with physicians as independent contractors or
employees to provide services to fulfill our contractual obligations to our
hospital clients. We typically pay the physicians a flat hourly rate for each
hour of coverage provided at rates comparable to the market in which they work,
with the exception of those radiologists and primary care physicians employed by
us, who are paid a base salary. The hourly rate varies if the physician is
independently contracted or an employee. Independently contracted physicians are
required to pay a self-employment tax, social security, and workers'
compensation insurance premiums. In contrast, we pay these taxes and expenses
for employed physicians. As such, employed physicians typically receive a lower
flat hourly rate.
Our contracts with physicians are generally perpetual and can be terminated
at any time under certain circumstances by either party without cause, typically
upon 180 days notice. In addition, we generally require the physician to sign a
non-compete and non-solicitation agreement. Although the terms of our
non-compete agreements vary from physician to physician, the non-compete
agreements generally have terms of two years from the termination of the
agreement. We also generally require our employed physicians to sign similar
non-compete agreements. Under these agreements, the physician is restricted from
divulging confidential information, soliciting or hiring our physicians,
inducing termination and competing for or soliciting our clients. As of March
31, 1999, we had working relationships with over 2,160 physicians, of which over
1,450 were independently contracted, and over 230 other healthcare
professionals.
SERVICE LINES
We provide a full range of outsourced physician staffing and administrative
services for hospital emergency department and urgent care centers, radiology,
inpatient services, pediatrics, and other departments of the hospital. As
hospitals experience growing pressure from managed care companies and other
payors to reduce costs while maintaining or improving the quality of service, we
believe hospitals will increasingly turn to single-source providers of
outsourced physician staffing and administrative services with an established
track record of success. As the outsourcing trend grows, we believe our delivery
platform of
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regional operating units supported by a national infrastructure will result in
higher customer satisfaction and a more stable contract base than many of our
competitors.
EMERGENCY DEPARTMENT. We are one of the largest providers of outsourced
physician staffing and administrative services for the hospital emergency
department and urgent care center in the United States. Approximately 80% of our
net revenue in 1998 came from hospital emergency department and urgent care
center contracts. As of March 31, 1999, we independently contracted with or
employed approximately 1,940 hospital emergency department and urgent care
center physicians. We contract with the hospital to provide qualified emergency
physicians and other healthcare providers for the hospital emergency department
and urgent care center. In addition to the core services of contract management,
recruiting, credentialing, staffing and scheduling, we provide our client
hospitals with enhanced services designed to improve the efficiency and
effectiveness of the hospital emergency department and urgent care center.
Specific programs like WaitLoss(TM) apply proven process improvement
methodologies to departmental operations. Publications such as the Emergency
Physician Legal Bulletin(TM) and Case Studies of Customer Service in the
Emergency Department(TM) are delivered to all client hospitals and physicians on
a quarterly basis. Information systems such as the VBS(TM) documentation and
billing information system are installed in some client hospital emergency
department and urgent care centers to improve physician documentation and to
track utilization of clinical resources. Physician documentation templates
ensure compliance with federal documentation guidelines and allow for more
accurate patient billing. By providing these enhanced services, we believe we
increase the value of services we provide to our clients and improve client
relations. Additionally, we believe these enhanced services also differentiate
us in sales situations and improve the chances of being selected in a contract
bidding process.
Since 1996, Team Health has merged with or acquired the contracts of 13
hospital emergency department and urgent care center physician groups. The
acquired hospital emergency department and urgent care center contracts were
generally with hospitals in large markets with an average patient volume
exceeding 15,000 per year. Since 1996, we have also successfully negotiated 71
new outsourced hospital emergency department and urgent care center physician
staffing and administrative services contracts. These contracts have been
obtained either through direct selling or through a competitive bidding process
initiated by hospitals.
Partially offsetting the growth in the number of hospital emergency
department and urgent care center contracts attributed to acquisitions and
direct sales are contract terminations. Since 1996, 85 hospital emergency
department and urgent care center contracts in total were terminated. Our
cancellations can be attributed primarily to the elimination of low margin
contracts obtained in connection with acquisitions. Hospital cancellations can
be attributed to consolidation among hospitals, medical staff politics and
pricing. In 1998, we had a net loss of approximately 25 hospital emergency
department and urgent care center contracts. We believe the net loss of
contracts during 1998 is primarily attributable to issues related to the
perceived financial condition of MedPartners, uncertainty regarding the
potential sale of Team Health, and the termination of a number of low margin
contracts associated with InPhyNet.
RADIOLOGY. We believe we are the second largest provider of outsourced
radiology physician staffing and administrative services in the United States.
We contract directly or through the regional operating units with selected
radiologists to provide radiology physician staffing and administrative
services. A typical radiology management team consists of clinical
professionals, board certified radiologists that are trained in all modalities,
and non-clinical professionals and support staff that are responsible for the
scheduling, purchasing, billing and collections functions. As of March 31, 1999,
we employed over 105 radiologists. We have traditionally focused on the
hospital-based radiology market, although we also maintain contracts with
outpatient diagnostic imaging centers. We believe the advantages of contracting
with us include our ability to provide 24-hour radiology coverage through a
combination of on-site services and/or teleradiology coverage, a means of
electronically transmitting patient images and consultative text from one
location to another.
INPATIENT SERVICES. We are one of the largest providers of outsourced
physician staffing and administrative services for inpatient services which
include hospitalist services and house coverage services.
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Our inpatient services contracts with hospitals are generally on a cost plus or
flat-rate basis. As of March 31, 1999, we independently contracted with or
employed over 63 inpatient physicians. Since 1996, we experienced net revenue
and contract growth in our inpatient services business primarily due to new
contract sales, acquisitions, and to a lesser extent, rate increases on existing
contracts.
PEDIATRICS. We are one of the largest providers of outsourced pediatrics
physician staffing and administrative services for general and pediatrics
hospitals. We provide these services on a cost plus or flat-rate basis. These
services include pediatrics emergency medicine and radiology, neonatal intensive
care, pediatric intensive care, urgent care centers, primary care centers,
observation units and inpatient services. As of March 31, 1999, we independently
contracted with or employed over 51 pediatrics physicians. Since 1996, we have
experienced net revenue and contract growth in our outsourced pediatrics
physician staffing and administrative services business due primarily to new
contract sales and acquisitions, and to a lesser extent, rate increases on
existing contracts.
PRIMARY CARE CLINICS AND OCCUPATIONAL MEDICINE. We provide primary care
staffing and administrative services in stand-alone primary clinics and in
clinics located within the work-site of industrial clients. While such clinics
are not a major focus of our business, they are complementary to our hospital
client's interests. The primary care clinics are typically a joint venture with
a local hospital and serve as an extension of the hospitals' primary care
services. We generally contract with the hospital to provide cost-effective,
high quality primary care physician staffing and administrative services. We
generally contract with an industrial employer to provide physician staffing and
administrative services for the occupational medicine clinic.
SERVICES
We provide a full range of outsourced physician staffing and administrative
services for hospital emergency departments and urgent care centers, radiology,
inpatient services, pediatrics, and other areas of the hospital.
Our outsourced physician staffing and administrative services include:
<TABLE>
<S> <C>
- - Contract Management
- - Staffing
- - Recruiting
- - Credentialing
- - Scheduling
- - Payroll Administration and
Benefits
- - Information Systems
- - Consulting Services
- - Billing and Collection
- - Risk Management
- - Continuing Education Services
</TABLE>
CONTRACT MANAGEMENT. Our delivery of outsourced physician staffing and
administrative services for a clinical area of the hospital is led by an
experienced contract management team of clinical and other healthcare
professionals. The team includes a Regional Medical Director, an on-site Medical
Director and a Client Services Manager. The Medical Director is a physician with
the primary responsibility of managing the physician component of a clinical
area of the hospital. The Medical Director works with the team, in conjunction
with the nursing staff and private medical staff, to improve clinical quality
and operational effectiveness. Additionally, the Medical Director works closely
with the regional operating unit operations staff to meet the clinical area's
ongoing recruiting and staffing needs.
STAFFING. We provide a full range of staffing services to meet the unique
needs of each hospital and clinic. Our dedicated clinical teams include
qualified, career-oriented physicians and other healthcare professionals
responsible for the delivery of high quality, cost-effective care. These teams
also rely on managerial personnel, many of whom have clinical experience, who
oversee the administration and operations of the clinical area. As a result of
our staffing services, hospitals can focus their efforts on improving their core
business of providing healthcare services for their communities as opposed to
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recruiting and managing physicians. We also provide temporary staffing services
of physicians and other healthcare professionals to hospitals and clinics in 25
states.
RECRUITING. Many hospitals lack the resources necessary to identify and
attract specialized, career-oriented physicians. We have a staff of over 25
professionals dedicated to the recruitment of qualified physicians. These
professionals are regionally located and are focused on matching qualified,
career-oriented physicians with hospitals. Common recruiting methods include the
use of our proprietary national physician database, attending trade shows,
placing website and professional journal advertisements and telemarketing.
We have committed significant resources to the development of a proprietary
national physician database to be shared among our regional operating units.
This database is currently in operation at all but one of the operating units,
with final rollout scheduled to be completed over the next six months. The
database uses the American Medical Association Masterfile of over 700,000
physicians as the raw data source on potential candidates. Recruiters contact
potential prospects through telemarketing, direct mail, conventions, journal
advertising and our internet site to confirm and update the information.
Prospects expressing interest in one of our practice opportunities provide more
extensive information on their training, experience, and references, all of
which is added to our database. Our goal is to ensure that the practitioner is a
good match with both the facility and the community before proceeding with an
interview.
CREDENTIALING. We conduct a comprehensive review of a candidate's
background, academic records and previous medical experience. Once a candidate's
application is complete, it is loaded into our proprietary credentials software
program. While the hospital has the ultimate responsibility for verifying
credentials prior to granting medical staff privileges, we conduct this
extensive review prior to presenting the candidate, ensuring that only qualified
candidates are presented to the client.
SCHEDULING. Our scheduling department assists the Medical Directors in
scheduling physicians and other healthcare professionals within the clinical
area on a monthly basis.
PAYROLL ADMINISTRATION AND BENEFITS. We provide payroll administration
services for the physicians and other healthcare professionals with whom we
contract to provide physician staffing and administrative services. Our clinical
employees benefit significantly by our ability to aggregate physicians and other
healthcare professionals to negotiate more favorable employee benefit packages
and professional liability coverage than many hospitals or physicians could
negotiate on a stand-alone basis. Additionally, hospitals benefit from the
elimination of the overhead costs associated with the administration of the
payroll and, where applicable, employee benefits.
INFORMATION SYSTEMS. We have invested in advanced information systems and
proprietary software packages designed to assist hospitals in lowering
administrative costs while improving the efficiency and productivity of a
clinical area. These systems include VBS, a system that facilitates the
documentation, utilization review, coding and billing of the professional
services of the emergency physicians to ensure appropriate reimbursement and
TeamWorks(TM), a national physician database and software package that
facilitates the recruitment and retention of physicians and supports our
contract requisition, credentialing, automated application generation,
scheduling, and payroll operations.
CONSULTING SERVICES. We have a long history of providing outsourced
physician staffing and administrative services to hospitals and, as a result,
have developed extensive knowledge in the operations of some areas of the
hospital. As such, we provide consulting services to hospitals to improve the
productivity, quality and cost of care delivered by the hospital.
Process Improvement. We have developed a number of utilization review
programs designed to track patient flow and identify operating inefficiencies.
To rectify such inefficiencies, we have developed a Fast Track system to
expedite patient care in the hospital emergency department and urgent care
center by separating patients who can be treated in a short period of time from
patients who have more serious or time-consuming problems. Fast Track patients,
once identified through appropriate triage categorization, are examined and
treated in a separate area of the hospital emergency department and urgent care
center, controlled by its own staff and operational system. We have substantial
experience in all phases of
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development and management of Fast Track programs, including planning,
equipping, policy and procedure development, and staffing. In addition, we
employ WaitLoss(TM), a proprietary process improvement system designed to assist
the hospital in improving the efficiency and productivity of a department.
Quality Improvement. We provide a quality improvement program designed
to assist the hospital in maintaining a consistent level of high quality care.
It periodically measures the performance of the hospital, based on a variety of
benchmarks, including patient volume, quality indicators and patient
satisfaction. This program is typically integrated into our process improvement
program to ensure seamless delivery of high quality, cost-effective care.
Managed Care Contracting. We have developed extensive knowledge of the
treatment protocols, and related documentation requirements, of a variety of
managed care payors. As a result, we often participate in the negotiation of
managed care contracts to make those managed care relationships effective for
the patients, the payors, the physicians and the hospitals. We provide managed
care consulting services in the areas of contracting, negotiating, reimbursement
analysis/projections, payor/hospital relations, communications and marketing. We
have existing managed care agreements with health maintenance organizations,
preferred provider organizations and integrated delivery systems for commercial,
Medicaid and Medicare products. While the majority of our agreements with payors
continue to be traditional fee-for-service contracts, we are experienced in
providing managed, prepaid healthcare to enrollees of managed care plans.
Nursing Services. We maintain highly regarded, experienced nurse
consultants on our client support staff. These nurse consultants provide
assistance to nurse managers and Medical Directors of the client hospital on
issues regarding risk management and total quality management. In addition, the
nurse consultants are available to make site visits to client hospitals on
request to assess overall operations, utilization of personnel and patient flow.
BILLING AND COLLECTION. Our billing and collection services are a critical
component of our business. We are in the process of consolidating all billing
and collections operations into four core billing facilities, each of which has
already been converted into our uniform billing system -- the IDX software
system. Two sites have been on the IDX system for several years, a third site
was converted in June 1998, and the last site was converted in February 1999.
The IDX system has proven to be a powerful billing and accounts receivable
software package, with strong reporting capabilities and a proven record of
improving collections while reducing billing expenses. We have interfaced a
number of other software systems with the IDX system to further improve
productivity and efficiency. Foremost among these is the electronic registration
interface that gathers registration information directly from the hospitals'
management information systems. Additionally, we have invested in electronic
submission of claims, as well as electronic remittance posting. These programs
have markedly diminished labor and postage expenses. At the present time,
approximately 3.7 of 5.0 million billed annual patient encounters are being
processed by the four billing facilities. The remaining 1.3 million billed
annual patient encounters, which are being processed by third-party billing
companies will be transitioned to one of the four billing facilities, with the
transition expected to be completed by the end of the fourth quarter of 1999.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Operations Improvement Program."
We use a patient information system known as VBS(TM), which is presently
installed in 46 hospital emergency departments and urgent care centers that we
staff and manage. Using purchased software which has the capability to recognize
the spoken voice, we have installed personal computers in these hospital
emergency departments and urgent care centers and have modified the software to
enable the physician to generate the clinical note. This note is interfaced with
demographic information from the hospital information system. Each day, the
combined clinical note/demographic information is transmitted to our Plantation,
Florida operation center, where the information is scanned and electronically
loaded into the billing system and into a data warehouse for production of
sophisticated utilization and practice management reports.
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We also operate an internal collection agency, called IMBS, to handle our
outstanding receivables deemed uncollectible. This agency utilizes an advanced
collection agency software package linked to a predictive dialer. Presently,
approximately 75% of all collection placements generated from our billing
facilities are sent to the IMBS agency. Over the next six months, this is
expected to increase to 100%. Comparative analysis has shown that the internal
collection agency has markedly decreased expenses previously paid to outside
agencies and improved the collectibilty of existing placements. By combining the
VBS(TM) system, the regional Team Health billing operation centers on a common
platform and the IMBS collection agency, we have built an integrated system
combining the generation of clinical information with the electronic capture of
billing information which passes unpaid accounts into an internal collection
agency. This advanced comprehensive billing and collection system allows us to
have full control of accounts receivable at each step of the process.
RISK MANAGEMENT. Our risk management function is designed to prevent or
minimize medical professional liability claims and includes:
- incident reporting systems,
- tracking/trending the cause of accidents and claims,
- physician education and service programs, including peer review and
pre-deposition review,
- loss prevention information such as audio tapes and risk alert
bulletins, and
- early intervention of malpractice claims.
Through our risk management staff, the quality assurance staff and the
Medical Director, we conduct an aggressive claims management program for loss
prevention and early intervention. We have a proactive role in promoting early
reporting, evaluation and resolution of serious incidents that may evolve into
claims or suits.
CONTINUING EDUCATION SERVICES. Our internal continuing education services
are fully accredited by the Accreditation Council for Continuing Medical
Education. This allows us to grant our physicians and nurses continuing
education credits for internally developed educational programs at a lower cost
than if such credits were earned through external programs. We have designed a
series of customer relations seminars entitled Successful Customer Relations for
physicians, nurses and other personnel to learn specific techniques for becoming
effective communicators and delivering top-quality customer service. These
seminars help the clinical team sharpen its customer service skills, further
develop communication skills and provide techniques to help deal with people in
many critical situations.
SALES AND MARKETING
Contracts with hospitals for outsourced physician staffing and
administrative services are generally obtained either through direct selling
efforts or requests for proposals. We have a team of five sales professionals
located throughout the country. Each sales professional is responsible for
developing sales and acquisition opportunities for the operating unit in their
territory. In addition to direct selling, the sales professionals are
responsible for working in concert with the regional operating unit president
and corporate development personnel to respond to a request for proposal.
Although practices vary from hospital to hospital, hospitals generally
issue a request for proposal with demographic information of the hospital
department, a list of services to be performed, the length of the contract, the
minimum qualifications of bidders, the selection criteria and the format to be
followed in the bid. Supporting the sales professionals is a fully integrated
marketing campaign comprised of a telemarketing program, internet website,
journal advertising, and a direct mail and lead referral program.
OPERATIONS
We currently operate through 13 regional operating units which are listed
in the table below. The operating units are managed semi-autonomously by senior
physician leaders and are operated as profit centers with the responsibility for
pricing new contracts, recruiting and scheduling physicians and other
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healthcare professionals, marketing locally and conducting day to day
operations. The management of corporate functions such as accounting, payroll,
billing and collection, capital spending, information systems and legal are
centralized.
<TABLE>
<CAPTION>
NAME LOCATION PRINCIPAL SERVICES
- ---- ---------------------- ------------------
<S> <C> <C>
The Emergency Associates for Medicine............ Tampa, FL ED
Emergency Coverage Corporation................... Knoxville, TN ED
Emergency Physician Associates................... Woodbury, NJ ED
Emergency Professional Services.................. Middleburg Heights, OH ED
InPhyNet Medical Management...................... Ft. Lauderdale, FL ED
Northwest Emergency Physicians................... Seattle, WA ED
Radiology Associates of Hollywood................ Hollywood, FL Radiology
Reich, Seidelmann, and Janicki................... Solon, OH Radiology
Sheer, Ahearn & Associates....................... Tampa, FL Radiology
Southeastern Emergency Physicians................ Knoxville, TN ED
Team Health Southwest............................ Houston, TX ED
Team Radiology................................... Knoxville, TN Radiology
Team Health West................................. Pleasanton, CA ED
</TABLE>
PROPERTIES
We lease 38,141 square feet at 1900 Winston Road, Knoxville, Tennessee for
our corporate headquarters. We also lease or sublease facilities for the
operations of the clinics, billing centers, and certain regional operations. We
believe our present facilities are adequate to meet our current and projected
needs. The leases and subleases have various terms ranging from one to seven
years and monthly rents ranging from $510 to $60,000. Our aggregate monthly
lease payments total approximately $475,000. We expect to be able to renew each
of our leases or to lease comparable facilities on terms commercially acceptable
to us.
INSURANCE
We require the physicians with whom we contract to obtain professional
liability insurance coverage. For both our independently contracted and employed
physicians, we currently arrange the provision of claims-made coverage of
$1,000,000 per incident and $3,000,000 annual aggregate per physician and
$1,000,000 per incident and $25,000,000 annual aggregate with respect to Team
Health and our operating units and other healthcare practitioners. These limits
are deemed appropriate by management based upon historical claims, the nature
and risks of the business and standard industry practice.
We are usually obligated to arrange for the provision of "tail" coverage
for claims against our physicians for incidents which are incurred but not
reported during periods for which the related risk was covered by claims-made
insurance. With respect to those physicians for whom we are obligated to provide
tail coverage, we accrue professional insurance expenses based on estimates of
the cost of procuring tail coverage. See "Risk Factors -- Risks Relating to
Exposure to Professional Liability; Liability Insurance."
We also maintain general liability, vicarious liability, automobile
liability, property and other customary coverages in amounts deemed appropriate
by management based upon historical claims and the nature and risks of the
business.
EMPLOYEES
As of March 31, 1998, we had over 2,400 employees, of which 1,340 worked in
billings and collections, operations and support and over 110 of which worked in
clinics providing clinical support functions. Our employees are not covered by
any labor agreements nor affiliated with any unions.
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LEGAL PROCEEDINGS
We are party to various pending legal actions arising in the ordinary
operation of our business such as contractual disputes, employment disputes and
general business actions as well as malpractice actions. We believe that any
payment of damages resulting from these types of lawsuits would be covered by
insurance, exclusive of deductibles, would not be in excess of the reserves and
such liabilities, if incurred, should not have a significant negative effect on
the operating results and financial condition of our company. Moreover, in
connection with the recapitalization, subject to certain limitations,
MedPartners and Physician Services have jointly and severally agreed to
indemnify us against some losses relating to litigation arising out of incidents
occurring prior to the recapitalization to the extent those losses are not
covered by third party insurance. With respect to some litigation matters, we
are only indemnified if our losses from all indemnification claims exceed a
total of $3.7 million and do not exceed a total of $50 million. With respect to
other litigation matters, we are indemnified for all losses. Finally, also in
connection with the recapitalization, MedPartners agreed to purchase, at its
sole cost and expense, for the benefit of Team Health Holdings, insurance
policies covering all liabilities and obligations for any claim for medical
malpractice arising at any time in connection with the operation of Team Health
and its subsidiaries prior to the closing date of the recapitalization
transactions for which Team Health or any of its subsidiaries or physicians
becomes liable.
In July 1998, a lawsuit was filed against EmCare, Inc. and InPhyNet Medical
Management, Inc. and several other unrelated defendants in the United States
District Court for the District of Kansas. The case is captioned United States
ex rel. George R. Schwartz v. EmCare, Inc. and InPhyNet Management, Inc. et al.
The plaintiff in that case, George R. Schwartz, alleges that, based on
Management Services contracts, InPhyNet and others had inappropriate financial
relationships with hospital emergency department and urgent care center
physicians and engaged in inappropriate billing practices in violation of the
False Claims Act and the Medicare Anti-kickback Law as well as various other
statutes. In his Fourth Amended Complaint, the plaintiff is seeking, among other
relief,
(1) an order that InPhynet cease and desist from violating civil and
criminal provisions of the federal False Claims Act, the assignment
provisions of the Social Security Act, the Medicare federal
anti-kickback statute, the mail fraud statute, and the Racketeer
Influence and Corrupt Organization Act;
(2) three times the amount of damages sustained by the United States
government, an amount which is indeterminable at this time;
(3) a civil penalty of $5,000 to $10,000 for each civil False Claims Act
violation, a number of violations which is indeterminable at this time;
and
(4) costs and attorneys' fees.
If the plaintiff's challenge to our contractual arrangements is successful, we
may be forced to modify the current structure of our relationships with
physicians and clients. This modification could have a significant negative
impact on our operations and financial condition. In connection with the
recapitalization, subject to some limitations, MedPartners and Physician
Services have jointly and severally agreed to indemnify us against any and all
losses relating to this lawsuit. However, if we were forced to restructure our
business as presently conducted as a result of the outcome of this litigation,
our operations would be substantially disrupted. See "Risk Factors -- State and
Federal Fraud and Abuse, Anti-Kickback and Anti-referral Laws."
REGULATORY MATTERS
General. As a participant in the healthcare industry, our operations and
relationships with healthcare providers such as hospitals are subject to
extensive and increasing regulations by numerous federal and
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state governmental entities as well as local governmental entities. The
management services provided by us under contracts with hospitals and other
clients include (collectively, "Management Services"):
- the identification and recruitment of physicians and other healthcare
professionals for the performance of emergency, medicine, radiology and
other services at hospitals, out-patient imaging facilities and other
facilities;
- utilization and review of services and administrative overhead;
- scheduling of staff physicians and other healthcare professionals who
provide clinical coverage in designated areas of hospitals; and
- administrative services such as billing and collection of fees for
professional services.
All of the above services are subject to scrutiny and review by federal,
state and local governmental entities and are subject to the rules and
regulations promulgated by these governmental entities. See "Risk
Factors -- Government Regulation." Specifically, but without limitation, the
following laws and regulations related to these laws may affect the operations
and contractual relationships of Team Health:
State Laws Regarding Prohibition of Corporate Practice of Medicine and Fee
Splitting Arrangements. We currently provide outsourced physician staffing and
administrative services to hospitals and clinics in 25 states. The laws and
regulations relating to our operations vary from state to state. The laws of
many states, including California, from which approximately 8% of our net
revenue was derived in 1998, prohibit general business corporations, such as us,
from practicing medicine, exercising control over physicians who practice
medicine or engaging in some practices such as fee splitting with physicians.
The laws of other states, including Florida, from which approximately 26% of our
net revenue was derived in 1998, do not prohibit non-physician entities from
practicing medicine but generally retain a ban on some types of fee splitting
arrangements. While we seek to comply substantially with existing applicable
laws relating to the corporate practice of medicine and fee splitting, we cannot
assure you that our existing contractual arrangements, including noncompetition
agreements, with physicians, professional corporations and hospitals will not be
successfully challenged in certain states as unenforceable or as constituting
the unlicensed practice of medicine or prohibited fee-splitting. See "Risk
Factors -- State Laws Regarding Prohibition of Corporate Practice of Medicine
and Fee Splitting Arrangements."
Debt Collection Regulation. Some of our operations are subject to
compliance with the Fair Debt Collection Practices Act and comparable statutes
in many states. Under the Fair Debt Collection Practices Act, a third-party
collection company is restricted in the methods it uses in contacting consumer
debtors and eliciting payments with respect to placed accounts. Requirements
under state collection agency statutes vary, with most requiring compliance
similar to that required under the Fair Debt Collection Practices Act. We
believe that we are in substantial compliance with the Fair Debt Collection
Practices Act and comparable state statutes.
Anti-Kickback Statutes. We are subject to the Medicare and Medicaid fraud
and abuse laws including the federal anti-kickback statute. The federal
anti-kickback statute prohibits the offering or payment of any bribe, kickback,
rebate or other remuneration in return for the referral or recommendation of
patients for items and services covered by federal healthcare programs. Federal
healthcare programs have been defined to include plans and programs that provide
health benefits funded by the United States government including Medicare,
Medicaid, and the Civilian Health and Medical Program of the Uniformed Services,
among others. Violations of the anti-kickback statute may result in civil and
criminal penalties and exclusion from participation in federal and state
healthcare programs. In addition, an increasing number of states in which we
operate have laws that prohibit some direct or indirect payments, similar to the
anti-kickback statute, if those arrangements are designed to induce or encourage
the referral of patients to a particular provider. Possible sanctions for
violation of these restrictions include exclusion from state funded healthcare
programs, loss of licensure and civil and criminal penalties. Statutes vary from
state to state, are often vague and have seldom been interpreted by the courts
or regulatory agencies.
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The Health Insurance Portability and Accountability Act of 1996 created a
mechanism for a provider to obtain written interpretative advisory opinions
under the federal anti-kickback statute from the Department of Health and Human
Services regarding existing or contemplated transactions. Advisory opinions are
binding as to the Department of Health and Human Services but only with respect
to the requesting party or parties. The advisory opinions are not binding as to
other governmental agencies, e.g. the Department of Justice. Recently, the
Department of Health and Human Services issued an advisory opinion in which it
concluded that a proposed management services contract between a medical
practice management company and a physician practice, which provided that the
management company would be reimbursed for its costs and paid a percentage of
net practice revenues, might constitute illegal remuneration under the federal
anti-kickback statute. The Department of Health and Human Services' analysis was
apparently based on a determination that the proposed management services
arrangement included financial incentives to increase patient referrals,
contained no safeguards against overutilization, and included financial
incentives that increased the risk of abusive billing practices. We believe that
our contractual relationships with hospitals and physicians are distinguishable
from the arrangement described in this advisory opinion with regard to both the
types of services provided and the risk factors identified by the Department of
Health and Human Services. Nevertheless, we cannot assure you that the
Department of Health and Human Services will not challenge our arrangements
under the federal anti-kickback statute in the future.
Physician Self-Referral Laws. Our contractual arrangements with physicians
and hospitals likely implicate the federal physician self-referral statute
commonly known as Stark II. In addition, a number of the states in which we
operate have similar prohibitions on physician self-referrals. In general, these
state prohibitions closely track Stark II's prohibitions and exceptions. Stark
II prohibits the referral of Medicare and Medicaid patients by a physician to an
entity for the provision of particular "designated health services" if the
physician or a member of such physician's immediate family has a "financial
relationship" with the entity. Stark II provides that the entity which renders
the "designated health services" may not present or cause to be presented a
claim to the Medicare or Medicaid program for "designated health services"
furnished pursuant to a prohibited referral. A person who engages in a scheme to
circumvent Stark II's prohibitions may be fined up to $100,000 for each
applicable arrangement or scheme. In addition, anyone who presents or causes to
be presented a claim to the Medicare or Medicaid program in violation of Stark
II is subject to monetary penalties of up to $15,000 per service, an assessment
of up to twice the amount claimed, and possibly exclusion from participation in
federal healthcare programs. Generally, these penalties are assessed against the
entity that submitted the prohibited bill to Medicare or Medicaid; the
government has, however, indicated that penalties would also apply to the
referring physician because the physician "causes" the claim to be submitted by
making the referral. The term "designated health services" includes several
services commonly performed or supplied by hospitals or medical clinics to which
we provide physician staffing. In addition, "financial relationship" is broadly
defined to include any direct or indirect ownership or investment interest or
compensation arrangement under which a physician receives remuneration from the
provider at issue. Stark II is broadly written and at this point, only proposed
regulations have been issued to clarify its meaning and application. Regulations
for a predecessor law, Stark I, which is applicable only to clinical laboratory
services, were published in August 1995 and remain in effect. However, neither
the final Stark I regulations nor the proposed Stark II regulations provide
definitive guidance as to the application of some key exceptions to Stark I and
Stark II as they relate to our arrangements with physicians and hospitals. We
believe that we can present reasonable arguments that our staffing arrangements
with physicians and hospitals meet the requirements of an exception to Stark II.
In addition, we believe that these arrangements do not subvert the intent of
Stark II as indicated by comments made by Congress in connection with the
enactment of Stark II's predecessor legislation. Likewise, we believe that these
arrangements substantially comply with similar state physician self-referral
statutes. However, we cannot assure you that the government will not be able to
successfully challenge our existing organizational structure and our contractual
arrangements with affiliated physicians, professional corporations and hospitals
as being inconsistent with Stark II or its state law equivalents.
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Other Fraud and Abuse Laws. The federal False Claims Act imposes civil and
criminal liability on individuals and entities that submit false or fraudulent
claims for payment to the government. Violations of the False Claims Act may
result in civil monetary penalties and exclusion from the Medicare and Medicaid
programs. In addition, the Health Insurance Portability and Accountability Act
of 1996 created two new federal crimes: "Health Care Fraud" and "False
Statements Relating to Health Care Matters." The Health Care Fraud statute
prohibits knowingly and willfully executing a scheme or artifice to defraud any
healthcare benefit program, including private payors. A violation of this
statute is a felony and may result in fines, imprisonment and/or exclusion from
government sponsored programs. The False Statements statute prohibits knowingly
and willfully falsifying, concealing or covering up a material fact by any
trick, scheme or device or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits,
items or services. A violation of this statute is a felony and may result in
fines and/or imprisonment. Civil monetary penalties under the False Claims Act
and some other similar statutes may include treble damages and penalties of up
to $10,000 per false or fraudulent claim. Recently, the federal government has
made a policy decision to significantly increase the financial resources
allocated to enforcing the general fraud and abuse laws. In addition, private
insurers and various state enforcement agencies have increased their level of
scrutiny of healthcare claims in an effort to identify and prosecute fraudulent
and abusive practices in the healthcare area. The False Claims Act also allows a
private individual with direct knowledge of fraud to bring a "whistleblower" or
qui tam suit on behalf of the government against a healthcare provider for
violations of the False Claims Act. In that event, the "whistleblower" is
responsible for initiating a lawsuit that sets in motion a chain of events that
may eventually lead to the government recovering money. After the
"whistleblower" has initiated the lawsuit, the government must decide whether to
intervene in the lawsuit and to become the primary prosecutor. In the event the
government declines to join the lawsuit, the "whistleblower" plaintiff may
choose to pursue the case alone, in which case the "whistleblower's" counsel
will have primary control over the prosecution, although the government must be
kept apprised of the progress of the lawsuit and will still receive at least 70%
of any recovered amounts. In return for bringing a "whistleblower" suit on the
government's behalf, the "whistleblower" plaintiff receives a statutory amount
of up to 30% of the recovered amount from the government's litigation proceeds
if the litigation is successful. Recently, the number of "whistleblower" suits
brought against healthcare providers has increased dramatically. In addition, at
least five states -- California, Illinois, Florida, Tennessee, and Texas -- have
enacted laws modeled after the False Claims Act that allow these states to
recover money which was fraudulently obtained by a healthcare provider from the
state such as Medicaid funds provided by the state. We, along with a number of
other industry participants, are named as defendants in a "whistleblower" suit,
which alleges that we had inappropriate financial relationships with physicians
and engaged in inappropriate billing practices in violation of the False Claims
Act and provisions of the Medicare Statute. We believe that the assertions made
in the complaint are unwarranted. However, we cannot provide you any assurance
as to the outcome of this litigation. See "Business -- Legal Proceedings."
In addition to the federal statutes discussed above, we are also subject to
state statutes and regulations that prohibit, among other things, payments for
referral of patients and referrals by physicians to healthcare providers with
whom the physicians have a financial relationship. Violations of these state
laws may result in prohibition of payment for services rendered, loss of
licenses and fines and criminal penalties. State statutes and regulations
require physicians or other healthcare professionals to disclose to patients any
financial relationship the physicians or healthcare professionals have with a
healthcare provider that is recommended to the patients. These laws and
regulations vary significantly from state to state, are often vague, and, in
many cases, have not been interpreted by courts or regulatory agencies.
Exclusions and penalties, if applied to us, could result in significant loss of
reimbursement to us, thereby significantly affecting our financial condition.
Facility Rules and Regulations. Because we perform services at hospitals,
outpatient facilities and other types of healthcare facilities, we and our
affiliated physicians may be subject to laws which are applicable to those
entities. For example, we are subject to the Emergency Medical Treatment and
Active Labor Act of 1986 which prohibits "patient dumping" by requiring
hospitals and hospital emergency department or urgent care center physicians to
provide care to any patient presenting to the hospital's
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emergency department or urgent care center in an emergent condition regardless
of the patient's ability to pay. Many states in which we operate, including
California, have similar state law provisions concerning patient-dumping. In
addition to the Emergency Medical Treatment and Active Labor Act of 1986 and its
state law equivalents, significant aspects of our operations are subject to
state and federal statutes and regulations governing workplace health and
safety, dispensing of controlled substances and the disposal of medical waste.
Our operations may also be affected by changes in ethical guidelines and
operating standards of professional and trade associations and private
accreditation commissions such as the American Medical Association and the Joint
Commission on Accreditation of Health Care Organizations. For the reasons
discussed above, we believe our operations as currently conducted are in
substantial compliance with these laws and guidelines. See "Risk
Factors -- Facility Rules and Regulations."
Prior to the recapitalization transactions, we operated under MedPartners'
compliance program. Following the recapitalization, we plan to implement our own
compliance program which will be structured so as to reduce the likelihood of
any noncompliant activities. We expect to begin operating under our new
compliance program in August 1999. See "Risk Factors -- Risks Related to
Transition Services."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Lynn Massingale, M.D................. 46 President, Chief Executive Officer and Director
Michael Hatcher...................... 48 Chief Operating Officer
Jeffrey Bettinger, M.D............... 49 Executive Vice President, Billing and Reimbursement
Stephen Sherlin...................... 53 Executive Vice President, Finance and Administration
David Jones.......................... 31 Chief Financial Officer
Nicholas W. Alexos................... 35 Director
Dana J. O'Brien...................... 43 Director
Kenneth W. O'Keefe................... 32 Director
Timothy P. Sullivan.................. 40 Director
Tyler J. Wolfram..................... 32 Director
</TABLE>
LYNN MASSINGALE, M.D. has been President, Chief Executive Officer and
Director of Team Health since its founding in 1994. Prior to that, Dr.
Massingale served as President and Chief Executive Officer of Southeastern
Emergency Physicians, a major provider of emergency physician services to
hospitals in the Southeast and the predecessor of Team Health which Dr.
Massingale co-founded in 1979. Dr. Massingale served as the director of
Emergency Services for the state of Tennessee from 1989 to 1993. Dr. Massingale
is a graduate of the University of Tennessee Medical Center for Health Services.
MICHAEL HATCHER joined Team Health in 1990 and currently serves as Chief
Operating Officer. Mr. Hatcher has served as Chief Financial Officer and
President of Nutritional Support Services, Ltd. in Knoxville; and as Chief
Financial Officer for Cherokee Textile Mills, Inc. in Sevierville, Tennessee and
Spindale Mills, Inc. in Spindale, N.C. Mr. Hatcher is a member of the American
Institute of Certified Public Accountants and has served as a Board Member for
the Center for Services Marketing at the Owen School of Business at Vanderbilt
University. Mr. Hatcher is responsible for the Company's operations, including
development activities. Mr. Hatcher is a graduate of the University of Tennessee
and Vanderbilt University.
JEFFREY BETTINGER, M.D. has been Executive Vice President, Billing and
Reimbursement for Team Health since MedPartners' acquisition of InPhyNet in June
1997. For InPhyNet, Dr. Bettinger directed the Healthcare Financial Services
Division since 1992. Dr. Bettinger is a board certified emergency physician and
is a fellow of the American College of Emergency Physicians. Dr. Bettinger
received an M.D. from Hahnemann Medical College.
STEPHEN SHERLIN joined Team Health in January 1997 as Senior Vice
President, Finance and Administration, and was promoted to Executive Vice
President, Finance and Administration in July 1998. From 1993 until February
1996, when he retired for several months prior to joining Team Health, Mr.
Sherlin served as Vice President and Chief Financial Officer of the Tennessee
Division of Columbia/ HCA. Mr. Sherlin has also served as Chief Financial
Officer for the Athens Community Hospital in Athens, Tennessee; Park West
Medical Center in Knoxville, Tennessee; and Doctors Hospital in Little Rock,
Arkansas. Mr. Sherlin has operations responsibility for accounting, finance,
human resources, information technology and risk management. Mr. Sherlin is a
graduate of Indiana University.
DAVID JONES has been our Chief Financial Officer since May 1996. From 1994
to 1996, Mr. Jones was our Controller. Prior to that, Mr. Jones worked at
Pershing, Yoakley and Associates, a regional healthcare audit and consulting
firm, as a Supervisor. Before joining Pershing, Yoakley and Associates, Mr.
Jones worked at KPMG Peat Marwick as an Audit Senior. Mr. Jones is a certified
public accountant and is a member of the American Institute of Certified Public
Accountants. Mr. Jones received a B.S. in Business Administration from The
University of Tennessee in Knoxville.
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NICHOLAS W. ALEXOS became a director in connection with the
recapitalization. Prior to co-founding Madison Dearborn Partners, Inc., Mr.
Alexos was with First Chicago Venture Capital for four years. Previously, he was
with The First National Bank of Chicago. Mr. Alexos concentrates on investments
in the healthcare and food manufacturing industries and currently serves on the
Boards of Directors of Milnot Holding Company and Spectrum Healthcare Services,
Inc. Mr. Alexos received a B.B.A. from Loyola University and an M.B.A. from the
University of Chicago Graduate School of Business.
DANA J. O'BRIEN became a director in connection with the recapitalization.
Mr. O'Brien co-founded Prudential Equity Investors, Inc. in 1984. He and the
other principals of Prudential Equity Investors, Inc. co-founded Cornerstone
Equity Investors, LLC in 1996. He currently serves on the Boards of Directors of
Guardian Care, Inc., International Language Engineering Corp., Interim
Healthcare, Inc., Regent Assisted Living, Inc., Specialty Hospital of America,
Inc., Spectrum Healthcare Services and VIPS Healthcare Information Solutions.
Mr. O'Brien received a B.A. from Hobart College and an M.B.A. from the Wharton
School of the University of Pennsylvania.
KENNETH W. O'KEEFE became a director in connection with the
recapitalization. Prior to co-founding Beecken Petty & Company, LLC, Mr. O'Keefe
was with ABN AMRO Incorporated and an affiliated entity, the Chicago Dearborn
Company, for four years. Previously, he was with the First National Bank of
Chicago. Mr. O'Keefe currently serves on the Boards of Directors of Spectrum
Healthcare Services, Inc., Same Day Surgery, LLC, Component Software
International, Inc. and UroTherapies, Inc. Mr. O'Keefe received a B.A. from
Northwestern University and an M.B.A. from the University of Chicago Graduate
School of Business.
TIMOTHY P. SULLIVAN became a director in connection with the
recapitalization. Prior to co-founding Madison Dearborn Partners, Inc. Mr.
Sullivan was with First Chicago Venture Capital for three years after having
served in the U.S. Navy. Mr. Sullivan concentrates on investments in the
healthcare industry and currently serves on the Boards of Directors of Milnot
Holding Corporation, Path Lab Holdings, Inc. and Spectrum Healthcare Services,
Inc. Mr. Sullivan received a B.S. from the United States Naval Academy, an M.S.
from the University of Southern California and an M.B.A. from Stanford
University Graduate School of Business.
TYLER J. WOLFRAM became a director in connection with the recapitalization.
Mr. Wolfram has served as a Managing Director of Cornerstone Equity Investors,
LLC since March 1998. From 1993 to March 1998, Mr. Wolfram held various
positions in the High Yield Group of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Wolfram currently serves on the Board of Directors of True
Temper Sports, Inc. Mr. Wolfram received an A.B. from Brown University and an
M.B.A. from the Wharton School of the University of Pennsylvania.
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<PAGE> 70
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to us for 1998 of those
persons who served as
(1) the chief executive officer during 1998 and
(2) our other four most highly compensated executive officers for 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER TOTAL
-------------------------- UNDERLYING COMPEN- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) SATION SATION
- --------------------------- ---- -------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lynn Massingale, M.D............ 1998 $400,000 $150,000 60,000 $107,237(2) $657,237
President and Chief Executive
Officer
Jeffrey Bettinger, M.D.......... 1998 219,985 25,000 7,500 3,331(3) 248,316
Executive Vice President,
Billing and Reimbursement
Michael Hatcher................. 1998 239,154 80,000 32,400 20,865(4) 340,020
Chief Operating Officer
Stephen Sherlin................. 1998 143,608 30,000 3,000 5,595(5) 179,203
Executive Vice President,
Finance and Administration
David Jones..................... 1998 137,231 55,919 13,500 16,032(6) 209,182
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents options to acquire shares of MedPartners' common stock
("MedPartners Shares") granted during 1998.
(2) Amounts shown reflect premiums paid for life insurance coverage ($52,428),
medical insurance ($1,885), dental insurance ($224) and long term disability
insurance ($1,400) and matching contributions under our 401(k) plan
($4,800), automobile allowance ($9,000) and deferred compensation ($37,500).
(3) Amounts shown reflect premiums paid for life insurance coverage ($384),
medical insurance ($2,023) and dental insurance ($224) and long term
disability insurance ($700).
(4) Amounts shown reflect premiums paid for life insurance coverage ($480),
medical insurance ($2,827), dental insurance ($309) and long-term disability
insurance ($4,149) and automobile allowance ($6,000), matching contributions
under our 401(k) plan ($4,800) and estate and financial planning benefits
($2,300).
(5) Amounts shown reflect premiums paid for life insurance coverage ($336),
medical insurance ($1,885), dental insurance ($224) and long term disability
insurance ($612) and automobile allowance ($2,538).
(6) Amounts shown reflect premiums paid for life insurance coverage ($269),
health insurance ($5,655), dental insurance ($618) and long term disability
insurance ($490) and automobile allowance ($4,200) and matching
contributions under our 401(k) plan ($4,800).
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<PAGE> 71
The following table sets forth options granted to the Named Executive
Officers for 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
- ---------------------------------- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lynn Massingale, M.D. ............ 60,000 --(2) $3.000 9/21/08 $113,201 $286,873
Jeffrey Bettinger, M.D. .......... 7,500 --(2) 3.000 9/21/08 14,150 35,859
Michael Hatcher................... 32,400 --(2) 3.000 9/21/08 61,129 154,912
Stephen Sherlin................... 3,000 --(2) 3.000 9/21/08 5,660 14,344
David Jones....................... 13,500 --(2) 3.000 9/21/08 25,470 64,547
</TABLE>
- ---------------
(1) Represents options to acquire MedPartners Shares.
(2) Percent of options granted represents less than 1% of options granted by
MedPartners to its and its subsidiaries' employees.
(3) Realizable Value is the product of the number of MedPartners Shares into
which options are exercisable and the difference between
(A) an assumed price per MedPartners Share determined by applying annual
rates of appreciation to the price per MedPartners Share as of the date
of option grant and
(B) the exercise price. The price per MedPartners Share as of the date of
grant of each option listed above was $3.00. At assumed annual rates of
appreciation of 5% and 10%, the price per MedPartners Share at
expiration will be $4.87 and $7.78, respectively, resulting in a
realizable value per MedPartners Share of $1.87 and $4.78, respectively.
No stock options were exercised by any of the Named Executive Officers
during 1998. The following table sets forth the number of securities underlying
unexercised options held by each of the Named Executive Officers and the value
of such options at the end of 1998:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBERS OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END YEAR-END($)(1)EXERCISABLE/
NAME (#)EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Lynn Massingale, M.D. ....................... 32,400/47,600 45,900/89,100
Jeffrey Bettinger, M.D. ..................... 3,550/6,450 5,738/11,138
Michael Hatcher.............................. 17,496/25,704 24,786/48,114
Stephen Sherlin.............................. 1,420/2,580 2,295/4,455
David Jones.................................. 7,290/10,710 10,328/20,048
</TABLE>
- ---------------
(1) Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding-in-the-money options and
$5.25, the fair market value of MedPartners Shares on December 31, 1998. At
the closing of the Recapitalization, all options will become fully vested
and immediately exercisable.
PENSION PLANS
Substantially all of the salaried employees, including our executive
officers, participate in a 401(k) savings plan established by us. Prior to the
recapitalization transactions, such employees participated in a 401(k) plan
sponsored by Pacific Physician Services. As part of the recapitalization
transactions, Pacific Physician Services permitted these employees to
participate under the Pacific Physician Services' 401(k)
62
<PAGE> 72
plan for a transitional period of time, not to exceed six months, until we
established our own 401(k) plan. Employees are permitted to defer a portion of
their income under our 401(k) plan and we will match such contribution. The
matching contribution is consistent with that under the Pacific Physician
Services' 401(k) plan which provided a matching contribution equal to 50% of the
first 6% of the employee's contribution.
EMPLOYMENT AGREEMENTS
In connection with the recapitalization transactions, we entered into
employment agreements with some members of our senior management. The material
terms of these agreements for our Named Executive Officers are summarized below:
<TABLE>
<CAPTION>
NAMED ANNUAL
EXECUTIVE BASE SEVERANCE NONCOMPETE
OFFICER TERM SALARY BONUS COMPENSATION AGREEMENT
- --------- -------------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
H. Lynn Massingale, M.D.... 5 years from $400,000 50% of base If the The executive
March 11, 1999 salary if agreement is has agreed not
certain of our terminated by to disclose our
financial goals us without confidential
are reached cause, by the information,
executive with solicit our
good reason or employees or
because of the contractors or
executive's compete with us
death or or interfere
disability, the with our
executive will business for
receive two two years after
years of base his employment
salary and may with us has
receive a been
portion of his terminated. The
bonus. agreement
provides,
however, that
the executive
may practice
medicine at any
hospital that
we do not
staff.
Michael L. Hatcher......... 5 years from $250,000 40% of base If the The executive
March 11, 1999 salary if agreement is has agreed not
certain of our terminated by to disclose our
financial goals us without confidential
are reached cause, by the information,
executive with solicit our
good reason or employees or
because of the contractors or
executive's compete with us
death or or interfere
disability, the with our
executive will business for
receive two two years after
years of base his employment
salary and may with us has
receive a been
portion of his terminated.
bonus.
</TABLE>
63
<PAGE> 73
<TABLE>
<CAPTION>
NAMED ANNUAL
EXECUTIVE BASE SEVERANCE NONCOMPETE
OFFICER TERM SALARY BONUS COMPENSATION AGREEMENT
- --------- -------------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey D. Bettinger, 5 years from $250,000 20% of base If the The executive
M.D...................... March 11, 1999 salary if agreement is has agreed not
certain of our terminated by to disclose our
financial goals us without confidential
are reached and cause or information,
an additional because of the solicit our
20% of base executive's employees or
salary if death or contractors or
certain of the disability, the compete with us
financial goals executive will or interfere
of our receive one with our
affiliates are year of base business for
reached salary and may three years
receive a after his
portion of his employment with
bonus. us has been
terminated. The
agreement
provides,
however, that
after the
termination of
his employment,
the executive
may provide
consulting
services, other
than to three
of our
competitors.
Stephen Sherlin............ 5 years from $175,000 30% of base If the The executive
March 11, 1999 salary if agreement is has agreed not
certain of our terminated by to disclose our
financial goals us without confidential
are reached cause or information,
because of the solicit our
executive's employees or
death or contractors or
disability, the compete with us
executive will of interfere
receive one with our
year of base business for
salary and may two years after
receive a his employment
portion of his with us has
bonus. been
terminated.
David P. Jones............. 5 years from $140,000 30% of base If the The executive
March 11, 1999 salary if agreement is has agreed not
certain of our terminated by to disclose our
financial goals us without confidential
are reached cause or information,
because of the solicit our
executive's employees or
death or contractors or
disability, the compete with us
executive will or interfere
receive one with our
year of base business for
salary and may two years after
receive a his employment
portion of his with us has
bonus. been
terminated.
</TABLE>
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<PAGE> 74
STOCK OPTION PLAN
Our board of directors has adopted a stock option plan, which provides for
the grant to some of our key employees and/or directors of stock options that
are non-qualified options for federal income tax purposes. The stock option plan
is administered by the compensation committee of the board of directors. The
compensation committee has broad powers under the stock option plan, including
exclusive authority (except as otherwise provided in the stock option plan) to
determine:
(1) who will receive awards;
(2) the type, size and terms of awards;
(3) the time when awards will be granted; and
(4) vesting criteria, if any, of the awards.
Options awarded under the plan are exercisable into shares of our common
stock. The total number of shares of common stock as to which options may be
granted may not exceed 526,316 shares of common stock. Options may be granted to
any of our employees, directors or consultants.
If we undergo a reorganization, recapitalization, stock dividend or stock
split or other change in shares of our common stock, the compensation committee
may make adjustments to the plan in order to prevent dilution of outstanding
options. The compensation committee may also cause options awarded under the
plan to become immediately exercisable if we undergo some changes in the control
of our company.
COMPENSATION OF DIRECTORS
We will reimburse directors for any out-of-pocket expenses incurred by them
in connection with services provided in such capacity. We do not compensate, or
have plans to compensate, our directors for services they provide in their
capacities as directors. We may, however, elect to do so in the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1998, we did not have a compensation committee of our
board of directors. Lynn Massingale, M.D., our President, Chief Executive
Officer and member of our board of directors, participated in discussions
concerning executive compensation in that year. Following the recapitalization
transactions our board of directors formed a compensation committee comprised of
Dana J. O'Brien and Timothy P. Sullivan, neither of whom are officers of Team
Health.
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<PAGE> 75
OWNERSHIP OF SECURITIES
Team Health Holdings owns 92.7% of our outstanding common stock and voting
interests and 94.3% of our outstanding preferred stock. Physician Services owns
the remaining 7.3% of our outstanding common stock and voting interests and the
remaining 5.7% of our outstanding preferred stock. The following table sets
forth certain information regarding the actual beneficial ownership of Team
Health Holdings' ownership units by:
(1) each person, other than the directors and executive officers of Team
Health Holdings, known to Team Health Holdings to own more than 5% of
the outstanding membership units of Team Health Holdings and
(2) certain executive officers and members of the Board of Team Health
Holdings.
Except as otherwise indicated below, each of the following individuals can be
reached care of Team Health at 1900 Winston Road, Suite 300, Knoxville,
Tennessee 37919.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING COMMON PERCENTAGE OF
BENEFICIAL OWNER PREFERRED UNITS UNITS VOTING UNITS
- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C>
Cornerstone Equity Investors IV, L.P................ 42.0% 38.1% 38.1%
c/o Cornerstone Equity Investors, LLC
717 Fifth Avenue, Suite 1100
New York, New York 10022
Attention: Dana J. O'Brien
Madison Dearborn Capital Partners II, L.P........... 42.0 38.1 38.1
c/o Madison Dearborn Partners
Three First National Plaza, Suite 3800
Chicago, Illinois 60602
Attention: Timothy P. Sullivan
Healthcare Equity Partners, L.P..................... 2.3 2.1 2.1
c/o Beecken Petty & Company, L.L.C
901 Warranville Road, Suite 205
Lisle, Illinois 60532
Attention: Kenneth W. O'Keefe
Healthcare Equity Q.P. Partners, L.P................ 7.0 6.4 6.4
c/o Beecken Petty & Company, L.L.C
901 Warranville Road, Suite 205
Lisle, Illinois 60532
Attention: Kenneth W. O'Keefe
Certain members of management....................... 6.8 15.2 15.2
</TABLE>
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<PAGE> 76
RELATIONSHIPS AND RELATED TRANSACTIONS
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the conduct
of the business prior to the closing date of the recapitalization and various
closing conditions, including the execution of a registration rights agreement
and stockholders agreement, the obtaining of financing, and the continued
accuracy of the representations and warranties.
Pursuant to the recapitalization agreement, each of MedPartners and
Physician Services have indemnified, jointly and severally, subject to certain
limitations, Team Health Holdings and Team Health against losses resulting from:
(1) any misrepresentation or breach of any warranty or covenant of
MedPartners or Physician Services contained in the recapitalization
agreement, a claim for which is made in most cases within the 18 months
following the closing of the recapitalization;
(2) some claims or audits by governmental authorities; and
(3) some litigation matters, including some medical malpractice claims to
the extent not covered by third-party insurance.
With respect to some matters, we are only indemnified if our losses from
all indemnification claims exceed $3.7 million and do not exceed a total of $50
million. There is no basket or limit on the total payments with respect to some
other specified misrepresentations or breaches of warranties and some litigation
matters.
In addition, each of MedPartners and Physician Services have agreed for a
period of five years after March 12, 1999 not to compete with us in any business
that provides outsourced staffing and related billing services. Each of
MedPartners and Physician Services have also agreed for a period of five years
after March 12, 1999 not to solicit employment of our employees.
Under the recapitalization agreement, MedPartners has agreed to purchase,
at its sole cost and expense, for the benefit of Team Health Holdings, insurance
policies covering all liabilities and obligations for any claim for medical
malpractice arising at any time in connection with the operation of Team Health
and its subsidiaries prior to the closing date of the Transactions for which
Team Health or any of its subsidiaries or physicians becomes liable. Such
insurance policies are for amounts and contain terms and conditions mutually
acceptable to MedPartners and Team Health Holdings.
Pursuant to the recapitalization agreement, MedPartners agreed to provide
us certain transition services. These services include
(1) use of certain existing phone systems;
(2) access to MedPartners' wide area network via MCI frame-relay circuits;
and
(3) some accounting, finance and related support services.
These services will, in most cases, be provided for six months following the
recapitalization at a cost to us consistent with the cost of such services
charged to us immediately prior to the recapitalization.
SECURITYHOLDERS AGREEMENTS
In connection with the recapitalization, both Team Health and our
stockholders, Team Health Holdings and Physician Services, and Team Health
Holdings and all of its unitholders, entered into two separate securityholders
agreements. The securityholders agreements:
(1) restrict the transfer of the equity interests of Team Health and Team
Health Holdings, respectively; and
(2) grant tag-along rights on certain transfers of equity interests of Team
Health and Team Health Holdings, respectively.
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<PAGE> 77
Some of the foregoing provisions of the securityholders agreements will
terminate upon the consummation of an initial public offering.
REGISTRATION RIGHTS AGREEMENT
In connection with the recapitalization, both Team Health and our
stockholders, Team Health Holdings and Physician Services, and Team Health
Holdings and all of its unitholders, entered into two separate registration
rights agreements. Under the registration rights agreements, some of the holders
of capital stock owned by Team Health Holdings (with respect to our shares) and
Cornerstone, Madison Dearborn and Beecken Petty (with respect to units of Team
Health Holdings), respectively, have the right, subject to various conditions,
to require us or Team Health Holdings, as the case may be, to register any or
all of their common equity interests under the Securities Act of 1933 at our or
Team Health Holdings' expense. In addition, all holders of registrable
securities are entitled to request the inclusion of any common equity interests
of Team Health or Team Health Holdings covered by the registration rights
agreements in any registration statement at our or Team Health Holdings'
expense, whenever we or the Team Health Holdings propose to register any of our
common equity interests under the Securities Act of 1933. In connection with all
such registrations, we or the Team Health Holdings have agreed to indemnify all
holders of registrable securities against some liabilities, including
liabilities under the Securities Act of 1933.
CORPORATE PASS-THROUGH CHARGES
MedPartners provided certain common services for us and other MedPartners
affiliates, including group insurance programs. Many of these services represent
services provided by third parties whereby MedPartners incurred the cost of the
service on behalf of us. MedPartners charged us for the estimated cost of these
services. The costs for these services and/or expenses have been allocated to us
by MedPartners based upon certain allocation methodologies determined by
MedPartners. Accordingly, there is no assurance that the amounts allocated for
such items provided by MedPartners would be indicative of the actual amounts
that we would have incurred on a stand-alone basis.
MANAGEMENT SERVICES AGREEMENT
In connection with the recapitalization, we entered into a management
services agreement with Cornerstone, Madison Dearborn and Beecken Petty under
which each of Cornerstone, Madison Dearborn and Beecken Petty will agree to
provide us with:
(1) general management services;
(2) assistance with the identification, negotiation and analysis of
acquisitions and dispositions;
(3) assistance with the negotiation and analysis of financial alternatives;
and
(4) other services agreed upon by us and each of Cornerstone, Madison
Dearborn and Beecken Petty.
In exchange for such services, Cornerstone, Madison Dearborn and Beecken
Petty will collectively receive an annual advisory fee of $500,000, plus
reasonable out-of-pocket expenses (payable quarterly). Additionally,
Cornerstone, Madison Dearborn and Beecken Petty also received a one time
transaction fee and reasonable out of pocket expenses in connection with the
closing of the recapitalization. The management services agreement has an
initial term of 3 years, subject to automatic one-year extensions unless we or
Cornerstone, Madison Dearborn or Beecken Petty provides written notice of
termination. The management services agreement will automatically terminate upon
the consummation of an initial public offering.
NET TRANSFERS TO/FROM PARENTS TO PARENTS' SUBSIDIARIES
MedPartners and Physician Services have paid some of our third party
liabilities. MedPartners and Physician Services have made advances to us to fund
operating and investing activities, including acquisitions, net of amounts
advanced to MedPartners and Physician Services from operating cash flows
generated by us. Such net transfers are included as part of MedPartners' and
Physician Services' equity because we were not required to settle these amounts
as part of the recapitalization.
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<PAGE> 78
CORPORATE EXPENSE ALLOCATION
Prior to the recapitalization, MedPartners and Physician Services provided
some corporate services to us, including legal services, risk management, some
employment benefit administration, tax advice and preparation of tax returns,
software support services and some financial and other services. These fees were
allocated by MedPartners and Physician Services to us and approximate costs
incurred. The amounts recorded by us for these allocations in the consolidated
and combined financial statements were approximately $1.0 million, $1.7 million
and $2.9 million for the years ended December 31, 1996, 1997 and 1998,
respectively. The amounts allocated by MedPartners and Physician Services were
not necessarily allocated on a basis which approximated our estimated usage of
such services, and consequently, were not necessarily indicative of the actual
costs which may have been incurred had we operated as an entity unaffiliated
with MedPartners or Physician Services. However, our management believes that
the allocation is reasonable and in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 55.
TEAM HEALTH HOLDINGS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
Cornerstone, Madison Dearborn, Beecken Petty and some of the members of our
management (collectively, the "Members") entered into an Amended and Restated
Limited Liability Company Agreement. The Limited Liability Company Agreement
governs the relative rights and duties of the Members.
Membership Interests. The ownership interests of the members in Team
Health Holdings consist of preferred units and common units. The common units
represent the common equity of Team Health Holdings and the preferred units
represent the preferred equity of Team Health Holdings. Holders of the preferred
units are entitled to return of capital contributions prior to any distributions
made to holders of the common units.
Distributions. Subject to any restrictions contained in any financing
agreements to which Team Health Holdings or any of its affiliates is a party,
the board of managers of Team Health Holdings may make distributions, whether in
cash, property or securities of Team Health Holdings at any time or from time to
time in the following order of priority:
First, to the holders of preferred units, the aggregate unpaid amount
accrued on such preferred units on a daily basis, at a rate of 10% per annum.
Second, to the holders of preferred units, an amount determined by the
aggregate Unreturned Capital (as defined and described in the Limited Liability
Company Agreement).
Third, to the holders of common units, an amount equal to the amount of
such distribution that has not been distributed pursuant to clauses First
through Second above.
Team Health Holdings may distribute to each holder of units within 75 days
after the close of each fiscal year such amounts as determined by the board of
managers of Team Health Holdings to be appropriate to enable each holder of
units to pay estimated income tax liabilities.
OTHER RELATED PARTY TRANSACTIONS.
We lease office space for our corporate headquarters from Winston Road
Properties, an entity which is owned 50% by Park Med Properties. Two of our
executive officers, Dr. Massingale and Mr. Hatcher, each own 20% of Park Med
Properties. We paid $432,000 to Winston Properties in connection with the lease
agreement. In addition, Park Med Properties owns a building which houses a
medical clinic that is operated by Park Med Ambulatory Care, PC, a joint venture
of Team Health. In 1998, Park Med Ambulatory Care, PC paid $72,000 to Park Med
Properties in connection with the lease agreement.
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<PAGE> 79
DESCRIPTION OF CAPITAL STOCK
Our issued and outstanding capital stock consists of common stock and class
A preferred stock.
Holders of class A preferred stock have no voting rights, except as
required by Delaware law. The holders of common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders of Team Health,
including the election of directors.
As, if and when declared by our board of directors, holders of class A
preferred stock are entitled to receive from us cumulative preferential
dividends from the date of issuance of their class A preferred shares accruing
at 10% per annum per share of class A preferred stock. If the class A preferred
stock is redeemed, whether voluntarily or involuntarily, we are required by the
terms of the class A preferred stock to pay to the holders of the class A
preferred stock the liquidation preference per share of class A preferred stock
plus all accrued and unpaid dividends on the class A preferred stock.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Team Health, holders of class A preferred stock are entitled to be paid, out of
the assets of Team Health available for distribution to shareholders of Team
Health
- the liquidation preference per share of class A preferred stock, plus
- an amount in cash equal to all accrued, whether or not declared, and
unpaid dividends on the class A preferred stock to the date fixed for
liquidation, dissolution or winding up.
We cannot make any distribution on any stock junior to the preferred stock,
including, without limitation, our common stock, until this distribution is made
to the holders of class A preferred stock.
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<PAGE> 80
DESCRIPTION OF SENIOR BANK FACILITIES
As part of the recapitalization transactions, we entered into the senior
bank facilities with a syndicate of financial institutions for which Fleet
National Bank and NationsBanc Montgomery Securities LLC act as Co-Arrangers,
Donaldson, Lufkin & Jenrette Securities Corporation acts as Documentation Agent,
NationsBanc Montgomery Securities LLC acts as the Syndication Agent and Fleet
National Bank acts as Administrative Agent. The following is a summary of the
material terms and conditions of the senior bank facilities. It is subject to
the detailed provisions of the senior bank facilities and the various related
documents to be entered into in connection with the senior bank facilities.
Loans; Interest Rates. The senior bank facilities consist of
(1) up to a $50.0 million five-year revolving credit facility including
(a) a swing line sub-facility of $5.0 million and
(b) a letter of credit sub-facility of $5.0 million, and
(2) a term loan facility consisting of
(a) a five-year $60.0 million tranche A term loan facility
(b) and a 6 year $90.0 million tranche B term loan facility.
The borrowings under the senior bank facilities, together with the aggregate
gross proceeds from the offering of the old notes, the Equity Sponsor
Contribution, the Management Contribution and the Retained Equity, were used to
consummate the recapitalization and pay fees and expenses related to the
recapitalization transactions. In addition, the senior bank facilities will
provide financing for future working capital, capital expenditures and other
general corporate purposes.
The revolving credit facility is available on a revolving basis during the
period from March 12, 1999 until March 12, 2004. At our option, loans made under
the revolving bank facility and the tranche A term loan facility bear interest
at either
(1) the Alternate Base Rate, defined as the higher of
(a) the NationsBank prime rate and
(b) the Federal Funds rate plus 0.5% plus a margin of 2.25% or
(2) the reserve-adjusted LIBO rate plus a margin of 3.25%.
At our option, the tranche B term loan facility bears interest at either
(1) the reserve-adjusted LIBO rate plus a margin of 3.75% or
(2) the Alternate Base Rate plus a margin of 2.75%.
Repayment. We may repay borrow, repay and reborrow revolving loans from
time to time until March 12, 2004. We may repay the tranche A term loan facility
in equal quarterly installments at the end of March, June, September and
December of each year, commencing September 30, 1999, with the aggregate amount
payable in each year as set forth in the table below. We may repay the tranche B
term loan facility
(1) during the first five years of the tranche B term loan facility, in
annual installments payable at the end of December of each year,
commencing December 31, 1999 with the aggregate amount payable in each
year as set forth in the table below, and
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(2) in the sixth year of the tranche B term loan facility in equal
quarterly installments payable at the end of March, June, September and
December of that year with the aggregate amount payable in that year as
set forth in the table below.
<TABLE>
<CAPTION>
AGGREGATE AMOUNT
PAYABLE UNDER
----------------------
TRANCHE A TRANCHE B
TERM TERM
YEAR LOAN LOAN
- ---- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
1999................................................. $ 4.8 $ 0.9
2000................................................. $ 9.6 $ 0.9
2001................................................. $11.4 $ 0.9
2002................................................. $14.7 $ 0.9
2003................................................. $15.6 $ 0.9
2004................................................. $ 3.9 $85.5
----- -----
$60.0 $90.0
===== =====
</TABLE>
Security. The revolving credit facility and the term loan facility are
secured by a first-priority lien on
(1) 100% of our issued and outstanding capital stock held by Team Health
Holdings and Physician Services;
(2) 100% of the issued and outstanding capital stock of our direct and
indirect domestic subsidiaries;
(3) 65% of the issued and outstanding voting capital stock, or such greater
percentage which would not result in significant negative tax
consequences, and 100% of the issued and outstanding non-voting capital
stock of each direct foreign subsidiary of the Team Health and
(4) all other present and future assets and properties of the Team Health
and its domestic subsidiaries.
Guarantors. The senior bank facilities are guaranteed by Team Health
Holdings and all existing and later-acquired direct and indirect subsidiaries of
Team Health Holdings, other than Team Health. All guarantees are guarantees of
payment and not of collection. The guarantee by Team Health Holdings is limited
to the value of our capital stock held by the Team Health Holdings.
Prepayments. In addition, the senior bank facilities provide for mandatory
repayments, subject to some exceptions, of the term loan facility and reductions
in the revolving credit facility. These repayments and reductions are based on
particular net asset sales outside of the ordinary course of business, the net
proceeds of debt and equity issuances, and excess cash flow. We may voluntarily
prepay without penalty outstanding loans under the senior bank facilities;
provided, however, that we will bear LIBO rate breakage costs, if any.
Conditions and Covenants. Lenders' obligations under the senior bank
facilities are subject to the satisfaction of some conditions precedent. These
conditions are customary for similar credit facilities or are otherwise
appropriate under the circumstances. We and each of our subsidiaries are subject
to some negative covenants contained in the senior bank facilities, including
without limitation covenants that restrict:
- the incurrence of additional indebtedness and other obligations and the
granting of additional liens;
- mergers, consolidations, amalgamations, liquidations, dissolutions and
dispositions of assets;
- investments, loans and advances;
- dividends, stock repurchases and redemptions;
- prepayment or repurchase of subordinated indebtedness and amendments to
some agreements governing indebtedness, including the indenture and the
exchange notes; and
- engaging in transactions with our affiliates.
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The senior bank facilities also contain customary covenants we are required
to perform, including:
- compliance with environmental laws;
- year 2000 compliance;
- maintenance of corporate existence and rights;
- maintenance of insurance;
- property and interest rate protection;
- financial reporting;
- inspection of property;
- books and records; and
- the pledge of additional collateral and guarantees from new
subsidiaries.
In addition, the senior bank facilities require us to maintain:
- a minimum fixed charge coverage ratio;
- a maximum leverage ratio;
- a minimum EBITDA and
- a minimum interest coverage ratio,
each as defined in the senior bank facilities.
Also, in the event we have less than $150 million in fixed rate
indebtedness, we must enter into interest rate protection agreements. Some of
these financial, negative and affirmative covenants are more restrictive than
those set forth in the indenture.
Events of Default. The senior bank facilities also include events of
default that are typical for senior credit facilities and appropriate in the
context of the recapitalization transactions, including, without limitation:
- nonpayment of principal;
- interest;
- fees or reimbursement obligations with respect to letters of credit;
- violation of covenants;
- inaccuracy of representations and warranties in any significant
respect;
- actual or asserted invalidity of any loan documents;
- cross default to some in other indebtedness and agreements;
- bankruptcy and insolvency events;
- significant judgments and liabilities;
- defaults or judgements under ERISA; and
- change of control.
The occurrence of any of these events of default could result in acceleration of
our obligations under the senior bank facilities and foreclosure on the
collateral securing the obligations, which could have significant negative
results to holders of the exchange notes.
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<PAGE> 83
Change of Control. As discussed above, a change of control is an event of
default under the senior bank facilities. A change of control will be deemed to
have occurred under the senior bank facilities if any of the following events
take place
(1) if prior to an initial public offering of our common stock:
(a) Team Health Holdings ceases to own a majority of our capital stock;
(b) the equity sponsors and some of their respective affiliates are no
longer collectively the beneficial owners of at least 50% of the
total voting power of Team Health Holdings; or
(c) the equity sponsors and some of their respective affiliates no
longer have the right to collectively designate and cause to be
elected a majority of the directors of Team Health Holdings and
thereby control the management of Team Health Holdings, our
management and the management of our subsidiaries; or
(2) if after an initial public offering of our common stock:
(a) any person or group, other than Team Health Holdings, the equity
sponsors and some of their respective affiliates, becomes the direct
or indirect beneficial owner of more than the lesser of:
(1) 35% of our voting stock; and
(2) the percentage of the total voting power of all of our voting
stock owned after the initial public offering by Team Health
Holdings, the equity sponsors and some of their respective
affiliates;
(b) the following persons collectively cease to constitute a majority of
our board of directors:
(1) those members of our board of directors who were directors as of
the date we entered into the senior bank facilities,
(2) those members of our board of directors who were nominated for
election by those members of our board of directors who were
directors as of the date of the senior bank facilities, and
(3) those members of our board of directors who were nominated by the
equity sponsors and some of their respective affiliates; or
(c) a change of control is deemed to have occurred under the indenture
governing the exchange notes. See "Description of Exchange
Notes -- Definitions."
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DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of some of the terms used in this description
under the subheading "Definitions." In this description, the words "we," "us,"
and "our" refer only to Team Health, Inc. and not to any of our subsidiaries.
We issued the notes under an indenture dated March 12, 1999 among Team
Health, Inc., our subsidiary guarantors and United States Trust Company of New
York, as trustee. See "Notice to Investors." The terms of the exchange notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the significant provisions of the
indenture. It does not restate that agreement in its entirety, and sections of
this description which correspond to similar sections of the indenture have been
redrafted for clarity in this description in terms substantively the same as
those of indenture. We urge you to read the indenture because it, and not this
description, defines your rights as a holder of these exchange notes. Copies of
the indenture are available as set forth in the section entitled "Additional
Information."
BRIEF DESCRIPTION OF THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTEES
THE EXCHANGE NOTES
These exchange notes:
- are our general unsecured obligations;
- are subordinated in right of payment to all of our senior debt;
- are ahead of or equal in right of payment to all of our existing and
future subordinated indebtedness; and
- are unconditionally guaranteed by our subsidiary guarantors.
THE SUBSIDIARY GUARANTEES
These exchange notes are guaranteed by each of our Domestic Restricted
Subsidiaries.
The subsidiary guarantees of these exchange notes:
- are general unsecured obligations of each subsidiary guarantor;
- are subordinated in right of payment to all senior debt of each
subsidiary guarantor; and
- are ahead of or equal in right of payment to all existing and future
subordinated indebtedness of each subsidiary guarantor.
As of May 31, 1999, we and our subsidiary guarantors had total senior debt
of approximately $147.5 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the exchange notes and
under the subsidiary guarantees will be subordinated to the payment of senior
debt. The indenture will permit us and our subsidiary guarantors to incur
additional senior debt.
As of March 31, 1999, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate some of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture. Unrestricted Subsidiaries
will not guarantee the exchange notes.
PRINCIPAL, MATURITY AND INTEREST
We will issue the exchange notes with a maximum aggregate principal amount
of $225.0 million, of which $100.0 million will be issued on the date of
original issuance. We will issue the exchange notes in
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denominations of $1,000 and integral multiples of $1,000. The exchange notes
will mature on March 15, 2009.
Interest on these exchange notes will accrue at the rate of 12% per annum
and will be payable semi-annually in arrears on March 15 and September 15,
commencing on September 15, 1999. We will make each interest payment to the
holders of record of these exchange notes on the immediately preceding March 1
and September 1.
Interest on these exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. We may issue additional exchange notes from time to time after
the offering, subject to the provisions of the indenture described below under
the caption "Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock." The exchange notes offered by delivery of this prospectus and any
additional exchange notes subsequently issued under the indenture would be
treated as a single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
If a holder has given wire transfer instructions to us, we will make all
principal, premium and interest payments on those exchange notes following those
instructions. We will make all other payments on these exchange notes at the
office or agency of the paying agent and registrar within the City and State of
New York. Alternatively, we may elect to make interest payments by check mailed
to the holders at their address set forth in the register of holders.
PAYING AGENTS AND REGISTRAR FOR THE EXCHANGE NOTES
The trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to the holders of the
exchange notes. We or any of our subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange his exchange notes following the terms of
the indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents. We may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. We are not required to transfer or exchange any exchange note
selected for redemption. Also, we are not required to transfer or exchange any
exchange note for a period of 15 days before a selection of exchange notes to be
redeemed.
The registered holder of an exchange note will be treated as the owner of
an exchange note for all purposes.
SUBSIDIARY GUARANTEES
Our subsidiary guarantors will jointly and severally guarantee our
obligations under these exchange notes, on a senior subordinated basis. Each
subsidiary guarantor is our subsidiary and a principal operating subsidiary.
Each subsidiary guarantee will be subordinated to the prior payment in full of
all senior debt of that subsidiary guarantor. We have not included separate
financial statements concerning each separate subsidiary because we do not
believe that this information is material to our investors. The obligations of
each subsidiary guarantor under its subsidiary guarantee will be limited as
necessary to prevent that subsidiary guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors -- Fraudulent Conveyance
Matters."
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A subsidiary guarantor may not sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into
another person, whether or not such subsidiary guarantor is the surviving
person, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the person acquiring the property in any sale or disposition of all
or substantially all of a subsidiary guarantor's assets or the
person formed by or surviving any consolidation or merger of a
subsidiary guarantor assumes all the obligations of that subsidiary
guarantor under a supplemental indenture satisfactory to the
trustee; or
(b) the Net Proceeds of a sale or other disposition of all or
substantially all of a subsidiary guarantor's assets are applied
under the applicable provisions of the indenture.
The subsidiary guarantee of a subsidiary guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that subsidiary guarantor, including
by way of merger or consolidation, if we apply the Net Proceeds of that
sale or other disposition under the applicable provisions of the
indenture; or
(2) in connection with the sale of all of the capital stock of a subsidiary
guarantor, if we apply the Net Proceeds of that sale under the
applicable provisions of the indenture; or
(3) if we designate any Restricted Subsidiary that is a subsidiary
guarantor as an Unrestricted Subsidiary.
See "Repurchase at Option of Holders -- Asset Sales."
SUBORDINATION
The payment of principal of, premium, if any, and interest on these
exchange notes will be subordinated to the prior payment in full of all of our
senior debt.
The holders of senior debt will be entitled to receive payment in full in
cash of all amounts due or to become due in respect of senior debt before the
holders of exchange notes will be entitled to receive any payment with respect
to the exchange notes in the event of any distribution to our creditors in any
Insolvency or Liquidation Proceeding with respect to us. Holders of exchange
notes may receive Reorganization Securities notwithstanding the sentence
immediately above. Upon any such Insolvency or Liquidation Proceeding, any
payment or distribution of our assets of any kind or character, whether in cash,
property or securities, other than Reorganization Securities, to which the
holders of the exchange notes or the trustee would be entitled will be paid by
us or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the holders of the
exchange notes or by the trustee if received by them, directly to the holders of
senior debt or their Representative or Representatives, as their interests may
appear, for application to the payment of the senior debt remaining unpaid until
all such senior debt has been paid in full in cash, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
senior debt. Payments will be made to holders of senior debt in proportion to
the amount of senior debt they each hold.
We also may not make any payment in respect of the exchange notes, except
in Reorganization Securities, if:
(1) a payment default on Designated Senior Debt occurs and is continuing;
or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from the Credit Agent or the holders or the
Representative of any Designated Senior Debt.
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Payments on the exchange notes may and shall be resumed:
(1) in the case of a payment default, upon the date the payment default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of
(A) the date the nonpayment default is cured or waived,
(B) 179 days after the date the applicable Payment Blockage Notice is
received, or
(C) the date the trustee receives written notice from the Credit Agent
or the Representative for the Designated Senior Debt, as the case
may be, rescinding the applicable Payment Blockage Notice, unless
the maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 181 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No event of default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless the default shall have been
cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event
of our bankruptcy, liquidation or reorganization, holders of exchange notes may
recover less ratably than our creditors who are holders of senior debt. See
"Risk Factors -- Subordination," which describes how the right of holders of
exchange notes to receive payments on the exchange notes is junior to all of our
existing and future senior indebtedness. We and our Restricted Subsidiaries will
be subject to some financial tests limiting the amount of additional
indebtedness, including senior debt, that we and our restricted subsidiaries can
incur. See "-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock" for a more detailed description of the types of Indebtedness that we may
and may not incur.
OPTIONAL REDEMPTION
At any time before to March 15, 2002, we may on one or more occasions
redeem up to 33 1/3% of the total principal amount of exchange notes originally
issued under the indenture at a redemption price of 112.0% of the principal
amount of those exchange notes described above, plus accrued and unpaid interest
to the redemption date, with the net cash proceeds of one or more Public Equity
Offerings. We may only make a redemption described above if:
(1) at least 66 2/3% of the aggregate principal amount of exchange notes
remains outstanding immediately after the occurrence of a redemption,
excluding notes held by us and our subsidiaries; and
(2) the redemption must occur within 90 days of the date of the closing of
such Equity Offering.
Except under the preceding paragraphs, we will not have the option of
redeeming the exchange notes prior to March 15, 2004.
After March 15, 2004, we may redeem all or a part of these exchange notes,
on not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of principal amount, set forth below plus accrued and
unpaid interest on the exchange notes, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004............................................ 108.000%
2005............................................ 106.000%
2006............................................ 104.000%
2007............................................ 102.000%
2008 and thereafter............................. 100.000%
</TABLE>
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SELECTION AND NOTICE
If less than all of the exchange notes are to be redeemed at any time, the
trustee will select exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the requirements
of the principal national securities exchange on which the exchange
notes are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by lot or
by another method the trustee shall deem fair and appropriate.
No exchange notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of exchange notes to be redeemed
at its registered address. Notices of redemption may not be conditional.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note will state the portion of the
principal amount of the exchange rate to be redeemed. A new exchange note in
principal amount equal to the unredeemed portion of the original exchange note
will be issued in the name of the holder of the exchange rate upon cancellation
of the original exchange note. Exchange notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on exchange notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," we
are not required to make mandatory redemption or sinking fund payments with
respect to the exchange notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of exchange notes will have the
right to require us to repurchase all or any part equal to $1,000 or an integral
multiple of $1,000 of that holder's exchange notes pursuant to the Change of
Control Offer. In the Change of Control Offer, we will offer a Change of Control
Payment in cash equal to 101% of the aggregate principal amount of exchange
notes repurchased plus accrued and unpaid interest on the exchange notes, if
any, to the date of purchase. Within 60 days following any Change of Control, we
will mail a notice to each holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase exchange notes
on the Change of Control Payment Date, pursuant to the procedures required by
the indenture and described in the notice. We will comply with the requirements
of Rule 14e-1 under the Securities Exchange Act of 1934 and any other securities
laws and regulations under the Securities Exchange Act of 1934 to the extent
these laws and regulations are applicable in connection with the repurchase of
the exchange notes as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to a Change of Control Offer, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached our obligations described in the indenture by virtue of our compliance
with these laws and regulations.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all exchange notes or portions of exchange notes
properly tendered under the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all exchange notes or portions of exchange notes
so tendered; and
(3) deliver or cause to be delivered to the trustee the exchange notes so
accepted together with an officers' certificate stating the aggregate
principal amount of exchange notes or portions of exchange notes being
purchased by us.
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The paying agent will promptly mail to each holder of exchange notes
properly tendered the Change of Control Payment for those exchange notes. The
trustee will promptly authenticate and mail, or cause to be transferred by book
entry, to each holder a new exchange note equal in principal amount to any
unpurchased portion of the exchange notes surrendered, if any; provided that
each new exchange note will be in a principal amount of $1,000 or an integral
multiple of $1,000.
Before complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, we will
either repay all outstanding senior debt or obtain the requisite consents, if
any, under all agreements governing outstanding senior debt to permit the
repurchase of exchange notes required by this covenant. We will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the exchange notes to require that we
repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
Our outstanding senior debt currently prohibits us from purchasing any
exchange notes, and also provides that particular change of control events with
respect to us would constitute a default under the agreements governing the
senior debt. Any future credit agreements or other agreements relating to senior
debt to which we become a party may contain similar restrictions and provisions.
In the event a Change of Control occurs at a time when we are prohibited from
purchasing exchange notes, we could seek the consent of our senior lenders to
the purchase of exchange notes or could attempt to refinance the borrowings that
contain the prohibition. If we do not obtain a consent or repay such borrowings,
we will remain prohibited from purchasing exchange notes. In this case, our
failure to purchase tendered exchange notes would constitute an event of default
under the indenture which would, in turn, constitute a default under the senior
debt. Under those circumstances, the subordination provisions in the indenture
would likely restrict payments to the holders of exchange notes.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and the third party
purchases all exchange notes validly tendered and not withdrawn under the Change
of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Team Health and our subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of exchange notes to require us to
repurchase exchange notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of our assets and the assets of our
subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we, or the Restricted Subsidiary, as the case may be, receive
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by our board of directors and
evidenced by a resolution of our board of directors set forth in an
officers' certificate delivered to the trustee. The board of directors'
determination must be based on an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing
if the fair market value exceeds $25 million; and
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(3) at least 80% of the consideration in the Asset Sale received by us or
such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following will be deemed to
be cash:
(a) any liabilities, as shown on our or such Restricted Subsidiary's
most recent balance sheet, of us or any Restricted Subsidiary, other
than contingent liabilities and liabilities that are by their terms
subordinated to the exchange notes or any Subsidiary Guarantee, that
are assumed by the transferee of any the assets under a customary
novation agreement that releases us or such Restricted Subsidiary
from further liability; and
(b) any securities, notes or other obligations received by us or any
such Restricted Subsidiary from the transferee that are converted by
us or the Restricted Subsidiary into cash or Cash Equivalents within
180 days, to the extent of the cash received in that conversion.
The 80% limitation referred to in clause (3) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received in the Asset Sale, determined under the preceding proviso, is equal to
or greater than what the after-tax proceeds would have been had the Asset Sale
complied with the aforementioned 80% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
we or any such Restricted Subsidiary may apply the Net Proceeds, at our or its
option:
(1) to repay or repurchase our senior debt or the senior debt of any
Restricted Subsidiary;
(2) to acquire a controlling interest in another Permitted Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other assets in a Permitted Business.
Pending the final application of any Net Proceeds, we may temporarily
reduce the revolving indebtedness under the senior bank facilities or otherwise
invest the Net Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $15.0 million, we will be required
to make an offer to all holders of exchange notes (an "Asset Sale Offer") to
purchase the maximum principal amount of exchange notes that may be purchased
out of the Excess Proceeds. The offer price in any Asset Sale Offer will be
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of purchase, and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, we may use such Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
exchange notes tendered into an Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee shall select the exchange notes to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
COVENANTS
RESTRICTED PAYMENTS
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of our or any of our Restricted Subsidiaries' Equity
Interests, including, without limitation, any payment on the Equity
Interests in connection with any merger or consolidation involving us,
or to the direct or indirect holders of our or any of our Restricted
Subsidiaries' Equity Interests in their capacity as direct or indirect
holders of our Restricted Subsidiaries' Equity Interests. The
restriction in this clause (1) does not apply to dividends or
distributions payable in Equity Interests, except for Disqualified
Stock.
(2) purchase, redeem or otherwise acquire or retire for value, including
without limitation, in connection with any merger or consolidation
involving Team Health, any of our Equity Interests
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or those of any direct or indirect parent of Team Health. The
restriction in this clause (2) does not apply to Equity Interests owned
by us or any of our Restricted Subsidiaries.
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any indebtedness that is
subordinated to the exchange notes or the Subsidiary Guarantees, except
scheduled payments of interest or principal at Stated Maturity on such
indebtedness, or
(4) make any Restricted Investment, all payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments,"
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of the Restricted Payment;
(2) we would, after giving pro forma effect to the Restricted Payment as if
the Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described below under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(3) the Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by us and our Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (1), (2), (3), (4), (8) (other than those permitted by clause
(6) of the definition of "Permitted Investments"), (11) and (12) of the
next succeeding paragraph), is less than the sum, without duplication,
of:
(a) 50% of our Consolidated Net Income for the period, taken as one
accounting period, from the beginning of the first full fiscal
quarter commencing after the date of the indenture to the end of our
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit, plus
(b) 100% of the aggregate net proceeds, including the fair market value
of property other than cash, provided, that fair market value of
property other than cash shall be determined in good faith by the
board of directors whose resolution with respect to the fair market
value determination shall be delivered to the trustee and the
determination must be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national
standing if the fair market value exceeds $15.0 million, received by
us as a contribution to our capital or received by us from the issue
or sale since the date of the indenture of our Equity Interests,
other than Disqualified Stock, or of our Disqualified Stock or debt
securities that have been converted into such Equity Interests,
other than Equity Interests, or Disqualified Stock or debt
securities, sold to our Restricted Subsidiary and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock, plus
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of
(1) the cash return of capital with respect to the Restricted
Investment, less the cost of disposition, if any, and
(2) the initial amount of the Restricted Investment, plus
(d) if any Unrestricted Subsidiary
(1) is redesignated as a Restricted Subsidiary, the fair market
value of the redesignated subsidiary, as determined in good
faith by our board of directors, as of the date of its
redesignation or
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(2) pays any cash dividends or cash distributions to us or any of
our Restricted Subsidiaries, 100% of any such cash dividends or
cash distributions made after the date of the indenture.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the payment
would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any of our subordinated indebtedness or Equity Interests or those of
any Restricted Subsidiary in exchange for, or out of the net cash
proceeds of the substantially concurrent sale or issuance (other than
to one of our Restricted Subsidiaries) of other Equity Interests of
Team Health (other than Disqualified Stock); provided that the amount
of any net cash proceeds that are utilized for any redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of our
subordinated indebtedness or that of any Restricted Subsidiary with the
net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary to the holders
of its Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value
of any of our Equity Interests held by any member or former member of
our or any of our Restricted Subsidiaries' management or affiliated
physician under any management equity subscription agreement,
stockholders agreement or stock option agreement or other similar
agreements in effect as of the date of the indenture; provided,
however, the aggregate price paid shall not exceed
(a) $2.5 million in any calendar year, with unused amounts in any
calendar year being carried over to succeeding calendar years
subject to a maximum (without giving effect to clause (b)) of $5.0
million in any calendar year, plus
(b) the aggregate cash proceeds received by us from any issuance or
reissuance of Equity Interests to members of our management or our
affiliated physicians and those of our Restricted Subsidiaries and
the proceeds to us of any "key man" life insurance policies;
provided that the cancellation of indebtedness owing to us from
members of management or our affiliated physicians or those of any
of our Restricted Subsidiaries in connection with the repurchase of
Equity Interests will not be deemed to be a Restricted Payment;
(6) Investments in any Person, other than us or a Restricted Subsidiary,
engaged in a Permitted Business in an amount not to exceed $7.5
million;
(7) other Investments in Unrestricted Subsidiaries having an aggregate
fair market value, taken together with all other Investments made
under this clause (7) that are at that time outstanding, not to exceed
$6.0 million;
(8) Permitted Investments;
(9) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends on Disqualified
Stock, the incurrence of which satisfied the covenant set forth in
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" below;
(10) repurchases of Equity Interests deemed to occur upon the exercise of
stock options if the Equity Interests represent a portion of the
exercise price of the stock options; and
(11) distributions to fund the recapitalization transactions. See "The
Recapitalization Transactions."
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by us or the
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subsidiary, as the case may be, following the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the board of directors whose resolution with respect thereto shall be
delivered to the trustee. The board of directors' determination must be based
upon an opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if such fair market value exceeds $15.0
million. Not later than the date of making any Restricted Payment, we shall
deliver to the trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this "Restricted Payments" covenant were computed, together with a
copy of any fairness opinion or appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness, including Acquired Debt. We will not issue any
Disqualified Stock and will not permit any of our Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that we may incur
Indebtedness, including Acquired Debt, or issue Disqualified Stock or preferred
stock and our Restricted Subsidiaries may incur Indebtedness, including Acquired
Debt, and issue Disqualified Stock or preferred stock if the Fixed Charge
Coverage Ratio for our most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which the additional indebtedness is incurred or the Disqualified Stock is
issued would have been
- at least 2.0 to 1, if the incurrence or issuance is on or prior to the
second anniversary of the Issue Date, or
- 2.25 to 1 if the incurrence or issuance is after the second anniversary
of the Issue Date but on or prior to the fourth anniversary of the
Issue Date, or
- 2.5 to 1 if such incurrence or issuance is after the fourth anniversary
of the Issue Date,
in each case, determined on a pro forma basis, including a pro forma application
of the net proceeds therefrom, as if the additional indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of the four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness and letters of credit under the senior bank facilities;
provided that the aggregate amount of all indebtedness then classified
as having been incurred in reliance upon this clause (1) that remains
outstanding under the senior bank facilities after giving effect to
the incurrence does not exceed an amount equal to $190 million.
(2) the incurrence by us or our Restricted Subsidiaries of Existing
Indebtedness;
(3) the incurrence by us and the subsidiary guarantors of indebtedness
represented by the exchange notes and the subsidiary guarantees;
(4) the incurrence by us or any of our Restricted Subsidiaries of
indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in
our business or that of the Restricted Subsidiary, whether through the
direct purchase of assets or the Capital Stock of any Person owning
such Assets, in an aggregate principal amount or accreted value, as
applicable, not to exceed $15.0 million;
(5) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that the Indebtedness was incurred by
the prior owner of the assets or the Restricted Subsidiary prior to
such acquisition by us or one of our subsidiaries and was not incurred
in connection with, or in contemplation of,
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such acquisition by us or one of our subsidiaries; provided further
that the principal amount or accreted value, as applicable, of such
Indebtedness, together with any other outstanding Indebtedness
incurred pursuant to this clause (5), does not exceed $20.0 million;
(6) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace,
Indebtedness that was permitted by the indenture to be incurred;
(7) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our
Restricted Subsidiaries; provided, however, that:
(a) if we or any subsidiary guarantor is the obligor on such
Indebtedness, the Indebtedness must be expressly subordinated to
the prior payment in full in cash of all Obligations with respect
to the exchange notes, in the case of us, or the subsidiary
guarantee of the subsidiary guarantor, in the case of a subsidiary
guarantor; and
(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any of this Indebtedness being held by a Person
other than us or a Restricted Subsidiary and
(2) any sale or other transfer of any of this Indebtedness to a
Person that is not either us or our Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of
this Indebtedness by us or such Restricted Subsidiary, as the
case may be;
(8) the incurrence by us or any of our Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging:
(a) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this indenture to be outstanding;
(b) exchange rate risk with respect to any agreement or Indebtedness of
such Person payable in a currency other than United States dollars;
or
(c) commodities risk relating to commodities agreements, entered into
in the ordinary course of business, for the purchase of raw
material used by us and our Restricted Subsidiaries;
(9) the Guarantee by us or any of our Restricted Subsidiaries of our
Indebtedness or that of one of our Restricted Subsidiaries that was
permitted to be incurred by another provision of this covenant;
(10) the incurrence by our Unrestricted Subsidiaries of Non-Recourse Debt;
provided, however, that if any of this indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, that event shall be
deemed to constitute an incurrence of Indebtedness by our Restricted
Subsidiary;
(11) Indebtedness incurred by us or one of our Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without
limitation letters of credit in respect to workers' compensation
claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
provided, however, that upon the drawing of such letters of credit or
the incurrence of this Indebtedness, the obligations are reimbursed
within 30 days following the drawing or incurrence;
(12) Indebtedness arising from agreements of us or one of our Restricted
Subsidiaries providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, asset or subsidiary,
other than guarantees of Indebtedness incurred by any person acquiring
all or any portion of such business, assets or subsidiary for the
purpose of financing the acquisition; provided that
(a) this Indebtedness is not reflected on our balance sheet or that
of any Restricted Subsidiary, except that contingent obligations
referred to in a footnote or footnotes to financial statements
and not otherwise reflected on the balance sheet will not be
deemed to be reflected on the balance sheet for purposes of this
clause (a), and
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(b) the maximum assumable liability in respect of this Indebtedness
shall at no time exceed the gross proceeds including non-cash
proceeds actually received by us and/or the Restricted Subsidiary
in connection with such disposition, the fair market value of the
non-cash proceeds must be measured at the time received and
without giving effect to any subsequent changes in value;
(13) Indebtedness incurred by us or any of our Restricted Subsidiaries
which is subordinated to the exchange notes and the subsidiary
guarantees; provided that this Indebtedness matures after the date on
which the exchange notes mature and that no cash interest is payable
with respect to this Indebtedness until after the date on which the
exchange notes mature;
(14) obligations in respect of performance and surety bonds and completion
guarantees provided by us or any of our Restricted Subsidiaries in the
ordinary course of business;
(15) guarantees incurred in the ordinary course of business in an aggregate
principal amount not to exceed $10.0 million at any time outstanding;
and
(16) the incurrence by us or any of our Restricted Subsidiaries of
additional indebtedness, including Attributable Debt incurred after
the date of the indenture, in an aggregate principal amount, or
accreted value, as applicable, at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred under this clause (16), not to
exceed $25.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (16) above or is
entitled to be incurred under the first paragraph of this covenant, we will be
permitted to classify the item of Indebtedness in any manner that complies with
this covenant. In addition, we may, at any time, change the classification of an
item of Indebtedness, or any portion thereof, to any other clause or to the
first paragraph of this covenant, provided that we would be permitted to incur
the item of Indebtedness, or portion of the item of Indebtedness, under the
other clause or the first paragraph of this covenant, as the case may be, at the
time of reclassification. Accrual of interest, accretion or amortization of
original issue discount and the accretion of accreted value will not be deemed
to be an incurrence of indebtedness for purposes of this covenant.
LIENS
We will not, and will not permit any of our Restricted Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind securing trade payables or Indebtedness that does not
constitute senior debt, other than Permitted Liens, upon any of our or our
Restricted Subsidiaries' property or assets, now owned or hereafter acquired
unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinated or junior in right of payment to the exchange notes, the
exchange notes are secured on a senior basis to the obligations so
secured until the time the obligations are no longer secured by a Lien;
and
(2) in all other cases, the exchange notes are secured on an equal and
ratable basis with the obligations so secured until the time the
obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions to us or any of our
Restricted Subsidiaries
(1) on our Capital Stock or
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(2) with respect to any other interest or participation in, or
measured by, our profits; or
(b) pay any indebtedness owed to us or any of our Restricted
Subsidiaries;
(2) make loans or advances to us or any of our Restricted Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our Restricted
Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the senior bank facilities as in effect as of the date of the
indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of
the senior bank facilities, provided that amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole,
as determined in the good faith judgment of our board of directors,
with respect to the dividend and other payment restrictions than those
contained in the senior bank facilities as in effect on the date of
the indenture;
(3) the indenture and the exchange notes;
(4) any applicable law, rule, regulation or order;
(5) any instrument of a Person acquired by us or any of our Restricted
Subsidiaries as in effect at the time of the acquisition, except to
the extent incurred in connection with or in contemplation of the
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, the Indebtedness was permitted by
the terms of the indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
(8) Permitted Refinancing Indebtedness, provided that the material
restrictions contained in the agreements governing the Permitted
Refinancing Indebtedness are no more restrictive, in the good faith
judgment of our board of directors, taken as a whole, to the holders
of exchange notes than those contained in the agreements governing the
indebtedness being refinanced;
(9) contracts for the sale of assets, including without limitation
customary restrictions with respect to a subsidiary under an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of the subsidiary;
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(11) other Indebtedness or Disqualified Stock of Restricted Subsidiaries
permitted to be incurred subsequent to the Issue Date under the
provisions of the covenant described under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
MERGER, CONSOLIDATION, OR SALE OF ASSETS
We may not:
(A) consolidate or merge with or into another person, whether or not we are
the surviving corporation; or
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(B) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of our properties or assets, in one or more related
transactions, to another person unless:
(1) either:
(a) we are the surviving corporation; or
(b) the Person formed by or surviving any consolidation or merger, if
other than us, or to which the sale, assignment, transfer,
conveyance or other disposition shall have been made, is a
corporation organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
(2) the entity or Person formed by or surviving any such consolidation
or merger, if other than us, or the entity or Person to which such
sale, assignment, transfer, conveyance or other disposition shall
have been made, assumes all of our obligations under the exchange
notes and the indenture under a supplemental indenture in a form
reasonably satisfactory to the trustee;
(3) immediately after the transaction no Default or Event of Default
exists; and
(4) we or the entity or Person formed by or surviving any such
consolidation or merger, if other than us, or to which such sale,
assignment, transfer, conveyance or other disposition shall have
been made:
(a) will, after giving pro forma effect thereto as if the transaction
had occurred at the beginning of the applicable four quarter
period, be permitted to incur at least $1.00 of additional
indebtedness under the Fixed Charge Coverage Ratio test set forth
in the first paragraph of the covenant described above under the
caption "Incurrence of Indebtedness and Issuance of Preferred
Stock"; or
(b) would, together with our Restricted Subsidiaries, have a higher
Fixed Charge Coverage Ratio immediately after the transaction,
after giving pro forma effect to the transaction as if the
transaction had occurred at the beginning of the applicable four
quarter period, than our Fixed Charge Coverage Ratio and that of
our subsidiaries immediately prior to the transaction.
The preceding clause (4) will not prohibit:
(a) a merger between us and one of our Wholly Owned Subsidiaries; or
(b) a merger between us and one of our Affiliates incorporated solely for
the purpose of reincorporating us in another state of the United
States;
so long as, in each case, the amount of our indebtedness and that of our
Restricted Subsidiaries is not increased thereby.
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other person. This "Merger, Consolidation, or Sale of Assets" covenant will not
be applicable to a sale, assignment, transfer, conveyance or other disposition
of assets between or among us and any of our Wholly Owned Restricted
Subsidiaries.
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of our
or our Restricted Subsidiaries properties or assets to, or purchase any property
or assets from, or enter into or make or amend any transaction, contract,
agreement,
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understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to us
or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or the Restricted Subsidiary
with an unrelated Person; and
(2) we deliver to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $3.0 million, a resolution of the board of directors set forth in
an officers' certificate certifying that the Affiliate Transaction
complies with clause (1) above and that the Affiliate Transaction
has been approved by a majority of the disinterested members of the
board of directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $15.0 million, an opinion as to the fairness to the holders of
the Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) customary directors' fees, indemnification or similar arrangements or
any employment agreement or other compensation plan or arrangement
entered into by us or any of our Restricted Subsidiaries in the
ordinary course of business and consistent with our past practice or
the past practice of the Restricted Subsidiary;
(2) transactions between or among us and/or our Restricted Subsidiaries;
(3) Permitted Investments and Restricted Payments that are permitted by the
provisions of the indenture described above under the caption
"Restricted Payments";
(4) customary loans, advances, fees and compensation paid to, and indemnity
provided on behalf of, our or any of our Restricted Subsidiaries'
officers, directors, employees or consultants;
(5) transactions under any contract or agreement in effect on the date of
the indenture as the same may be amended, modified or replaced from
time to time so long as any amendment, modification or replacement is
no less favorable to us and our Restricted Subsidiaries than the
contract or agreement as in effect on the Issue Date;
(6) transactions under management contracts with affiliated physicians
entered into in the ordinary course of business consistent with past
practice, or as such practice may be modified to comply with
regulations governing our operations; and
(7) payments in connection with the recapitalization transactions,
including the payment of fees and expenses with respect to the
recapitalization transactions.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by us and our Restricted Subsidiaries, except to
the extent repaid in cash, in the subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation, to the extent not
designated a Permitted Investment, and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "Restricted Payments." All such outstanding Investments will
be valued at their fair market value at the time of designation, as determined
in good faith by the board of directors. That designation will only
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be permitted if the Restricted Payment would be permitted at that time and if
the Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
ANTI-LAYERING
We will not incur, create, issue, assume, guarantee or otherwise become
liable for any indebtedness that is both:
(1) subordinate or junior in right of payment to any senior debt; and
(2) senior in any respect in right of payment to the exchange notes.
No subsidiary guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any indebtedness that is both:
(1) subordinate or junior in right of payment to any senior debt of the
subsidiary guarantor; and
(2) senior in any respect in right of payment to the subsidiary guarantees.
SALE AND LEASEBACK TRANSACTIONS
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that we or any of our
Restricted Subsidiaries may enter into a sale and leaseback transaction if:
(1) we or such Restricted Subsidiary could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to the sale and leaseback transaction under the covenant
described above under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock" and
(b) incurred a Lien to secure the Indebtedness under the covenant
described above under the caption "Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the board of directors and set forth in an officers' certificate
delivered to the trustee, of the property that is the subject of the
sale and leaseback transaction; and
(3) the transfer of assets in the sale and leaseback transaction is
permitted by, and we apply the proceeds of the transaction in
compliance with, the covenant described above under the caption "Asset
Sales."
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
We will not permit any Domestic Restricted Subsidiary, directly or
indirectly, to incur Indebtedness or guarantee or pledge any assets to secure
the payment of any other of our Indebtedness or that of any Restricted
Subsidiary unless either the Restricted Subsidiary
(1) is a subsidiary guarantor or
(2) simultaneously executes and delivers a supplemental indenture to the
indenture and becomes a subsidiary guarantor, which guarantee shall
(a) with respect to any guarantee of senior debt, be subordinated in
right of payment on the same terms as the exchange notes are
subordinated to the senior debt and
(b) with respect to any guarantee of any other Indebtedness, be senior
to or rank equal to the Restricted Subsidiary's other Indebtedness
or guarantee of or pledge to secure the other Indebtedness.
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Notwithstanding the preceding paragraph, any guarantee by a Restricted
Subsidiary of the exchange notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not our Affiliate, of all of our stock in,
or all or substantially all the assets of the Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of the
indenture.
ADDITIONAL GUARANTEES
If we acquire or create a Domestic Restricted Subsidiary after the date of
the indenture, or if any of our subsidiaries becomes a Domestic Restricted
Subsidiary, then the newly acquired or created Domestic Restricted Subsidiary
shall become a subsidiary guarantor and execute a Supplemental Indenture and
deliver an opinion of counsel under the indenture.
BUSINESS ACTIVITIES
We will not, and will not permit any Restricted Subsidiary to, engage in
any business other than a Permitted Business, except to the extent the business
would not be significant to us and our Restricted Subsidiaries taken as a whole.
REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any exchange notes are outstanding, we will furnish to the holders of
exchange notes, within the time periods specified in the Securities and Exchange
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Securities and Exchange Commission
on Forms 10-Q and 10-K if we were required to file those forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by our
certified independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if we were required to
file those reports.
In addition, following the consummation of this exchange offer, whether or
not required by the Securities and Exchange Commission, we will file a copy of
all the information and reports referred to in clauses (1) and (2) above with
the Securities and Exchange Commission for public availability within the time
periods specified in the Securities and Exchange Commission's rules and
regulations, unless the Securities and Exchange Commission will not accept such
a filing. We will make such information available to securities analysts and
prospective investors upon request. In addition, we have agreed that, for so
long as any exchange notes remain outstanding, we will furnish to the holders
and to securities analysts and prospective investors, upon their requests, the
information required to be delivered under Rule 144A(d)(4) of the Securities Act
of 1933.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the exchange
notes whether or not prohibited by the subordination provisions of the
indenture;
(2) default in payment when due of the principal of or premium, if any, on
the exchange notes, whether or not prohibited by the subordination
provisions of the indenture;
(3) our failure to comply with the provisions described under the caption
"-- Change of Control";
(4) our failure for 30 days after notice from the trustee or holders of at
least 25% in principal amount of the exchange notes then outstanding to
comply with the provisions described under the
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captions "-- Asset Sales," "-- Restricted Payments" or "-- Incurrence
of Indebtedness and Issuance of Preferred Stock";
(5) our failure for 60 days after notice from the trustee or holders of at
least 25% in principal amount of the exchange notes then outstanding
voting as a single class to comply with any of our other agreements in
the indenture or the exchange notes;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries, whether the Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, on
such Indebtedness prior to the expiration of the grace period
provided in the Indebtedness on the date of the default (a "Payment
Default"); or
(b) results in the acceleration of the Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any indebtedness, together
with the principal amount of any other Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(7) failure by us or any of our subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(8) except as permitted by the indenture, any subsidiary guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any subsidiary
guarantor, or any Person acting on behalf of any subsidiary guarantor,
shall deny or disaffirm its obligations under its subsidiary guarantee;
and
(9) particular events of bankruptcy or insolvency with respect to us or any
of our Restricted Subsidiaries that are Significant Subsidiaries.
In the event of a declaration of acceleration of the exchange notes because
an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause (6) of the preceding
paragraph, the declaration of acceleration of the exchange notes shall be
automatically annulled if the holders of any indebtedness described in clause
(6) of the preceding paragraph have rescinded the declaration of acceleration in
respect of the Indebtedness within 30 days of the date of the declaration and
if:
(1) the annulment of the acceleration of exchange notes would not conflict
with any judgment or decree of a court of competent jurisdiction; and
(2) all existing Events of Default, except nonpayment of principal or
interest on the exchange notes that became due solely because of the
acceleration of the exchange notes, have been cured or waived.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding exchange
notes may declare all the exchange notes to be due and payable immediately;
provided, that so long as any indebtedness permitted to be incurred under the
senior bank facilities shall be outstanding, the acceleration shall not be
effective until the earlier of:
(1) an acceleration of any such Indebtedness under the senior bank
facilities, or
(2) five business days after receipt by us of written notice of
acceleration.
Notwithstanding the preceding paragraph, in the case of an Event of Default
arising from some events of bankruptcy or insolvency, with respect to us or any
of our subsidiaries, all outstanding exchange notes will become due and payable
without further action or notice.
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Holders of the exchange notes may not enforce the indenture or the exchange
notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding exchange notes
may direct the trustee in its exercise of any trust or power. The trustee may
withhold from holders of the exchange notes notice of any continuing Default or
Event of Default, except a Default or Event of Default relating to the payment
of principal or interest, if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of us with the intention
of avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the exchange notes under the optional redemption provisions of
the indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the exchange
notes. If an Event of Default occurs prior to March 15, 2004 by reason of any
willful action or inaction taken or not taken by or on behalf of us with the
intention of avoiding the prohibition on redemption of the exchange notes prior
to March 15, 2004, then the premium specified in the indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the exchange notes.
The holders of a majority in aggregate principal amount of the exchange
notes then outstanding by notice to the trustee may on behalf of the holders of
all of the exchange notes waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the exchange notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default or Event of
Default, we are required to deliver to the trustee a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
None of our directors, officers, employees, incorporators or stockholders,
or those of any subsidiary guarantor, as such, shall have any liability for any
of our obligations or those of the subsidiary guarantors under the exchange
notes, the indenture, the subsidiary guarantees or for any claim based on, in
respect of, or by reason of, those obligations or their creation. Each holder of
exchange notes by accepting an exchange note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the exchange notes. The waiver may not be effective to waive liabilities under
the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding exchange notes and all obligations of
the subsidiary guarantors discharged with respect to their subsidiary
guarantees, (a "Legal Defeasance") except for:
(1) the rights of holders of outstanding exchange notes to receive payments
in respect of the principal of, premium, if any, and interest on such
exchange notes when such payments are due from the trust referred to
below;
(2) our obligations with respect to the exchange notes concerning issuing
temporary exchange notes, registration of exchange notes, mutilated,
destroyed, lost or stolen exchange notes and the maintenance of an
office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of the subsidiary guarantors released with
respect to particular covenants that are described in the indenture (a "Covenant
Defeasance") and after that release any omission to comply with those covenants
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shall not constitute a Default or Event of Default with respect to the exchange
notes. In the event Covenant Defeasance occurs, some events, not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events,
described under "-- Events of Default" will no longer constitute an Event of
Default with respect to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the benefit
of the holders of the exchange notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
amounts that will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the outstanding exchange notes on
the stated maturity or on the applicable redemption date, as the case
may be, and we must specify whether the exchange notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the trustee
an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that
(a) we have received from, or there has been published by, the Internal
Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that,
subject to customary assumptions and exclusions, the holders of the
outstanding exchange notes will not recognize income, gain or loss
for federal income tax purposes as a result of the Legal Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding exchange
notes will not recognize income, gain or loss for federal income tax
purposes as a result of the Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Covenant Defeasance had
not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of the deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to the deposit;
(5) the Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any significant
agreement or instrument, other than the indenture, to which we or any
of our subsidiaries are a party or by which we or any of our
subsidiaries are bound;
(6) we must deliver to the trustee an officers' certificate stating that
the deposit was not made by us with the intent of preferring the
holders of exchange notes over our other creditors with the intent of
defeating, hindering, delaying or defrauding our creditors or others;
and
(7) we must deliver to the trustee an officers' certificate and an opinion
of counsel, which opinion may be subject to customary assumptions and
exclusions, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
With the consent of the holders of not less than a majority in principal
amount of the exchange notes at the time outstanding, we and the trustee are
permitted to amend or supplement the indenture or any
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supplemental indenture or modify the rights of the holders; provided that
without the consent of each holder affected, no amendment, supplement,
modification or waiver may, with respect to any exchange notes held by a
non-consenting holder:
(1) reduce the principal amount of exchange notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any exchange
note or alter the provisions with respect to the redemption of the
exchange notes, other than provisions relating to the covenants
described above under the caption "-- Repurchase at the Option of
Holders";
(3) reduce the rate of or change the time for payment of interest on any
exchange note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the exchange notes, except a rescission
of acceleration of the exchange notes by the holders of at least a
majority in aggregate principal amount of the exchange notes and a
waiver of the payment default that resulted from the acceleration;
(5) make any exchange note payable in money other than that stated in the
exchange notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of exchange notes to receive
payments of principal of or premium, if any, or interest on the
exchange notes;
(7) waive a redemption payment with respect to any exchange note, other
than a payment required by one of the covenants described above under
the caption "Repurchase at the Option of Holders";
(8) make any change in the preceding amendment and waiver provisions; or
(9) release any guarantor from any of its obligations under its guarantee
of the exchange notes or the indenture, except under the terms of the
indenture.
In addition, any amendment to, or waiver of the provisions of Article 10 of
the indenture relating to subordination that negatively affects the rights of
the holders of the exchange notes will require the consent of the holders of at
least 75% in aggregate principal amount of the exchange notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of
exchange notes, we and the trustee may amend or supplement the indenture or the
exchange notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated exchange notes in addition to or in place
of certificated exchange notes;
(3) to provide for the assumption of our obligations to holders of exchange
notes in the case of a merger or consolidation or the sale of all or
substantially all of our assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of exchange notes or that does not negatively affect the
legal rights under the indenture of any holder; or
(5) to comply with requirements of the Securities and Exchange Commission
in order to effect or maintain the qualification of the indenture under
the Trust Indenture Act of 1939, to provide for the issuance of
Additional Notes under the limitations set forth in the indenture or to
allow any subsidiary to guarantee the exchange notes.
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CONCERNING THE TRUSTEE
If the trustee becomes our creditor or that of any subsidiary guarantor,
the indenture limits the trustee's right to obtain payment of claims in some
cases, or to realize on some property received in respect of any claim as
security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
the conflict within 90 days and apply to the Securities and Exchange Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
subject to some exceptions. The indenture provides that in case an Event of
Default shall occur and be continuing, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to these provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of exchange notes, unless such holder shall have offered
to the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to Team Health, Inc., P.O. Box 30698, Knoxville,
Tennessee 37919; Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes sold to Qualified Institutional Buyers initially will be
in the form of one or more registered global notes without interest coupons
(collectively, the "Global Note"). Upon issuance, the Global Notes will be
deposited with the trustee, as custodian for The Depository Trust Company, in
New York, New York, and registered in the name of The Depository Trust Company
or its nominee for credit to the accounts of The Depository Trust Company's
Direct or Indirect Participants (as defined below).
Beneficial interests in all Global Notes, if any, will be subject to some
restrictions on transfer and will bear a restrictive legend as described under
"Notice to Investors."
In addition, transfer of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of The Depository Trust Company
and its Direct or Indirect Participants, including, if applicable, those of
Euroclear and CEDEL, which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of The Depository Trust Company or to a successor of The
Depository Trust Company or its nominee in some limited circumstances.
Beneficial interests in the Global Notes may be exchanged for exchange notes in
certificated form in some limited circumstances. See "-- Transfer of Interests
in Global Notes for Certificated Notes."
The exchange notes may be presented for registration of transfer and
exchange at the offices of the registrar.
DEPOSITORY PROCEDURES
The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations,
collectively, the "Direct Participants," and to facilitate the clearance and
settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Direct Participants. The
Direct Participants include securities brokers and dealers (including the
underwriters), banks, trust companies, clearing corporations and some other
organizations. Access to The Depository Trust Company's system is also available
to other entities that clear through or maintain a direct or indirect custodial
relationship with a Direct Participant, (collectively, the "Indirect
Participants"). Persons who are not Direct Participants may beneficially own
securities held by or on behalf of The Depository Trust Company only through the
Direct Participants or
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Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of The Depository
Trust Company are recorded on the records of the Direct Participants and
Indirect Participants.
The Depository Trust Company has also advised us that following procedures
established by it, ownership of interests in the Global Notes will be shown on,
and the transfer ownership of Global Notes will be effected only through,
records maintained by The Depository Trust Company, with respect to Direct
Participants, or by Direct Participants and the Indirect Participants, with
respect to other owners of beneficial interests in the Global Notes.
Investors in the Global Notes may hold their interests in the Global Notes
directly through The Depository Trust Company or indirectly through
organizations such as Euroclear and CEDEL. All interests in a Global Note,
including those held through Euroclear or CEDEL, may be subject to the
procedures and requirements of The Depository Trust Company. Those interests
held by Euroclear or CEDEL may also be subject to the procedures and
requirements of that system.
The laws of some states require that some persons take physical delivery in
definitive, certificated form of securities they own. This may limit or curtail
the ability to transfer beneficial interest in a Global Note to such persons.
Because The Depository Trust Company can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
that interest to persons or entities that are not Direct Participants in The
Depository Trust Company, or to otherwise take actions in respect of the
interests, may be affected by the lack of physical certificate evidencing the
interests. For some other restrictions on the transferability of the exchange
notes, see "-- Book-Entry, Delivery and Form -- Transfer of Interests in Global
Notes for Certificated Notes" and "-- Book-Entry, Delivery and Form -- Exchanges
of Global Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFER OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS OF EXCHANGE NOTES UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the indenture, we and the trustee will treat the persons
in whose names the exchange notes are registered, including exchange notes
represented by Global Notes, as the owners of exchange notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and premium, if any, and interest on Global Notes
registered in the name of The Depository Trust Company or its nominee will be
payable by the trustee to The Depository Trust Company or its nominee as the
registered holder under the indenture. Consequently, neither we, nor the trustee
nor any agent of us or the trustee has or will have any responsibility or
liability for:
(1) any aspect of The Depository Trust Company's records or any Direct
Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any of The Depository
Trust Company's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in
any Global Note, or
(2) any other matter relating to the actions and practices of The
Depository Trust Company or any of its Direct Participants or Indirect
Participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the exchange notes is to
credit the accounts of the relevant Direct Participants with the payment on the
payment date, in amounts proportionate to the Direct Participant's respective
ownership interests in the Global Notes as shown on The Depository Trust
Company's records. Payments by Direct Participants and Indirect Participants to
the beneficial owners of exchange notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of The Depository Trust Company, the trustee or us. Neither we
nor the trustee will be liable for any delay by The Depository Trust Company or
its Direct Participants in identifying the
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beneficial owners of the exchange notes, and we and the trustee may conclusively
rely on and will be protected in relying on instructions from The Depository
Trust Company or its nominee as the registered owner of the exchange notes for
all purposes.
The Global Notes will trade in The Depository Trust Company's Same-Day
Funds Settlement System and therefore, transfers between Direct Participants in
The Depository Trust Company will be effected following The Depository Trust
Company's procedures, and will be settled in immediately available funds.
Transfers between Indirect Participants who hold interests in the exchange notes
through Euroclear and CEDEL will be effected in the ordinary way following their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes described in this prospectus, cross-market transfers between
Direct Participants in The Depository Trust Company, on the one hand, and
Indirect Participants, who hold interests in the exchange notes through
Euroclear and CEDEL, on the other hand, will be effected by Euroclear's or
CEDEL's respective nominee through The Depository Trust Company following The
Depository Trust Company's rules on behalf of Euroclear or CEDEL; however,
delivery of instructions relating to cross-market transactions must be made
directly to Euroclear or CEDEL, as the case may be, by the counterparty
following the rules and procedures of Euroclear or CEDEL and within their
established deadlines, which are Brussels time for Euroclear and UK time for
CEDEL. Euroclear or CEDEL, as the case may be, will, if the transaction meets
its settlement requirements, deliver instructions to its respective depositary
to take action to effect final settlement on its behalf by delivering or
receiving interests in the relevant Global Note in The Depository Trust Company,
and making or receiving payment following normal procedures for same-day fund
settlement applicable to The Depository Trust Company. Euroclear Participants
and CEDEL Participants may not deliver instructions directly to the depositaries
for Euroclear or CEDEL.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds interests in the exchange notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in The
Depository Trust Company will be credited, and any crediting will be reported to
Euroclear or CEDEL during the European business day immediately following the
settlement date of The Depository Trust Company in New York. Although recorded
in The Depository Trust Company's accounting records as of The Depository Trust
Company's settlement date in New York, Euroclear and CEDEL customers will not
have access to the cash amount credited to their accounts as a result of a sale
of an interest in a Global Note to a The Depository Trust Company Participant
until the European business day for Euroclear or CEDEL immediately following The
Depository Trust Company's settlement date.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of exchange notes only at the direction of one
or more Direct Participants to whose account The Depository Trust Company
interests in the Global Notes are credited and only in respect of the portion of
the aggregate principal amount of the exchange notes to which the Direct
Participant or Direct Participants have given direction. However, if there is an
Event of Default under the exchange notes, The Depository Trust Company reserves
the right to exchange Global Notes for legended notes in certificated form, and
to distribute those exchange notes to its Direct Participants.
The information in this section concerning The Depository Trust Company,
Euroclear and CEDEL and their book-entry systems has been obtained from sources
that we believe to be reliable, but we take no responsibility for the accuracy
of the information in this section.
Although The Depository Trust Company, Euroclear and CEDEL have agreed to
the foregoing procedures to facilitate transfers of interests in the Global
Notes among Direct Participants, including Euroclear and CEDEL, they are under
no obligation to perform or to continue to perform those procedures, and those
procedures may be discontinued at any time. None of us, the initial purchasers
or the trustee will have any responsibility for the performance by The
Depository Trust Company, Euroclear or CEDEL or their respective Direct
Participants and Indirect Participants of their respective obligations under the
rules and procedures governing any of their operations.
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TRANSFER OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive exchange notes in registered
certificated form if:
(1) The Depository Trust Company
(x) notifies us that it is unwilling or unable to continue as depositary
for the Global Note and upon this notification, we fail to appoint a
successor depositary or
(y) has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934;
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of Certificated Notes; or
(3) there shall have occurred and be continuing to occur a Default or an
Event of Default with respect to the exchange notes.
In addition, beneficial interests in a Global Note may be exchanged for
certificated exchange notes upon request but only upon at least 20 days' prior
written notice given to the trustee by or on behalf of The Depository Trust
Company following customary procedures. In all cases, certificated exchange
notes delivered in exchange for any Global Note or beneficial interest in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary, following its
customary procedures) and will bear, in the case of the Global Notes, the
restrictive legend referred to in "Notice to Investors" unless we determine
otherwise, in compliance with applicable law.
EXCHANGES OF GLOBAL NOTES
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in the Global Note and become an
interest in another Global Note, and accordingly, will thereafter be subject to
all transfer restrictions and other procedures applicable to beneficial
interests in the other Global Note for as long as it remains an interest.
Transfers involving an exchange of a beneficial interest in a Global Note
for a beneficial interest in another Global Note will be effected by The
Depository Trust Company by means of an instruction originated by the trustee
through The Depository Trust Company/Deposit Withdraw at Custodian system.
Accordingly, in connection with the transfer, appropriate adjustments will be
made to reflect a decrease in the principal amount of the one Global Note and a
corresponding increase in the principal amount of the other Global Note, as
applicable.
CERTIFICATED NOTES
Subject to some conditions, any person having a beneficial interest in the
Global Note may, upon request to the trustee, exchange beneficial interest for
exchange notes in the form of Certificated Notes. Upon any issuance under this
section, the trustee is required to register the Certificated Notes in the name
of, and cause the same to be delivered to, the person or persons or the nominee
of any of that person(s). All of these certificated exchange notes would be
subject to the legend requirements described in this prospectus under "Notice to
Investors." In addition, if:
(1) we notify the trustee in writing that the Depositary is no longer
willing or able to act as a depositary and we are unable to locate a
qualified successor within 90 days, or
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of exchange notes in the form of Certificated Notes under
the indenture,
then, upon surrender by the Global Note Holder of its Global Note, exchange
notes in certificated form will be issued to each person that the Global Note
Holder and the Depositary identify as being the beneficial owner of the related
exchange notes.
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Neither we nor the trustee will be liable for any delay by the Global Note
Holder or the Depositary in identifying the beneficial owners of exchange notes
and we and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or the Depositary for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the exchange notes
represented by the Global Note, (including principal, premium, if any, and
interest), be made by wire transfer of immediately available next day funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Notes, we will make all payments of principal, premium, if any, and interest, by
wire transfer of immediately available funds to the accounts specified by the
holders of Global Notes or, if no account is specified, by mailing a check to
each the holder's registered address. We expect that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
DEFINITIONS
Set forth below are defined terms used in the indenture. YOU SHOULD READ
THE INDENTURE FOR A FULL DISCLOSURE OF ALL OF THESE TERMS, AS WELL AS ANY OTHER
TERMS USED IN THIS DESCRIPTION FOR WHICH NO DEFINITION IS PROVIDED.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time the other Person
is merged with or into or became a subsidiary of the specified Person,
whether or not this Indebtedness is incurred in connection with, or in
contemplation of, the other Person merging with or into, or becoming a
subsidiary of the specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition (a "Disposition") of
any assets or rights, including, without limitation, by way of a sale
and leaseback (provided that the sale, lease, conveyance or other
disposition of all or substantially all of our assets and those of our
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption "Change
of Control" and/or the provisions described above under the caption
"Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant); and
(2) the issue or sale by us or any of our Restricted Subsidiaries of Equity
Interests of any of our Restricted Subsidiaries, in the case of either
clause (1) or (2), whether in a single transaction or a series of
related transactions:
(a) that have a fair market value in excess of $1.0 million, or
(b) for net proceeds in excess of $1.0 million.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) a disposition of assets by us to a Restricted Subsidiary or by a
Restricted Subsidiary to us or to another Restricted Subsidiary;
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(2) an issuance of Equity Interests by a Restricted Subsidiary to us or to
another Restricted Subsidiary;
(3) a Restricted Payment that is permitted by the covenant described above
under the caption "Restricted Payments";
(4) a disposition in the ordinary course of business;
(5) the sale and leaseback of any assets within 90 days of the acquisition
of the assets;
(6) foreclosures on assets;
(7) any exchange of property under Section 1031 of the Internal Revenue
Code of 1986 for use in a Permitted Business; and
(8) the licensing of intellectual property.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in the
sale and leaseback transaction including any period for which the lease has been
extended or may, at the option of the lessor, be extended. The present value
shall be calculated using a discount rate equal to the rate of interest implicit
in the transaction, determined under GAAP.
"Capital Lease Obligation" means, at the time any determination of Capital
Lease Obligations is to be made, the amount of the liability in respect of a
capital lease that would at that time be required to be capitalized on a balance
sheet under GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) Government Securities having maturities of not more than six months
from the date of acquisition;
(3) certificates of deposit and Eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case with any lender party to the senior bank facilities or
with any domestic commercial bank having capital and surplus in excess
of $500 million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the rating of "P-2," or higher, from Moody's
Investors Service, Inc. or "A-3," or higher, from Standard & Poor's
Corporation and in each case maturing within six months after the date
of acquisition; and
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(6) any fund investing exclusively in investments of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other than
by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of our assets and those of
our subsidiaries taken as a whole to any "person," as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934), other than
the Principals or a Related Party of any of the Principals;
(2) the adoption of a plan relating to our liquidation or dissolution;
(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person," as
defined above, other than the Principals and their Related Parties,
becomes the "beneficial owner," as such term is defined in Rule 13d-3
and Rule 13d-5 under the Securities Exchange Act of 1934, directly or
indirectly, of more than 50% of our Voting Stock, measured by voting
power rather than number of shares; or
(4) the first day on which a majority of the members of our board of
directors are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of that Person for that period, plus:
(1) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted
in computing Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of the Person and its subsidiaries for
that period, whether paid or accrued and whether or not capitalized,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments, if any,
following Hedging Obligations, to the extent that any expense was
deducted in computing Consolidated Net Income; plus
(4) depreciation, amortization, including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period, and other non-cash charges, excluding
any non-cash charge to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period, of that person
and its subsidiaries for the period to the extent that depreciation,
amortization and other non-cash expenses were deducted in computing
Consolidated Net Income; plus
(5) our expenses and charges related to the recapitalization transactions
which are paid, taken or otherwise accounted for within 90 days of the
consummation of the recapitalization transactions, plus
(6) any non-capitalized transaction costs incurred in connection with
actual or proposed financings, acquisitions or divestitures, including,
but not limited to, financing and refinancing fees and costs incurred
in connection with the recapitalization transactions, plus
(7) any extraordinary and non-recurring charges for the period to the
extent that the charges were deducted in computing Consolidated Net
Income, plus
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(8) amounts paid under the Management Services Agreement to the extent
these amounts were deducted in computing such Consolidated Net Income.
Notwithstanding the preceding, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent, and in the same proportion,
that Net Income of the subsidiary was included in calculating Consolidated Net
Income of that person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the interest expense of that Person and its Restricted Subsidiaries for
that period, on a consolidated basis, determined under GAAP, including
amortization of original issue discount, non-cash interest payments,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net
payments, if any, under Hedging Obligations; provided that in no event
shall any amortization of deferred financing costs be included in
Consolidated Interest Expense; plus
(2) the consolidated capitalized interest of that Person and its Restricted
Subsidiaries for that period, whether paid or accrued.
Notwithstanding the preceding, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent, and in the same proportion,
that the net income of the Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of that Person and its Restricted Subsidiaries
for that period, on a consolidated basis, determined under GAAP; provided that
(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted
Subsidiary of the referent Person;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of that acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to us or one of our Restricted Subsidiaries
for purposes of the covenant described under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock" and shall be included
for purposes of the covenant described under the caption "-- Restricted
Payments" only to the extent of the amount of dividends or
distributions paid in cash to us or one of our Restricted Subsidiaries.
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"Continuing Directors" means, as of any date of determination, any member
of our board of directors who:
(1) was a member of the board of directors on the date of the indenture;
(2) was nominated for election or elected to the board of directors with
the approval of a majority of the Continuing Directors who were members
of the board at the time of the nomination or election; or
(3) was nominated by the Principals under the Stockholders Agreement.
"Credit Agent" means Fleet National Bank, in its capacity as Administrative
Agent for the lenders party to the senior bank facilities, or any successor of
Fleet National Bank or any person otherwise appointed.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the senior bank facilities; and
(2) any other senior debt permitted under the indenture, the principal
amount of which is $25.0 million or more and that has been designated
by us as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible or for which it is
exchangeable, or upon the happening of any event, matures or is mandatorily
redeemable, under a sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the exchange notes mature. Notwithstanding
the preceding sentence, any Capital Stock that would not qualify as Disqualified
Stock but for change of control or asset sale provisions shall not constitute
Disqualified Stock if the provisions are not more favorable to the holders of
the Capital Stock than the provisions described under "-- Change of Control" and
"-- Asset Sales."
"Domestic Restricted Subsidiary" means, with respect to us, any of our
Wholly Owned Subsidiaries that was formed under the laws of the United States of
America.
"Earn-out Obligation" means any contingent consideration based on future
operating performance of the acquired entity or assets payable following the
consummation of an acquisition based on criteria set forth in the documentation
governing or relating to the acquisition.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means an offering of our Equity Interests, other than
Disqualified Stock, that results in net proceeds to us of at least $25.0
million.
"Existing Indebtedness" means our Indebtedness and that of our
subsidiaries, other than indebtedness under the senior bank facilities, in
existence on the date of the indenture, until those amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the Consolidated Interest Expense of such Person for that period; plus
(2) any interest expense on Indebtedness of another Person that is
guaranteed by that Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of that Person or one of its Restricted
Subsidiaries, whether or not the guarantee or Lien is called upon; plus
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(3) the product of
(a) all dividend payments, whether or not in cash, on any series of
preferred stock of the Person or any of its Restricted Subsidiaries,
other than dividend payments on Equity Interests payable solely in
our Equity Interests, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of the Person, expressed as a decimal, in
each case, on a consolidated basis and under GAAP.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of that person for the period to
that Fixed Charges of that Person for that period. In the event that we or any
of our Restricted Subsidiaries incur, assume, guarantee or redeem any
indebtedness, other than revolving credit borrowings, or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date")
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to the incurrence, assumption, guarantee or redemption of indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by us or any of our Restricted
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference
period or subsequent to that reference period and on or prior to the
Calculation Date shall be calculated to include the Consolidated Cash
Flow of the acquired entities on a pro forma basis, to be calculated in
accordance with Article 11-02 of Regulation S-X, as in effect on the
Issue Date, after giving effect to cost savings resulting from employee
terminations, facilities consolidations and closings, standardization
of employee benefits and compensation policies, consolidation of
property, casualty and other insurance coverage and policies,
standardization of sales and distribution methods, reductions in taxes
other than income taxes and other cost savings reasonably expected to
be realized from such acquisition, shall be deemed to have occurred on
the first day of the four quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined under GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined under GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to the Fixed Charges will not be
obligations of the specified person or any of its Restricted
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any subsidiary of us that is not organized under
the laws of a state or territory of the United States or the District of
Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the indenture shall be made without
giving effect to depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting under Accounting Principles
Board Opinion Nos. 16 and 17.
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"Global Notes" means, individually and collectively, each of the Restricted
Global Notes and the Unrestricted Global Notes, issued under particular sections
of the indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
that person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect that person
against fluctuations in interest rates or currency exchange rates.
"Indebtedness" means, with respect to any specified person, any
indebtedness of that person, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit or reimbursement agreements in respect of letters of credit;
(3) bankers' acceptances;
(4) representing Capital Lease Obligations; or
(5) the balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any balance that
constitutes an accrued expense or trade payable,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared under GAAP. In addition, the term "Indebtedness"
includes all Indebtedness of others secured by a Lien on any asset of the
specified Person whether or not such Indebtedness is assumed by the specified
Person and, to the extent not otherwise included, the guarantee by such Person
of any Indebtedness of any other Person; provided that Indebtedness shall not
include
(1) our pledge of the Capital Stock of one of our Unrestricted Subsidiaries
to secure Non-Recourse Debt of that Unrestricted Subsidiary or
(2) any Earn-out Obligation.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of the Indebtedness, in the case of any indebtedness
that does not require current payments of interest; and
(2) the principal amount of the Indebtedness, together with any interest on
the indebtedness that is more than 30 days past due, in the case of any
other Indebtedness.
"Insolvency or Liquidation Proceedings" means:
(1) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding,
relative to us or to our creditors, as our creditors, or to our assets;
(2) any liquidation, dissolution, reorganization or winding up of us,
whether voluntary or involuntary, and involving insolvency or
bankruptcy; or
(3) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of us.
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"Investments" means, with respect to any Person, all investments by that
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared under GAAP. If we or any
of our Restricted Subsidiaries sell or otherwise dispose of any Equity Interests
of any of our direct or indirect Restricted Subsidiaries such that, after giving
effect to any such sale or disposition, that Person is no longer our Restricted
Subsidiary, we shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity Interests
of the Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Restricted Payments."
"Issue Date" means the date on which the initial $100.0 million in
aggregate principal amount of the notes was originally issued under the
indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of that asset,
whether or not filed, recorded or otherwise perfected under applicable law
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"Management Services Agreement" means the Management Services Agreement
dated on the date of the indenture, between us and each of the Principals.
"Net Income" means, with respect to any Person, the net income (loss) of
that Person, determined under GAAP and before any reduction in respect of
preferred stock dividends, excluding, however:
(1) any gain, but not loss, together with any related provision for taxes
on that gain, but not loss, realized in connection with:
(a) any Asset Sale; or
(b) the disposition of any securities by that Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of that Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain, but not loss, together with any
related provision for taxes on the extraordinary or nonrecurring gain,
but not loss.
"Net Proceeds" means the aggregate cash proceeds received by us or any of
our Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of the direct costs relating to
the Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result of the Asset Sale, taxes paid or payable as a result of the Asset Sale,
after taking into account any available tax credits or deductions and any tax
sharing arrangements, the amounts required to be applied to the payment of
Indebtedness, other than Indebtedness incurred under the senior bank facilities,
secured by a Lien on the asset or assets that were the subject of the Asset
Sale, and any reserve for adjustment in respect of the sale price of the asset
or assets established under GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither we nor any of our Restricted Subsidiaries:
(a) provide credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness,
(b) are directly or indirectly liable as a guarantor or otherwise, or
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(c) constitute the lender;
(2) no default with respect to which, including any rights that the holders
of those rights may have to take enforcement action against an
Unrestricted Subsidiary, would permit upon notice, lapse of time or
both any holder of any of our other indebtedness, other than the
exchange notes, of or that of any of our Restricted Subsidiaries to
declare a default on the other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock, other than stock of an Unrestricted
Subsidiary pledged by us to secure debt of the Unrestricted Subsidiary,
or assets of us or those of any of our Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any indebtedness.
"Permitted Business" means any business in which we and our Restricted
Subsidiaries are engaged on the date of the indenture or any business reasonably
related, incidental or ancillary thereto.
"Permitted Investments" means:
(1) any Investment in us or in one of our Restricted Subsidiaries;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any of our Restricted Subsidiaries in a person,
if as a result of the Investment:
(a) such Person becomes our Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, us or one of our Restricted Subsidiaries;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made under and in compliance
with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of our
Equity Interests, other than Disqualified Stock; and
(6) other Investments made after the date of the indenture in any Person
having an aggregate fair market value, measured on the date each
Investment was made and without giving effect to subsequent changes in
value, when taken together with all other Investments made under this
clause (6) since the date of the indenture, does not to exceed $12.5
million.
"Permitted Liens" means:
(1) Liens securing senior debt, including, without limitation,
Indebtedness under the senior bank facilities, permitted by the terms
of the indenture to be incurred or other Indebtedness allowed to be
incurred under clause (1) of the second paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock";
(2) Liens in favor of us or any Restricted Subsidiary;
(3) Liens on property of a person existing at the time the person is
merged into or consolidated with us or any of our Restricted
Subsidiaries, provided that those Liens were not incurred in
contemplation of the merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
us or any of our Restricted Subsidiaries;
(4) Liens on property existing at the time of acquisition of the property
by us or any of our Restricted Subsidiaries, provided the Liens were
not incurred in contemplation of the acquisition;
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(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens existing on the date of the indenture;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made for the Lien;
(8) Liens to secure Indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock";
(9) Liens securing Permitted Refinancing Indebtedness where the Liens
securing the indebtedness being refinanced were permitted under the
indenture;
(10) Liens incurred in the ordinary course of business of us or any of our
Restricted Subsidiaries with respect to obligations that do not exceed
$7.5 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit, other than trade credit in the
ordinary course of business, and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use of the property in the
operation of business by us or the Restricted Subsidiary;
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
(12) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects incurred or imposed, as
applicable, in the ordinary course of business and consistent with
industry practices;
(13) any interest or title of a lessor under any Capital Lease Obligation;
(14) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to letters of credit and products and proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising from our
statutory, regulatory, contractual or warranty requirements or those
of any of our Restricted Subsidiaries, including rights of offset and
set-off;
(16) Liens securing Hedging Obligations which Hedging Obligations relate to
indebtedness that is otherwise permitted under the indenture;
(17) leases or subleases granted to others that do not materially interfere
with our ordinary course of business and that of any of our Restricted
Subsidiaries;
(18) Liens arising from filing Uniform Commercial Code financing statements
regarding leases.
"Permitted Refinancing Indebtedness" means any of our Indebtedness or that
of any of our Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund our other Indebtedness or that of any of our Restricted Subsidiaries;
provided that:
(1) the principal amount or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of or accreted value, if applicable, plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded plus the amount of reasonable expenses incurred in connection
therewith except, in the case of the senior
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bank facilities, the principal amount of the Permitted Refinancing
Indebtedness does not exceed the greater of
(a) the principal amount of Indebtedness permitted, whether or not
borrowed, under clause (1) of the covenant described above under
the caption "Incurrence of Indebtedness and Issuance of Preferred
Stock" or
(b) the amount actually borrowed under the senior bank facilities.
(2) such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
the Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the holders of
notes as those contained in the documentation governing the
indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means Cornerstone Equity Investors, LLC, Madison Dearborn
Partners, Inc. and Beecken Petty & Company LLC and their respective affiliates.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder or partner, 80%, or more, owned subsidiary,
or spouse or immediate family member, in the case of an individual, of
the Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a 51% or
more controlling interest of which consist of the Principal and/or the
other Persons referred to in the immediately preceding clause (1).
"Reorganization Securities" means securities distributed to holders of the
notes in an Insolvency or Liquidation Proceeding under a plan of reorganization
consented to by each class of the senior debt, but only if all of the terms and
conditions of the securities including, without limitation, term, tenor,
interest, amortization, subordination, standstills, covenants and defaults are
at least as favorable (and provide the same relative benefits) to the holders of
senior debt and to the holders of any security distributed in such Insolvency or
Liquidation Proceeding on account of any such senior debt as the terms and
conditions of the notes and the indenture are, and provide to the holders of
senior debt.
"Representative" means the trustee, agent or representative for any senior
debt.
"Restricted Investment" means an investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act of 1933.
"Senior Bank Facilities" means the senior bank facilities dated on the date
of the indenture between us and Fleet National Bank and NationsBanc Montgomery
Securities LLC, as co-arrangers, NationsBanc Montgomery Securities LLC, as
syndication agent and Fleet National Bank, as administrative agent, providing
for revolving credit borrowings and term loans, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection with the senior bank facilities, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time including
increases in principal amount.
"Senior Debt" means:
(1) all Indebtedness outstanding under the senior bank facilities,
including any guarantees thereof and all Hedging Obligations with
respect thereto;
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(2) any other Indebtedness permitted to be incurred by us under the terms
of the indenture, unless the instrument under which the Indebtedness is
incurred expressly provides that it is on a parity with or subordinated
in right of payment to the notes; and
(3) all Obligations with respect to the preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
us;
(2) any of our indebtedness to any of our subsidiaries or other Affiliates;
(3) any trade payables;
(4) any Earn-out Obligations; or
(5) any indebtedness that is incurred in violation of the indenture.
"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act of 1933, as Regulation S-X is in effect on the date of
the indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any interest or principal prior to the date
originally scheduled for the payment thereof.
"subsidiary" means, with respect to any person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled,
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
the other subsidiaries of that person or a combination of the other
subsidiaries; and
(2) any partnership or limited liability company
(a) the sole general partner or the managing general partner or managing
member of which is that person or a subsidiary of that person or
(b) the only general partners of which are that person or of one or more
subsidiaries of that person or any combination of those persons.
"subsidiary guarantors" means each of our subsidiaries that executes a
subsidiary guarantee under the indenture, and their respective successors and
assigns.
"Unrestricted Subsidiary" means any subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary under a board resolution, but
only to the extent that the subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with us or any of our Restricted Subsidiaries unless the terms of any
agreement, contract, arrangement or understanding are no less favorable
to us or the Restricted Subsidiary than those that might be obtained at
the time from Persons who are not our Affiliates;
(3) is a person with respect to which neither we nor any of our Restricted
Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
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(b) to maintain or preserve the person's financial condition or to
cause such person to achieve any specified levels of operating
results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of us or any of our Restricted
Subsidiaries.
Any designation of our subsidiaries as an Unrestricted Subsidiary shall be
evidenced to the trustee by filing with the trustee a certified copy of the
board resolution giving effect to that designation and an officers' certificate
certifying that the designation complied with the preceding conditions and was
permitted by the covenant described above under the caption
"-- Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of the subsidiary shall be deemed
to be incurred by our Restricted Subsidiary as of the date and, if the
Indebtedness is not permitted to be incurred as of the date under the covenant
described under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock," we shall be in default of that covenant. Our board of
directors may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that the designation shall be deemed to be an
incurrence of Indebtedness by one of our Restricted Subsidiaries of any
outstanding Indebtedness of the Unrestricted Subsidiary and the designation
shall be permitted only if:
(1) the Indebtedness is permitted under the covenant described under the
caption "-- Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock," and
(2) no Default or Event of Default would be in existence following the
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of the
person that is at the time entitled to vote in the election of the board of
directors of the person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect the principal, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between the date and the making of the payment, by
(2) the then outstanding principal amount of the Indebtedness.
"Wholly Owned Subsidiary" of any Person means a subsidiary of the Person,
all of the outstanding Capital Stock or other ownership interests of which,
other than directors' qualifying shares, shall at the time be owned by the
Person and/or by one or more Wholly Owned Subsidiaries of the Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the old notes on March 5, 1999 to Donaldson, Lufkin &
Jenrette. Donaldson, Lufkin & Jenrette subsequently resold the old notes to
qualified institutional buyers in reliance on Rule 144A under the Securities Act
of 1933 and to a limited number of institutional accredited investors that
agreed to comply with transfer restrictions and other conditions. As a condition
to the purchase agreement, we entered into a registration rights agreement with
Donaldson, Lufkin & Jenrette pursuant to which we have agreed to:
(1) file a registration statement within 90 days after the date on which
the old notes were issued with respect to registered offers to exchange
the old notes for the exchange notes; and
(2) use our best efforts to cause the exchange offer registration statement
to be declared effective under the Securities Act of 1933 within 180
days after the date on which the old notes were originally issued.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding old notes accepted in
the exchange offer. Holders may tender some or all of their old notes pursuant
to the exchange offer. However, old notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the old notes except that:
(1) the exchange notes have been registered under the Securities Act of
1933 and hence will not bear legends restricting their transfer
thereof; and
(2) the holders of the exchange notes will not be entitled to rights under
the registration rights agreement. These rights include the provisions
for an increase in the interest rate on the old notes in some
circumstances relating to the timing of the exchange offer. All of
these rights will terminate when the exchange offer is terminated. The
exchange notes will evidence the same debt as the old notes. Holders of
exchange notes will be entitled to the benefits of the indenture.
As of the date of this prospectus, $100.0 million aggregate principal
amount of old notes was outstanding. We have fixed the close of business on
, 1999 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
We shall be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice to the exchange agent. The exchange
agent will act as agent for the tendering holders for the purpose of receiving
the exchange notes from the issuers.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of other events set forth in this prospectus or
otherwise, we will return the certificates for any unaccepted old notes, at our
expense, to the tendering holder as promptly as practicable after the expiration
date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the
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exchange of notes. We will pay all charges and expenses, other than transfer
taxes in some circumstances, in connection with the exchange offer as described
under the subheading "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999, unless we extend the exchange offer. In that case, the term
"expiration date" shall mean the latest date and time to which the exchange
offer is extended. Notwithstanding the foregoing, we will not extend the
expiration date beyond , 1999.
In order to extend the exchange offer, prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date,
we will:
(1) notify the exchange agent of any extension by oral or written notice
and
(2) mail to the registered holders an announcement of any extension.
We reserve the right, in our sole discretion,
(1) if any of the conditions set forth below under the heading "Conditions"
shall not have been satisfied,
(A) to delay accepting any old notes,
(B) to extend the exchange offer or
(C) to terminate the exchange offer, or
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice of delay to the registered
holders. We will give oral or written notice of any delay, extension or
termination to the exchange agent.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of old notes that are accepted for exchange will receive, in cash, accrued
interest on the exchange notes to, but not including, the date of issuance of
the exchange notes. We will make the first interest payment on the exchange
notes on September 15, 1999. Interest on the old notes accepted for exchange
will cease to accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each March 15
and September 15, commencing on September 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of old notes may tender old notes in the exchange offer. To
tender in the exchange offer, a holder must
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal,
- have the signatures guaranteed if required by the letter of
transmittal, and
- mail or otherwise deliver the letter of transmittal or such facsimile,
together with the old notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the
expiration date.
To tender old notes effectively, the holder must complete the letter of
transmittal and other required documents and the exchange agent must receive all
the documents prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of the old notes may be made by book-entry transfer in accordance with
the procedures described below. The exchange agent must receive confirmation of
book-entry transfer prior to the expiration date.
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The tender by a holder and the acceptance of the tender by us will
constitute agreement between the holder and us under the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should promptly instruct the registered holder to tender on the
beneficial owner's behalf. See "Instruction to Registered Holder and/or Book-
Entry Transfer Facility Participant from Owner" included with the letter of
transmittal.
An institution that is a member firm of the Medallion system must guarantee
signatures on a letter of transmittal or a notice of withdrawal unless the old
notes are tendered:
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
(2) for the account of member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed in that letter of transmittal, the old
notes must be endorsed or accompanied by a properly completed bond power, signed
by the registered holder as the registered holder's name appears on the old
notes. An institution that is a member firm of the Medallion System must
guarantee the signature.
Trustees, executors, administrators, guardians, attorneys-in-fact, offices
of corporations or others acting in a fiduciary or representative capacity
should indicate their capacities when signing the letter of transmittal or any
old notes or bond powers. Evidence satisfactory to us of their authority to so
act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the exchange
notes at the book-entry transfer facility, The Depository Trust Company, for the
purpose of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in The Depository
Trust Company's system may make book-entry delivery of old notes. To do so, the
financial institution should cause the book-entry transfer facility to transfer
the old notes into the exchange agent's account with respect to the old notes
following the book-entry transfer facility's procedures for transfer. Delivery
of the old notes may be effected through book-entry transfer into the exchange
agent's account at the book-entry transfer facility. However, the holder must
transmit and the exchange agent must receive or confirm an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents on or prior to the expiration date,
or, if the guaranteed delivery procedures described below are complied with,
within the time period provided under such procedures. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the exchange
agent.
The Depositary and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company Automated Tender
Offer Program. Accordingly, The Depository Trust Company participants may
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer old notes to the depositary in accordance
with The Depository Trust Company's Automated Tender Offer Program procedures
for transfer. The Depository Trust Company will then send an "agent's message"
to the Depositary.
The term "agent's message" means a message transmitted by The Depository
Trust Company, received by the Depositary and forming part of the confirmation
of a book-entry transfer, which states that
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(1) The Depository Trust Company has received an express acknowledgment
from the participant in The Depository Trust Company tendering old
notes subject of the book-entry confirmation,
(2) the participant has received and agrees to be bound by the terms of the
letter of transmittal and
(3) we may enforce such agreement against such participant.
In the case of an agent's message relating to guaranteed delivery, the term
means a message transmitted by The Depository Trust Company and received by the
Depositary, which states that The Depository Trust Company has received an
express acknowledgment from the participant in The Depository Trust Company
tendering old notes that such participant has received and agrees to be bound by
the notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to securities transferred through the Automated Tender Offer
Program, a The Depository Trust Company participant using Automated Tender Offer
Program must also properly complete and duly execute the applicable letter of
transmittal and deliver it to the Depositary.
By the authority granted by The Depository Trust Company, any The
Depository Trust Company participant which has old notes credited to its The
Depository Trust Company account at any time (and held of record by The
Depository Trust Company's nominee) may directly provide a tender as though it
were the registered holder by completing, executing and delivering the
applicable letter of transmittal to the Depositary. DELIVERY OF DOCUMENTS TO THE
DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the
- validity,
- form,
- eligibility (including time of receipt),
- acceptance of tendered old notes and
- withdrawal of tendered old notes
will be determined by us in our sole discretion. Our determination will be final
and binding. We reserve the absolute right to reject any and all old notes not
properly tendered. We reserve the absolute right to reject any old notes which
would be unlawful if accepted, in the opinion of our counsel. We also reserve
the right in our sole discretion to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. We intend to notify holders of defects
or irregularities with respect to tenders of old notes. However, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of old notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any old
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and:
(1) whose old notes are not immediately available;
(2) who cannot deliver their old notes, the letter of transmittal or any
other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date
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may effect a tender if:
(1) they tender through an institution that is a member firm of the
Medallion system;
(2) prior to the expiration date, the exchange agent receives from an
institution that is a member firm of the Medallion system a properly
completed and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number(s) of such old notes and the
principal amount of old notes tendered, stating that the tender is
being made and guaranteeing that, within five New York Stock Exchange
trading days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the certificate(s) representing the
old notes (or a confirmation of book-entry transfer of such old notes
into the exchange agent's account at the book-entry transfer facility),
and any other documents required by the letter of transmittal will be
deposited by the firm with the exchange agent; and
(3) the exchange agent receives
(A) such properly completed and executed letter of transmittal (of
facsimile thereof),
(B) the certificate(s) representing all tendered old notes in proper
form for transfer (or a confirmation of book-entry transfer of such
old notes into the exchange agent's account at the book-entry
transfer facility), and
(C) all other documents required by the letter of transmittal
upon five New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their old notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders may withdraw
tenders of old notes at any time prior to 5:00 p.m., New York City time, on the
expiration date. To withdraw a tender of old notes in the exchange offer, the
exchange agent must receive a telegram, telex, letter or facsimile transmission
notice of withdrawal at its address set forth in this prospectus prior to 5:00
p.m., New York City time, on the expiration date. Any such notice of withdrawal
must:
(1) specify the name of the person having deposited the old notes to be
withdrawn;
(2) identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of such old notes, or, in the case of
old notes transferred by book-entry transfer, the name and number of
the account at the book-entry transfer facility to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to
the old notes register the transfer of old notes into the name of the
person withdrawing the tender; and
(4) specify the name in which any old notes are to be registered, if
different from that of the person who deposited the old notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. We will not deem old notes so withdrawn to have been
validly tendered for purposes of the exchange offer. We will not issue exchange
notes for withdrawn old notes unless you validly retender the withdrawn old
notes. We will return any old notes which have been tendered but which are not
accepted for exchange to the holder of the old notes at our cost as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn old notes by following one of the
procedures described above under the heading "Procedures for Tendering Old
Notes" at any time prior to the expiration date.
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CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange exchange notes for, any old notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of the old notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or any development has occurred in any
existing action or proceeding which may be harmful to us or any of our
subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the staff of
the Securities and Exchange Commission is proposed, adopted or enacted,
which, in our sole judgment, might impair our ability to proceed with
the exchange offer or impair the contemplated benefits of the exchange
offer to us; or
(3) any governmental approval has not been obtained, which we believe, in
our sole discretion, is necessary for the consummation of the exchange
offer as outlined in this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
(1) refuse to accept any old notes and return all tendered old notes to the
tendering holders;
(2) extend the exchange offer and retain all old notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of holders to withdraw their old notes; or
(3) waive such unsatisfied conditions of the exchange offer and accept all
properly tendered old notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for the exchange offer. You should direct all
- executed letters of transmittal,
- questions,
- requests for assistance,
- requests for additional copies of this prospectus or of the letter of
transmittal and
- requests for Notices of Guaranteed Delivery
to the exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
By Overnight Courier and By Hand: By Registered or
by Hand after 4:30 pm United States Trust Certified Mail:
on the Expiration Date: Company of New York United States Trust
United States Trust 111 Broadway, Lower Level Company of New York
Company of New York New York, New York 10006 P.O. Box 844
770 Broadway, 13th Floor Attn: Corporate Trust Services Cooper Station
New York, New York 10003 Via Facsimile: New York, New York 10276-0844
Attn: Corporate (212) 780-0592 Attn: Corporate
Trust Services Attn: Corporate Trust Services Trust Services
Confirm by Telephone:
(800) 548-6565
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
118
<PAGE> 128
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitation by telegraph, telecopy,
telephone or in person.
We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services. We will reimburse the exchange
agent for its reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the old
notes. The carrying value is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will recognize no gain or loss for
accounting purposes. The expenses of the exchange offer will be expensed over
the term of the exchange notes.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register exchange notes in the name of, or request that old notes
not tendered or not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax on that transfer.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES
The old notes that are not exchanged for exchange notes under the exchange
offer will remain restricted securities. Accordingly, those old notes may be
resold only:
(1) to us (upon redemption of the old notes or otherwise);
(2) so long as the old notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States who is a qualified institutional
buyer according to Rule 144A under the Securities Act of 1933 or
pursuant to another exemption from the registration requirements of the
Securities Act of 1933, based upon an opinion of counsel reasonably
acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act of 1933; or
(4) under an effective registration statement under the Securities Act of
1933
in each case in accordance with any applicable securities laws of any state of
the United States.
SHELF REGISTRATION STATEMENT
If either of the following occur:
(1) the exchange offer is not permitted by applicable law or policy of the
Securities and Exchange Commission; or
(2) a holder of old notes notifies us that:
(A) the holder was prohibited by law or Securities Exchange Commission
policy from participating in the exchange offer,
119
<PAGE> 129
(B) the holder cannot resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained herein is not appropriate or available for such
resales by the holder, or
(C) the holder is a broker-dealer and holds old notes acquired directly
from us or any of our affiliates
then, we will take the following actions:
(1) we will file a shelf registration statement under Rule 415 of the
Securities Act of 1933, relating to the notes, and
(2) use our best efforts to cause such shelf registration statement to
become effective on or prior to the date that is 360 days after March
12, 1999.
RESALES OF THE EXCHANGE NOTES
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933. The holder, other than
a person that is our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933, who receives exchange notes in exchange for old notes in
the ordinary course of business and who is not participating, need not intend to
participate or have an arrangement or understanding with any person to
participate in the distribution of the exchange notes. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing or
participating in a distribution of the exchange notes, the holder cannot rely on
the position of the staff of the Securities and Exchange Commission enunciated
in the no-action letters or any similar interpretive letters. A holder who
acquires exchange notes in order to distribute them must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for notes as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
120
<PAGE> 130
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. The Internal Revenue Service may take a contrary view, and
no ruling from the Internal Revenue Service has been or will be sought.
Legislative judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the following statements and conditions.
Any changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders. Some holders, including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States,
may be subject to special rules not discussed below. We recommend that each
holder consult his own tax advisor as to the particular tax consequences of
exchanging such holder's old notes for exchange notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, counsel to Team Health, has advised us that in its
opinion, the exchange of the old notes for exchange notes pursuant to the
exchange offer will not be treated as an "exchange" for federal income tax
purposes because the exchange notes will not be considered to differ materially
in kind or extent from the old notes. Rather, the exchange notes received by a
holder will be treated as a continuation of the old notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging old notes for exchange notes pursuant to the exchange offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act of 1933 in connection
with any resale of exchange notes.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for old notes if the old notes were acquired as a result of
market-making activities or other trading activities. We and our subsidiary
guarantors have agreed to make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1999, all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
Neither we nor our subsidiary guarantors will receive any proceeds from any
sales of the exchange notes by broker-dealers. Exchange notes received by
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange notes or a combination
of such methods of resale,
- at market prices prevailing at the time of resale,
- at prices related to such prevailing market prices or
- at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers. Brokers or dealers may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such exchange notes. Any broker-dealer that resells the exchange notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such exchange notes may
be deemed to be an "underwriter" within the meaning of the Securities Act of
1933 and any profit on any such resale of exchange notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act of 1933. The letter of transmittal states
that by acknowledging that it will deliver
121
<PAGE> 131
and by delivering a prospectus meeting the requirements of the Securities Act of
1933, a broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act of 1933.
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering to the purchasers of the exchange
notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act of 1933. The holder, other than a person that is an "affiliate"
of Team Health within the meaning of Rule 405 under the Securities Act of 1933,
who receives exchange notes in exchange for old notes in the ordinary course of
business and who is not participating, need not intend to participate or have an
arrangement or understanding with person to participate in the distribution of
the exchange notes.
However, if any holder acquires exchange notes in the exchange offer for
the purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in such no-action letters or any similar
interpretive letters. The holder must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in connection
with any resale transaction. A secondary resale transaction should be covered by
an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K under
the Securities Act of 1933, unless an exemption from registration is otherwise
available.
Further, each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where the old notes were acquired by such
participating broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of any exchange notes. We and each of our subsidiary
guarantors have agreed, for a period of not less than one year from the
consummation of the exchange offer, to make this prospectus available to any
broker-dealer for use in connection with any such resale.
For a period of not less than one year after the expiration date we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal. We and each of our guarantor subsidiaries have
jointly and severally agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old notes, other
than commissions or concessions of any brokers or dealers. We will indemnify the
holders of the old notes against liabilities under the Securities Act of 1933,
including any broker-dealers.
LEGAL MATTERS
Kirkland & Ellis, New York, New York will issue an opinion for us and the
guarantor subsidiaries with respect to the issuance of the exchange notes
offered hereby, including
(1) our existence and good standing under our state of incorporation,
(2) our authorization of the sale and issuance of the exchange notes and
(3) the enforceability of the exchange notes.
EXPERTS
The consolidated and combined financial statements of Team Health, Inc. at
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
122
<PAGE> 132
AVAILABLE INFORMATION
We and our subsidiary guarantors have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4, the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto, pursuant to the Securities Act of 1933, and the
rules and regulations promulgated thereunder, covering the exchange notes being
offered. This prospectus does not contain all the information set forth in the
exchange offer registration statement. For further information with respect to
Team Health, the subsidiary guarantors and the exchange offer, reference is made
to the exchange offer registration statement. Statements made in this prospectus
as to the contents of any contract, agreement or other document referred to are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the exchange offer registration statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The exchange offer registration statement, including the exhibits thereto,
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Securities and
Exchange Commission at Seven World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Securities and Exchange
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of such web site is:
http://www.sec.gov.
As a result of the filing of the exchange offer registration statement, we
will become subject to the informational requirements of the Securities Exchange
Act of 1934, and in accordance therewith will be required to file periodic
reports and other information with the Securities and Exchange Commission. Our
obligation to file periodic reports and other information with the Securities
and Exchange Commission will be suspended if the exchange notes are held of
record by fewer than 300 holders as of the beginning of our fiscal year other
than the fiscal year in which the exchange offer registration statement is
declared effective.
We will nevertheless be required to continue to file reports with the
Securities and Exchange Commission if the exchange notes are listed on a
national securities exchange. In the event we cease to be subject to the
informational requirements of the Securities Exchange Act of 1934, we will be
required under the indenture to continue to file with the Securities and
Exchange Commission the annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, which would be required pursuant to the informational requirements of the
Securities Exchange Act of 1934.
Under the indenture, we will furnish the holders of exchange notes with
annual, quarterly and other reports after we files such reports with the
Securities and Exchange Commission. Annual reports delivered to the trustee and
the holders of exchange notes will contain financial information that has been
examined and reported upon, with an opinion expressed by an independent public
accountant. We will also furnish such other reports as may be required by law.
123
<PAGE> 133
TEAM HEALTH, INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Statement of Income for the
Year Ended December 31, 1998.............................. P-3
Unaudited Pro Forma Condensed Statement of Income for the
Three Months Ended March 31, 1999......................... P-4
Notes to Unaudited Pro Forma Condensed Statements of
Income.................................................... P-5
</TABLE>
P-1
<PAGE> 134
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company has
been prepared to give effect to the following transactions (together, the
"Transactions"):
(1) the Recapitalization;
(2) the Offering,
(3) the contribution of the capital stock of certain subsidiaries to the
Company by MedPartners;
(4) $150.0 million of borrowings by the Company under the Term Loan portion
of a Senior Credit Facilities;
(5) a $99.7 million cash equity investment in the Company by the Equity
Sponsors;
(6) a Management Contribution of $8.5 million;
(7) equity of Physician Services held by MedPartners having a fair market
value of $6.8 million;
(8) $2.5 million in the assumption of existing debt and
(9) the assumption of certain contingent earnout payments which the Company
believes have a maximum value of $19.8 million.
For purposes of the Unaudited Pro Forma Financial Information, the Equity
Investment is necessary to determine the total imputed value of the Company for
purposes of the calculation of deferred tax assets. The unaudited pro forma
adjustments presented are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma condensed statements of income of the Company for
the year ended December 31, 1998 and the three months ended March 31, 1999 give
effect to the Transactions as if they had occurred at the beginning of the
respective periods.
The Recapitalization has been accounted for as a leveraged
recapitalization, which will have no impact on the historical basis of the
Company's assets and liabilities. The unaudited pro forma financial information
should be read in conjunction with "Use of Proceeds," "Selected Historical
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Financial Statements of the Company and
notes thereto all included elsewhere in this Offering Memorandum. The Unaudited
Pro Forma Financial Information and related notes are provided for informational
purposes only and do not purport to be indicative of the Company's financial
condition or results of operations that would have actually been obtained had
the Transactions been consummated as of the assumed date and for the periods
presented, nor are they indicative of the Company's financial condition or
results of operations of any future period.
The unaudited pro forma adjustments to operations exclude approximately
$7.5 million of estimated transaction fees and expenses incurred in connection
with the Transactions. These fees and expenses are nonrecurring and were
recorded in the Company's statement of income during the period in which the
Transactions are consummated. There were $8.4 million of estimated financing
expenses capitalized by the Company in connection with the Transactions.
P-2
<PAGE> 135
TEAM HEALTH, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net revenue................................................. $547,785 $ -- $547,785
Professional expenses....................................... 430,362 -- 430,362
-------- -------- --------
Gross profit................................................ 117,423 -- 117,423
General and administrative.................................. 58,362 5,948(a) 64,810
500(b)
Depreciation and amortization............................... 9,740 -- 9,740
MedPartners' management fees................................ 2,941 (2,941)(c) --
Interest expense, net....................................... 5,301 20,473(d) 25,774
Goodwill impairment charge.................................. 2,992 -- 2,992
Other expenses.............................................. 871 (871)(e) --
Cumulative effect of change in accounting principle, net.... 912 -- 912
-------- -------- --------
Income before income taxes.................................. 36,304 (23,109) 13,195
Income tax expense.......................................... 15,778 (8,781)(f) 6,997
-------- -------- --------
Net income.................................................. $ 20,526 $(14,328) $ 6,198
======== ======== ========
OTHER FINANCIAL DATA
EBITDA(g)............................................................................. $ 54,268
Net cash provided by (used in):
Operating activities................................................................ 30,726
Investing activities................................................................ (22,864)
Financing activities................................................................ (27,643)
Cash interest expense................................................................. 24,932
</TABLE>
P-3
<PAGE> 136
TEAM HEALTH, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
<S> <C> <C> <C>
Net Revenue............................................... $137,877 $ -- $137,877
Professional expenses..................................... 108,388 -- 108,388
-------- -------- --------
Gross profit.............................................. 29,489 -- 29,489
General and administrative................................ 15,744 1,239(a) 16,983
Depreciation and amortization............................. 2,351 -- 2,351
Management fee............................................ 25 80(b) 105
Interest income........................................... (59) -- (59)
Interest expense.......................................... 1,631 4,814(d) 6,445
Recapitalization expense.................................. 21,513 -- 21,513
Other expenses............................................ 105 (105)(c) --
-------- -------- --------
(Loss) before income taxes................................ (11,821) (6,028) (17,849)
Income tax (benefit)...................................... (4,361) (2,291)(f) (6,652)
-------- -------- --------
Net (loss)................................................ $ (7,460) $ (3,737) $(11,197)
======== ======== ========
OTHER FINANCIAL DATA
EBITDA(g)............................................................................ $ 12,506
Net cash provided by (used in):
Operating Activities............................................................... 5,123
Investing Activities............................................................... (1,799)
Financing Activities............................................................... 10,324
Cash Interest Expense................................................................ 6,234
</TABLE>
P-4
<PAGE> 137
TEAM HEALTH, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
(a) To record management's estimate of incremental stand-alone costs to replace
services formerly provided by MedPartners:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
<S> <C> <C>
Accounting and finance........................ $ 1,550 $ 323
Additional insurance costs.................... 1,234 257
Risk management............................... 900 187
Information technology........................ 802 167
Intercompany charges.......................... 764 159
Legal......................................... 300 62
Lobbying...................................... 200 42
Human resources............................... 77 16
Other......................................... 121 26
------- ------
Pro forma adjustment..................... $ 5,948 $1,239
======= ======
</TABLE>
(b) To record the management fee payable to the equity sponsors by the Company.
(c) To remove management fee for services formerly provided by MedPartners. The
incremental stand-alone costs to replace these services are described in
note (a) above.
(d) To record the increase in interest expense as a result of the
Recapitalization as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
<S> <C> <C>
Senior Subordinated Notes(1).................. $12,000 $ 3,000
Term Loans:
Term A Loan ($60,000 at 8.25% per
annum)(2)................................ 4,950 1,238
Term B Loan ($90,000 at 8.75% per
annum)(2)................................ 7,875 1,969
Amortization of deferred financing costs...... 842 211
Interest on debt assumed...................... 107 27
------- -------
Total pro forma interest expense.............. 25,774 6,445
Less historical interest expense.............. (5,301) (1,631)
------- -------
Pro forma adjustment..................... $20,473 $ 4,814
======= =======
</TABLE>
- ---------------
(1) Interest expense was calculated at an interest rate of 12.00%.
(2) Represents 3 month LIBOR @ 5.00% plus 3.25% and 3.75% for Term A and Term B
Loans, respectively. A one-eighth percent change in the rate of interest
would result in a change of interest expense of $5,025 and $7,988 for Term A
and Term B Loans, respectively.
P-5
<PAGE> 138
TEAM HEALTH, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
STATEMENTS OF INCOME -- (CONTINUED)
(IN THOUSANDS)
(e) To remove other expenses of $871 for MedPartners' internal expense
allocations.
(f) To record the difference between the historical tax expense and unaudited
pro forma expense at the statutory rate of 38% as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
<S> <C> <C>
Pro forma pretax income (loss).................... $ 13,195 $(17,849)
Adjustments to pretax income...................... 5,218 344
-------- --------
Taxable income (loss)............................. 18,413 (17,505)
Statutory rate.................................... 38% 38%
-------- --------
Pro forma tax expense (benefit)................... 6,997 (6,652)
Historical tax (expense) benefit.................. (15,778) 4,361
-------- --------
Pro forma adjustment.............................. $ (8,781) $ (2,291)
======== ========
</TABLE>
(g) EBITDA represents income before income taxes plus depreciation and
amortization, interest expense and what we consider non-operational changes
such as goodwill impairment, MedPartners' management fees, Novation Program
expense, merger expense, other expenses and recapitalization expense. Pro
Forma EBITDA represents EBITDA less estimated stand-alone costs plus the
effects of certain non-recurring transactions in 1998. Pro forma EBITDA has
not been reduced by a management fee payable pursuant to the Management
Services Agreement, which is contractually subordinated to all obligations
under the Notes and the Senior Credit Facilities.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
<S> <C> <C>
EBITDA............................................ $59,061 $13,745
Estimated stand-alone costs....................... (5,948) (1,239)
Non-recurring transactions........................ 1,155 --
------- -------
Pro forma EBITDA............................. $54,268 $12,506
======= =======
</TABLE>
P-6
<PAGE> 139
TEAM HEALTH, INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated and Combined Balance Sheets.................... F-3
Consolidated and Combined Statements of Income.............. F-4
Consolidated and Combined Statements of Net Invested
Capital................................................... F-5
Consolidated and Combined Statements of Cash Flows.......... F-6
Notes to Consolidated and Combined Financial Statements..... F-7
</TABLE>
F-1
<PAGE> 140
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MedPartners, Inc.
3000 Galleria Tower
Birmingham, Alabama 35244
We have audited the accompanying consolidated and combined balance sheets
of Team Health, Inc. (an operating unit of MedPartners, Inc.) as of December 31,
1997 and 1998, and the related consolidated and combined statements of income,
net invested capital and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated and combined financial position of
Team Health, Inc. at December 31, 1998 and 1997, and the consolidated and
combined results of operations and cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 17, the Company changed its method of accounting for
the costs of start-up activities.
Birmingham, Alabama Ernst & Young LLP
January 29, 1999
F-2
<PAGE> 141
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,468 $ 3,894
Marketable securities..................................... 242 --
Accounts receivable, net.................................. 130,777 148,447
Prepaid expenses.......................................... 4,580 904
Other receivables......................................... 9,219 4,106
Other current assets...................................... 557 269
-------- --------
Total current assets........................................ 150,843 157,620
Property and equipment, net................................. 14,863 14,886
Intangibles, net............................................ 31,698 56,457
Other....................................................... 2,130 993
-------- --------
Total assets................................................ $199,534 $229,956
======== ========
LIABILITIES AND NET INVESTED CAPITAL
Current liabilities:
Accounts payable.......................................... $ 7,889 $ 6,495
Accrued compensation and physician payable................ 36,234 42,043
Other accrued liabilities................................. 9,568 9,449
Current portion of long-term debt......................... 5,165 164
-------- --------
Total current liabilities................................... 58,856 58,151
Long-term debt, less current portion........................ 2,655 2,380
Professional liability insurance reserves................... 38,280 49,697
Deferred payment obligations................................ 1,850 19,775
Net invested capital........................................ 97,893 99,953
-------- --------
Total liabilities and net invested capital.................. $199,534 $229,956
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 142
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenue.............................................. $463,380 $511,236 $547,785
Professional expenses.................................... 353,593 398,738 430,362
-------- -------- --------
Gross profit............................................. 109,787 112,498 117,423
General and administrative............................... 62,441 61,642 58,362
Depreciation and amortization............................ 5,628 6,455 9,740
Novation program expense allocation...................... -- 11,000 --
Merger expenses.......................................... 11,525 22,927 --
MedPartners' management fee.............................. 1,055 1,660 2,941
Interest expense, net.................................... 535 886 5,301
Goodwill impairment charge............................... -- -- 2,992
Other expenses (income).................................. (204) 768 871
-------- -------- --------
Income before income taxes............................... 28,807 7,160 37,216
Income tax expense....................................... 9,852 4,894 15,778
-------- -------- --------
Income before cumulative effect of a change in accounting
principle.............................................. 18,955 2,266 21,438
Cumulative effect of a change in accounting principle,
net of taxes of $559................................... -- -- 912
-------- -------- --------
Net income............................................... $ 18,955 $ 2,266 $ 20,526
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 143
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF NET INVESTED CAPITAL
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT DECEMBER 31, 1995................................ $ 73,288
Net income.................................................. 18,955
Parents' management fees.................................... 1,055
Net income of Team Health, Inc. for two months ended
December 31, 1995......................................... 203
Unrealized loss on marketable securities.................... (152)
Beginning balance of immaterial poolings of interests
entities.................................................. 1,195
Changes in tax accounts, included in net invested capital... (6,604)
Net transfers from parents and parents' subsidiaries........ 13,438
--------
BALANCE AT DECEMBER 31, 1996................................ 101,378
Net income.................................................. 2,266
Parents' management fees.................................... 1,660
Beginning balance of immaterial poolings of interests
entities.................................................. 377
Unrealized gain on marketable securities.................... 91
Changes in tax accounts, included in net invested capital... 259
Net transfers to parents and parents' subsidiaries.......... (8,138)
--------
BALANCE AT DECEMBER 31, 1997................................ 97,893
Net income.................................................. 20,526
Parents' management fees.................................... 2,941
Change in unrealized gain in marketable securities.......... (93)
Changes in tax accounts, included in net invested capital... 18,987
Net transfers to parents and parents' subsidiaries.......... (40,301)
--------
BALANCE AT DECEMBER 31, 1998................................ $ 99,953
========
</TABLE>
See accompanying notes.
F-5
<PAGE> 144
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 18,955 $ 2,266 $ 20,526
Net income of Team Health, Inc. for two months ended
December 31, 1995......................................... 203 -- --
Adjustments to reconcile net income:
Depreciation and amortization............................. 5,628 6,455 9,740
Goodwill impairment charge................................ -- -- 2,992
Novation program expense allocation....................... -- 11,000 --
Loss (gain) on sale of equipment.......................... 20 947 (463)
Merger expenses........................................... 11,525 22,927 --
Parents' management fees.................................. 1,055 1,660 2,941
Cumulative effect of change in accounting principle....... -- -- 1,471
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net.................................. (24,510) (14,262) (14,963)
Prepaids and other assets................................. (4,659) 3,914 7,613
Accounts payable.......................................... (5,074) 1,454 (1,394)
Accrued compensation and physician payable................ 810 13,280 5,245
Other accrued liabilities................................. 4,163 (18,916) (555)
Professional liability reserves........................... 4,289 12,617 10,217
-------- -------- --------
Net cash provided by operating activities................... 12,405 43,342 43,370
INVESTING ACTIVITIES
Cash paid for merger expense................................ (5,681) (12,711) (1,071)
Purchases of equipment...................................... (6,854) (7,474) (5,015)
Proceeds from the sale of equipment......................... 917 1,385 1,084
Transfers of equipment...................................... -- 2,252 --
Net cash paid for acquisitions.............................. (180) (15,726) (16,658)
Additions to intangibles.................................... (466) (2,065) (605)
Other investing activities.................................. 841 -- (599)
-------- -------- --------
Net cash used in investing activities....................... (11,423) (34,339) (22,864)
FINANCING ACTIVITIES
Payments on notes payable................................... (10,266) (1,396) (766)
Additions to notes payable.................................. -- 153 --
Net transfers (to) from parents' and parents subsidiaries... 13,438 (8,138) (40,301)
Change in tax accounts, included in net invested capital.... (6,604) 259 18,987
-------- -------- --------
Net cash used in financing activities....................... (3,432) (9,122) (22,080)
-------- -------- --------
Decrease in cash and cash equivalents....................... (2,450) (119) (1,574)
Cash and cash equivalents, beginning of year................ 6,495 5,550 5,468
Cash and cash equivalents, beginning of year for immaterial
poolings of interests entities............................ 1,505 37 --
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 5,550 $ 5,468 $ 3,894
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 145
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Team Health is the largest national provider of outsourced physician
staffing and administrative services to hospitals and clinics in the United
States. The Company's regional operating model includes comprehensive programs
for emergency medicine, radiology, inpatient care, pediatrics and other hospital
departments. Team Health provides a full range of physician staffing and
administrative services, including the: (i) staffing, recruiting and
credentialing of clinical and non-clinical medical professionals; (ii) provision
of administrative support services, such as payroll, insurance coverage and
continuing education services; and (iii) billing and collection of fees for
services provided by the medical professionals.
Team Health, Inc. was incorporated in March 1994 in order to provide
outsourced physician staffing and administrative services to hospitals and
clinics. On June 30, 1995, Team Health, Inc. merged with Pacific Physician
Services.
In February 1996 and June 1997, MedPartners, Inc. ("MedPartners") combined
with Pacific Physician Services, Inc. ("Physician Services") and InPhyNet
Medical Management, Inc. ("InPhyNet"), respectively. These business combinations
were accounted for as poolings-of-interests by MedPartners. During the second
half of 1997, MedPartners combined the operations of InPhyNet Hospital Services,
Inc. ("Hospital Services") of InPhyNet with Team Health, Inc. a wholly-owned
subsidiary of Physician Services.
The accompanying consolidated and combined financial statements are
presented on a carve-out basis and include the historical operations of Team
Health, Inc., and Hospital Services as if they were combined as a pooling of
interests. These operations are collectively referred to herein as the "Company"
or "Team Health." Certain costs have been allocated to the Company by its Parent
to reflect all its costs of doing business. These costs are reflected in the
statements of income for the three year period ended December 31, 1998.
MedPartners and its subsidiaries' net investment in Team Health ("net
invested capital") is shown in lieu of stockholder's equity in the accompanying
consolidated and combined financial statements. The consolidated and combined
financial statements have been prepared from both Team Health's and MedPartners'
historical accounting records.
The consolidated and combined financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Consolidation is necessary to
present fairly the financial position and results of operations of the Company.
Team Health's subsidiaries are listed as follows: Alliance Corporation; Charles
L. Springfield, Inc.; Clinic Management Services, Inc.; Daniel & Yeager, Inc.;
Drs. Sheer, Ahearn, and Associates, Inc.; Emergency Coverage Corporation;
Emergency Management Specialists, Inc.; Emergency Physician Associates, Inc.;
Emergency Physicians of Manatee, Inc.; Emergency Professional Services, Inc.;
Emergicare Management, Incorporated; Fischer Mangold Partnership; Herschel
Fischer, Inc.; Hospital Based Physician Services, Inc.; IMBS, Inc.; InPhyNet
Anesthesia of West Virginia, Inc.; InPhyNet Contracting Services, Inc.; InPhyNet
Hospital Services, Inc.; InPhyNet Joliet, Inc.; InPhyNet Louisiana, Inc.;
InPhyNet Medical Management Institute; InPhyNet South Broward, Inc.; Karl G.
Mangold, Inc.; Med:Assure Systems, Inc.; Metroamerican Radiology, Inc.; Mt.
Diablo Emergency Physicians; Neo-Med, Inc.; Northwest Emergency Physicians
Incorporated; Paragon Anesthesia, Inc.; Paragon Contracting Services, Inc.;
Paragon Healthcare Limited Partnership; Paragon Imaging Consultants, Inc.;
Quantum Plus, Inc.; Reich, Seidelman, & Janicki Co.; Rosendorf, Margulies,
Borushok & Shoenbaum Radiology Associates of Hollywood, Inc.; Sarasota Emergency
Medical Consultants, Inc.; Southeastern Emergency Physicians of Memphis, Inc.;
Southeastern Emergency Physicians, Inc.; Team Health Billing Services, L.P.;
Team Health Financial Services, Inc.; Team Health Southwest, L.P.; Team
Radiology, Inc.; THBS,
F-7
<PAGE> 146
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inc.; The Emergency Associates for Medicine, Inc.; Virginia Emergency
Physicians, Inc. All significant intercompany and inter-affiliate accounts and
transactions have been eliminated.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE
Revenue is recorded in the period services are rendered as determined by
the respective contract with the health care providers. Revenue is reported on
an accrual basis, net of estimated third-party contractual adjustments. Further
adjustments are recorded to reflect amounts estimated to be uncollectible based
upon individual contract experience.
The Company's revenue is derived from the provision of outsourced physician
staffing and administrative services to hospitals under fee-for-service
contracts and flat-rate contracts. Hospitals entering into fee-for-service
contracts agree, in exchange for granting the Company's affiliated physicians
medical staff privileges and exclusivity for services, to authorize the Company
to bill and collect the professional component of the charges for medical
services rendered by the Company's contracted and employed physicians. Under the
fee-for-service arrangements, the Company receives direct or indirect
disbursements from patients and payors of the amounts collected and, depending
on the magnitude of services provided to the hospital and payor mix, may also
receive supplemental revenue from the hospital. Pursuant to such arrangement,
the Company accepts responsibility for billing and collection. Under flat-rate
contracts, the hospital performs the billing and collection services of the
professional component and assumes the risk of uncollectibility. In return for
providing the physician staffing and administrative services, the hospital pays
a contractually negotiated fee for physician coverage. In 1998, approximately
76% of net revenue was generated from fee-for-service contracts.
PROFESSIONAL EXPENSES
Professional expenses primarily consist of fees paid to physicians and
other clinicians under contract with the Company, collection fees relating to
fee-for-service contracts billed by vendors, operating expenses for the
Company's billing subsidiaries and professional liability insurance expense.
The Company contracts with physicians as independent contractors of our
Company or employees or independent contractors of physician-controlled
professional corporations to provide services to fulfill their contractual
obligations to its hospital clients. The Company typically pays the physicians a
flat hourly rate for each hour of coverage provided at rates comparable to the
market in which they work, with the exception of those radiologists and primary
care physicians employed by the Company, who are paid a base salary. The hourly
rate varies if the physician is independently contracted or an employee.
Independently contracted physicians are required to pay a self-employment tax,
social security, and workers' compensation insurance premiums. In contrast, the
Company will pay these taxes and expenses for employed physicians. As such,
employed physicians typically receive a lower flat hourly rate. In select
markets physicians receive supplemental incentive-based compensation based on
the patient volume of the hospital, the intensity of the cases, improvements in
documentation and patient satisfaction.
The Company's contracts with physicians are generally perpetual and can be
terminated at any time under certain circumstances by either party without
cause, typically upon 180 days notice. In addition, the Company generally
requires the physician to sign a two-year non-compete and non-solicitation
agreement. Under these agreements, the physician is restricted from divulging
confidential information, soliciting or hiring our physicians, inducing
termination and competing for or soliciting the Company's clients.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists primarily of funds on deposit in
commercial banks.
F-8
<PAGE> 147
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MARKETABLE SECURITIES
Under Statement of Financial Accounting Standard ("SFAS") 115, "Accounting
for Certain Investments in Debt and Equity Securities," investments in equity
securities that have readily determinable fair values and investments in debt
securities are classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
management's investment strategy, the Company's investments have been classified
as available-for-sale.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of net
invested capital unless a decline in value is judged other than temporary. When
this is the case, unrealized losses are reflected in the results of operations.
ACCOUNTS RECEIVABLE
Accounts receivable are primarily amounts due from hospitals, amounts due
from third-party payors, such as insurance companies, self-insured employers and
government-sponsored health care programs (Medicare and Medicaid), and amounts
due from patients.
Accounts receivable from fee-for-service contracts include an allowance for
contractual adjustments, bad debt and other adjustments, which is charged to
operations based on an evaluation of potential losses. Contractual adjustments
result from the difference between the rates for physician services performed
and amounts allowed by third-party payors for such services. Bad debt and other
adjustments represent services provided to patients that are not expected to be
collected at the time service is provided.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives generally ranging from 3 to
10 years for furniture and equipment, from 3 to 5 years for software and 10 to
40 years for buildings and leasehold improvements. Property under capital lease
is amortized using the straight-line method over the life of the respective
lease. Such amortization is included with depreciation expense in the
accompanying financial statements. SFAS 121 requires impairment losses be
recorded on long-lived assets used in operations when indicators are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. Management groups its property and equipment
by subsidiary and monitors it on a regular basis for such indicators.
INTANGIBLES
The majority of intangible assets relate to goodwill incurred in the
acquisition of medical groups. Goodwill, which represents costs in excess of net
assets acquired is being amortized on a straight-line basis over periods ranging
between 8 and 20 years, depending upon the nature of the transaction. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill is reduced by the estimated shortfall of discounted cash flows.
PROFESSIONAL LIABILITY INSURANCE
Professional liability insurance expense consists of premium cost, an
accrual to establish reserves for future payments under the self-insured
retention component, and an accrual to establish a reserve for future claims
incurred but not reported.
F-9
<PAGE> 148
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company files as part of the consolidated federal tax return of
MedPartners. As a result, the provision for income taxes are calculated and
allocated to the Company from MedPartners. All tax accounts have been included
as a component of net invested capital for this presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE AND NET REVENUE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Gross accounts receivable................................... $ 414,835 $ 512,747
Less allowance for contractual adjustments, bad debt and
other adjustments......................................... (284,058) (364,300)
--------- ---------
$ 130,777 $ 148,447
========= =========
</TABLE>
Concentration of credit risk relating to accounts receivable is limited by
the diversity and number of contracting hospitals, patients, payors and the
geographic dispersion of the Company's operations. The Company's most
significant payor, Medicare, represents approximately 18.4% and 17.2% of gross
accounts receivable as of December 31, 1997 and 1998, respectively.
Net revenue consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Gross revenue.................................. $ 925,694 $1,035,259 $1,210,252
Less provision for contractual adjustments, bad
debt and other adjustments................... (462,314) (524,023) (662,467)
---------- ---------- ----------
Net revenue.................................... $ 463,380 $ 511,236 $ 547,785
========== ========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Buildings and leasehold improvements........................ $ 3,660 $ 2,149
Furniture and equipment..................................... 36,024 38,686
Software.................................................... 1,774 1,714
Less accumulated depreciation............................... (26,595) (27,663)
-------- --------
$ 14,863 $ 14,886
======== ========
</TABLE>
F-10
<PAGE> 149
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases office space for primary terms of one to seven years
with options to renew for additional periods. Future minimum payments due on
these non-cancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $ 4,400
2000........................................................ 3,610
2001........................................................ 3,171
2002........................................................ 1,958
2003........................................................ 781
Thereafter.................................................. 4,709
-------
$18,629
=======
</TABLE>
Rent expense under operating leases for 1996, 1997 and 1998 was
approximately $4.5 million, $5.8 million and $5.7 million, respectively.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following table provides a detail listing of amounts included in the
"Other accrued liabilities" account in the consolidated and combined balance
sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Accrued professional fees................................... $2,753 $3,112
Insurance payable........................................... 2,144 247
Accrued merger costs........................................ 2,328 327
Other accrued expenses...................................... 2,343 5,763
------ ------
$9,568 $9,449
====== ======
</TABLE>
The Company recognized certain costs as a result of its 1997 mergers with
Fischer Mangold and the Hospital Services Division of InPhyNet. As of December
31, 1997 and 1998, the unpaid balances of these costs are reflected as accrued
merger costs. These liabilities consist mainly of termination benefits and non-
cancelable leases of facilities that were closed as a result of the mergers.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- ------
<S> <C> <C>
Notes payable............................................... $ 5,630 $2,379
Other....................................................... 2,190 165
Less current portion........................................ (5,165) (164)
------- ------
$ 2,655 $2,380
======= ======
</TABLE>
The majority of notes payable relate to acquisitions, payable in varying
amounts through 2000, with effective interest rates ranging from 7.50% to
10.80%.
F-11
<PAGE> 150
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The maturities of long-term debt were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $ 164
2000........................................................ 2,380
------
$2,544
======
</TABLE>
Interest payments were $1.4 million, $0.6 million and $0.4 million in 1996,
1997 and 1998, respectively.
7. EMPLOYEE BENEFIT PLANS
The Company's employees participated in various employee benefit plans
sponsored by the Company and the Company's parent affiliates. The plans
primarily are defined contribution plans. The various entities acquired or
merged into the Company have various retirement plans that have been terminated,
frozen or amended with terms consistent with the Company's and the Company's
parent affiliate plans.
The Company's contributions to the plans for the years ended December 31,
1996, 1997 and 1998 were approximately $1.2 million, $0.5 million, and $1.2
million, respectively.
Effective January 1, 1998, the Board of Directors of MedPartners approved a
retirement savings plan for employees and affiliates. The plan is a defined
benefit contribution plan in accordance with the provisions of Section 401(k) of
the Internal Revenue Code. Full-time employees and affiliates are eligible to
enroll in the plan in the first quarter following two months of service.
Individuals on a part-time and per diem basis are eligible to participate in the
quarter following completion of one year of service. For employees, the Company
makes a matching contribution of 50% of the employee's pre-tax contribution, up
to 6% of the employee's compensation, in any calendar year.
8. DEFERRED COMPENSATION PLAN
A Team Health affiliate, Emergency Professional Services, Inc. ("EPS"),
created a deferred compensation plan in 1987 for the purpose of compensating key
individuals within EPS. Under the plan, the Company is obligated to certain key
employees who have completed five years of service. The plan provides a vesting
schedule of 10% at six years and 100% after fifteen years of service. Effective
with the EPS and MedPartners merger, the plan was frozen. Participants are
eligible for benefit payments following the month in which the sum of their age
and years of service equals 65. Exceptions to this requirement exist for
disability and death of a participant. Account balances remaining at the time of
death of a participant becomes payable to the participant's beneficiary.
Any forfeitures are allocated on the last day of the year to active
participants that have not commenced to receive benefit payments. As of December
31, 1997 and 1998, the aggregate deferred compensation payable was approximately
$4.6 million and $4.1 million, respectively. Charges to expense were
approximately $0.5 million in 1996. There was no charge to expense during 1997
as a result of a merger related accrual established in 1996 for future
non-discounted deferred compensation payments. In addition, there was no charge
to expense during 1998.
9. NET INVESTED CAPITAL
NET TRANSFERS TO/FROM PARENTS AND PARENTS' SUBSIDIARIES
Net transfers to/from parents and parents' subsidiaries includes
third-party liabilities paid on behalf the Company by MedPartners and Physician
Services ("parent companies"). In addition, transfers include
F-12
<PAGE> 151
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
advances from parent companies to fund operating and investing activities,
including acquisitions, net of amounts advanced to parent companies from
operating cash flows generated by the Company. Net transfers are included as
part of net invested capital as Team Health is not required to settle these
amounts on a current basis.
MANAGEMENT FEES
The parent companies provide certain corporate services to the Company,
including legal services, risk management, certain employment benefit
administration, tax advice and preparation of tax returns, software support
services and certain financial and other services. These fees are estimated
based on the value of services provided by MedPartners allocated to the Company
and approximate costs incurred. The amounts recorded by the Company for these
allocations in the accompanying consolidated and combined statements of income
were approximately $1.1 million, $1.7 million and $2.9 million for the years
ended December 31, 1996, 1997 and 1998, respectively. The amounts allocated by
the parent companies are not necessarily indicative of the actual costs which
may have been incurred had the Company operated as an entity unaffiliated with
MedPartners or Physician Services; however, management of the Company believes
that the allocation is reasonable and in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 55.
INTEREST EXPENSE
During 1997 and 1998, Team Health and MedPartners had an agreement whereby
MedPartners charged the Company interest earned on a portion of the Company's
net balance payable to MedPartners. Interest expense charged to Team Health by
MedPartners was $0.8 and $5.2 million for the years ended December 31, 1997 and
December 31, 1998, respectively. No interest expense was charged during the year
ended December 31, 1996.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities, included in net invested
capital, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable....................................... $ 200 $10,923
Accrual and other reserves................................ 514 373
Merger/acquisition costs.................................. 2,272 3,945
Net operating loss carryforward........................... 708 5,294
Deferred compensation accrual............................. 849 649
Accrued compensation...................................... 658 1,687
Malpractice............................................... 8,448 4,639
Other..................................................... 266 1,351
------- -------
Total deferred tax assets................................... 13,915 28,861
</TABLE>
F-13
<PAGE> 152
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Book over tax amortization and depreciation............... $ (520) $ --
Change in accounting method from cash to accrual.......... (7,508) (1,375)
Other..................................................... (956) (3,071)
------- -------
Total deferred tax liabilities.............................. (8,984) (4,446)
------- -------
Net deferred tax assets (liabilities)....................... $ 4,931 $24,415
======= =======
</TABLE>
Significant components of the federal income tax expense were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 9,647 $ 14,562 $ 27,590
State............................................ 1,617 2,762 4,500
-------- -------- --------
Total current...................................... 11,264 17,324 32,090
Deferred:
Federal.......................................... (1,291) (10,423) (14,025)
State............................................ (121) (2,007) (2,287)
-------- -------- --------
Total expense...................................... $ 9,852 $ 4,894 $ 15,778
======== ======== ========
</TABLE>
The reconciliation of income tax expense computed at the federal statutory
tax rate to income tax expense is as follows for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
-------- ------ -------
<S> <C> <C> <C>
Tax at statutory rate................................... $ 10,082 $2,506 $12,707
State income tax (net of federal tax benefit)........... 972 491 1,438
Tax expense from conversion to C corporation............ 892 -- --
Amortization and goodwill write-off..................... -- -- 1,480
Merger expense.......................................... 242 2,711 --
Income not taxed at corporate level..................... (2,490) (935) --
Other................................................... 154 121 153
-------- ------ -------
$ 9,852 $4,894 $15,778
======== ====== =======
</TABLE>
Income taxes paid during 1996, 1997 and 1998 were $17.3 million, $4.7
million and $11.1 million, respectively.
10. PROFESSIONAL LIABILITY INSURANCE
Although Team Health does not principally engage in the practice of
medicine or provide medical services, the Company requires the physicians with
whom it contracts to obtain professional liability insurance coverage and makes
this insurance available to these physicians. Team Health typically provides
claims-made coverage of $1,000,000 per incident and $3,000,000 annual aggregate
per physician to affiliated physicians and other healthcare practitioners. In
addition, Team Health and its affiliates obtain claims-made coverage of
$1,000,000 per incident and $10,000,000 annual aggregate. These limits are
F-14
<PAGE> 153
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
deemed appropriate by management based upon historical claims, the nature and
risks of the business and standard industry practice.
During the period immediately preceding the InPhyNet merger, MedPartners
and InPhyNet developed a program to provide malpractice exposure management for
InPhyNet's physician practice management, government services and hospital-based
businesses. The program was designed to "encapsulate" InPhyNet's malpractice
exposure for all periods prior to the MedPartners merger and to allow InPhyNet
to begin with new first-year claims made insurance coverage as of the effective
date of the merger.
The new program, called the Novation program, involved a payment from
MedPartners to an insurance carrier not previously associated with InPhyNet in
exchange for a guaranteed amount of future payments to MedPartners. These future
payments were actuarially determined by independent third-party actuaries and
were designed to be sufficient to cover the likely future liabilities associated
with the known InPhyNet cases and ones likely to arise in the future from events
occurring in the years covered by the program.
Additional reserves for liabilities within the Novation program are
recorded on Team Health's balance sheets and a related charge was allocated to
Team Health in 1997 and is included in the novation program expense allocation
line item on the consolidated and combined statements of income.
In connection with the proposed recapitalization transaction (as discussed
in Note 19), MedPartners will purchase insurance to cover the liability of
existing claims as of the closing date and the additional liability related to
the Novation program.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments at December 31,
1998 and 1997 approximate fair value. The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash
equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents
approximates its fair value.
Marketable securities: The fair values for marketable securities are
based on quoted market prices.
Long-term debt: The fair values of the Company's long-term debt
are estimated using discounted cash flow
analyses, based on the Company's current
incremental borrowing rates for similar types
of borrowing arrangements.
Accounts receivable: The carrying amount in the balance sheet for
accounts receivable approximates its fair
value.
12. ACQUISITIONS
In August 1997, Team Health acquired the operating assets of two emergency
department staffing companies. The acquisition was financed with two promissory
notes of $4.5 million and $0.6 million. The notes payable are included in
long-term debt (see Note 6).
In November 1997, the Company purchased certain operating assets of an
emergency department staffing company. The consideration given for the net
assets was $3.6 million. Of this amount, $1.7 million was paid in cash at
closing and up to $1.9 in future contingent payments or earnouts. The contingent
payments are classified as deferred payment obligations on the balance sheets
and are recorded as a
F-15
<PAGE> 154
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liability of the Company based on management's expectation that the earnout
provisions in the acquisition agreement will be achieved. In addition, in
November 1997, the Company acquired the operating assets of a radiology group
for total consideration of $9.0 million. The consideration paid was financed by
capital transfers from MedPartners and cash flows from operations. During 1998,
the Company recognized a future contingent payment of $2.5 million related to
this acquisition and allocated it as part of the purchase price.
The excess of the purchase price over net assets acquired in 1997 for these
and other entities acquired approximated $18.7 million. The goodwill balances
are being amortized over the expected life of the contractual arrangement which
range from 8 to 20 years.
In 1998, the Company acquired the stock of two emergency department
staffing companies. The first acquisition closed in January 1998 with a total
consideration of $5.1 million. Of this amount, $3.0 million was paid in cash at
the closing date and up to $2.1 million in future and contingent payments. The
second acquisition closed in June 1998, and had a total consideration of $5.9
million. Of this amount, $3.5 million was paid at closing with $2.4 million in
future and contingent payments.
In March 1998, the Company purchased certain operating assets of an
emergency department staffing company. The consideration given for the net
assets was $13.0 million. Of this amount, $5.0 million was paid in cash at
closing and up to $8.0 million in future contingent payments. In August 1998,
the Company made a second asset acquisition with total consideration of $6.8
million in which $3.6 million was paid at closing and up to $3.2 million in
future contingent payments.
The excess of the purchase price over net assets acquired in 1998 for these
and other entities approximated $34.1 million. The goodwill balances are being
amortized over the expected life of the contractual arrangement which range from
8 to 20 years.
All of the aforementioned acquisitions have been accounted for by the
purchase method of accounting. As such, operating results of acquired businesses
are included in the Company's consolidated and combined financial statements as
of their respective dates of acquisition. The operating results of the
acquisitions prior to the respective dates of acquisition are not material to
the Company.
The following unaudited pro forma summary for the three years ended
December 31, 1998 present the results of operations of the Company as if the
acquisitions that occurred during each of those three years had occurred at the
beginning of the current year and the preceding year each acquisition was made.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
been made at the beginning of the respective fiscal years, or results which may
occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenue................................................ $485,889 $551,262 $562,889
Income before income taxes................................. 28,277 12,384 39,708
Net income................................................. 18,626 5,505 21,531
</TABLE>
F-16
<PAGE> 155
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. MERGERS
MedPartners merged with several physician groups that have been combined
with Team Health operations during 1996 and 1997 in transactions that were
accounted for as poolings of interests. The following chart summarizes these
transactions:
<TABLE>
<CAPTION>
NUMBER OF
EFFECTIVE DATE MEDPARTNERS'
ACQUIRED ENTITY OF POOLING SHARES ISSUED
--------------- ---------------- -------------
<S> <C> <C>
Emergency Physician Associates ("EPA").............. July 1, 1996 1.2 million
Emergency Professional Services ("EPS")............. October 1, 1996 2.1 million
Sheer, Ahearn and Associates ("SAA")................ December 1, 1996 2.3 million
Fischer Mangold ("FM").............................. June 30, 1997 2.0 million
InPhyNet Medical Management, Inc. ("InPhyNet")...... June 30, 1997 19.4 million
</TABLE>
During the second half of 1997, MedPartners combined the Hospital Services
operations of InPhyNet with Team Health operations.
Included in income from operations for the year ended December 31, 1996 and
1997 are merger costs totaling $11.5 million and $22.9 million, respectively.
There were no merger costs for the year ended December 31, 1998. The components
of these costs are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Investment banking and professional fees.............. $ 4,495 $ 5,198 $ --
Other transition costs................................ 2,077 1,042 --
Severance costs and related benefits.................. 123 6,735 --
Impairment of assets.................................. -- 2,846 --
Conforming accounting policies........................ 500 4,741 --
Operational restructuring............................. -- 280 --
Other charges......................................... 4,330 2,085 --
------- ------- -------
$11,525 $22,927 $ --
======= ======= =======
</TABLE>
14. CONTINGENCIES
Team Health is a party to various pending legal actions arising in the
ordinary operation of its business such as contractual disputes, employment
disputes and general business actions as well as malpractice actions. Team
Health does not believe that the result of such legal actions, individually or
in the aggregate, will have a material adverse effect on the Company's business
or its results of operations, cash flows or financial condition.
Recently, a lawsuit was filed against InPhynet Medical Management, Inc. and
several other unrelated defendants in the United States District Court for the
District of Kansas which basically alleges that InPhynet had inappropriate
financial relationships with emergency room physicians and engaged in
inappropriate billing practices in violation of the False Claims Act and
provisions of the Medicare statute. The complaint lacks specificity and a
specific claim for damages. The Company intends to defend this case vigorously.
Although management believes, based on information currently available, that the
ultimate resolution is not likely to have a material adverse effect on the
operating results and financial condition of the Company, there can be no
assurance that the ultimate resolution of the matter, if adversely determined,
would not have a material adverse effect on the operating results and financial
condition of the Company.
F-17
<PAGE> 156
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
15. RELATED PARTY TRANSACTIONS
The Company leases office space from several partnerships that are
partially or entirely owned by employees of the Company. The leases were assumed
by the Company as part of merger or purchase transactions. Total rent paid was
approximately $1.9 million, $2.0 million and $1.3 million in 1996, 1997 and
1998, respectively.
The Company has contractual arrangements with billing and collection
service companies that are owned or partially owned by employees of the Company.
The majority of these arrangements were assumed as part of merger or purchase
transactions. Billing fees paid for these services were $1.9 million, $2.2
million and $3.5 million in 1996, 1997 and 1998, respectively.
NOTE 16. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. SFAS No. 131 will
have no effect on the Company's results of operations, financial position or
cash flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
no longer are useful. SFAS No. 132 is effective for financial statements for
fiscal years beginning after December 15, 1997. SFAS No. 132 has no impact on
the Company's results of operations, financial position, or cash flows.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not effective
as hedges. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and is effective for interim periods in the initial year of adoption. At
the present time, the Company does not feel the adoption of SFAS No. 133 will
have a material effect on the results of operations, financial position, or cash
flows of the Company.
In March 1998, the EITF concluded its discussion on Issue No. 97-2 related
to the Application of APB Opinion No. 16, "Business Combinations", and FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries to Physician
Practice Management Entities." The Task Force established the criteria for
determining when a Physician Practice Management Entity ("PPM") could
consolidate or combine with a physician's practice. The Company has adopted the
EITF as of December 31, 1998 and believes a controlling financial interest
exists with regards to its contracts.
17. INTANGIBLES
Goodwill totaling $4.3 million was recorded in connection with the
Company's purchase of the Telerad Group in April 1994. During 1998, the Company
deemed that a portion of Telerad's goodwill totaling $3.0 million was impaired
based upon the provision of SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of." The impairment
was indicated by a loss of contracts resulting in recurring losses from
operations. Accordingly, the goodwill was reduced to fair
F-18
<PAGE> 157
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
value by discounting estimated future cash flows at a discount rate of the
Company's projected cost of capital. The impairment charge is reflected in the
consolidated and combined statement of income for the year ended December 31,
1998. The Company will continue to evaluate any remaining goodwill for potential
impairment.
Effective January 1, 1998, the Company prospectively changed its policy of
determining useful life of goodwill based on criteria that addresses the number
of contracts in each acquisition. This change in policy reduced the amortization
periods from a range of 20 to 40 years to a range of 8 to 20 years.
Effective January 1, 1998, the Company wrote off approximately $1.5 million
in organizational and development costs in accordance with SOP 98 -- 5,
"Reporting on the Costs of Start-Up Activities." This is accounted for as a
cumulative effect of change in accounting principle.
18. PRO FORMA INCOME TAXES
For periods prior to the respective mergers and acquisitions, the acquired
entities were taxed as partnerships and S Corporations and, therefore, federal
and state taxes were assessed to the shareholders. The following reflects the
combined entities' additional tax expense had they been taxed at the Company's
effective rate during those periods. (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ------ ----
<S> <C> <C> <C>
Pro forma income taxes:
Federal.................................................. $1,931 $1,985 $616
State.................................................... 246 209 65
------ ------ ----
$2,177 $2,194 $681
====== ====== ====
</TABLE>
19. SUBSEQUENT EVENTS
Effective March 16, 1999, Team Health will be recapitalized in a
transaction providing aggregate consideration to MedPartners, Inc. of $336.9
million, consisting of $327.6 million in cash, including an $8.7 million cash
payment to some members of our management by Team Health on behalf of
MedPartners with respect to accrued management bonuses owed by MedPartners to
those members of our management, $6.8 million in equity retained by MedPartners,
Inc.'s wholly-owned subsidiary, Physician Services, and the assumption of $2.5
million of existing indebtedness of MedPartners, Inc. In addition, Team Health
will assume the potential liability for certain future earnout payments valued
at approximately $19.8 million. The recapitalization will be funded by the net
proceeds from the $100.0 million Senior Subordinated Notes due 2009, $150.0
million of borrowings by the Company under the term loan facilities of a senior
credit facility, $99.7 million in a cash equity investment in the Company by an
affiliate of different equity sponsors, a cash equity investment of $8.5 million
by senior management of the Company and the equity of the Company retained by
Pacific Physician Services, Inc. with a fair market value of $6.8 million.
In conjunction with the Recapitalization, the Company will make an election
under section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a
result, the Company will realize an increase in its deferred tax assets as the
Recapitalization is expected to be treated as a taxable business combination for
federal and state income tax purposes, which results in a step-up in the
Company's tax basis. This step-up in basis will result in an anticipated cash
tax benefit of approximately $6.7 million per year over each of the next 15
years, if fully utilized.
F-19
<PAGE> 158
TEAM HEALTH, INC.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated and Combined Balance Sheets.................... F-21
Consolidated and Combined Statements of Income (Loss)....... F-22
Consolidated and Combined Statements of Cash Flows.......... F-23
Notes to Consolidated and Combined Financial Statements..... F-24
</TABLE>
F-20
<PAGE> 159
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
(NOTE 1) (UNAUDITED)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash equivalents................................. $ 3,894 $ 20,327
Accounts receivable, net.................................. 148,447 151,502
Prepaid expenses and other current assets................. 2,678 3,657
-------- ---------
Total current assets........................................ 155,019 175,486
Property and equipment, net................................. 14,886 15,089
Intangibles, net............................................ 56,457 66,324
Deferred tax asset.......................................... -- 108,472
Other....................................................... 3,594 5,300
-------- ---------
Total assets................................................ $229,956 $ 370,671
======== =========
LIABILITIES AND STOCKHOLDERS EQUITY/NET INVESTED CAPITAL
Current liabilities:
Accounts payable.......................................... $ 6,495 $ 9,335
Accrued compensation and physician payable................ 38,631 39,173
Other accrued liabilities................................. 9,449 13,061
Income tax payable........................................ -- 432
Current portion of long-term debt......................... 164 10,608
-------- ---------
Total current liabilities................................... 54,739 72,609
Long-term debt, less current portion........................ 2,380 236,900
Professional liability insurance reserves................... 49,697 1,015
Deferred payment obligations................................ 19,775 19,757
Deferred compensation....................................... 3,412 3,218
Other long-term liabilities................................. -- 25
Stockholders' equity/net invested capital:
Preferred stock........................................... -- 100,521
Common stock.............................................. -- 1,505
Additional paid in capital................................ -- 8,799
Shares held in trust...................................... -- (5,537)
Deferred compensation..................................... -- 5,537
Treasury stock (at cost).................................. -- (210,739)
Retained earnings/net invested capital.................... 99,953 137,061
-------- ---------
Total stockholders' equity/net invested capital............. 99,953 37,147
-------- ---------
Total liabilities and stockholders' equity/net invested
capital................................................... $229,956 $ 370,671
======== =========
</TABLE>
See accompanying notes.
F-21
<PAGE> 160
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net revenue................................................. $133,026 $137,877
Professional expenses....................................... 104,886 108,388
-------- --------
Gross profit................................................ 28,140 29,489
General and administrative.................................. 15,127 15,744
Depreciation and amortization............................... 2,038 2,351
Management fee.............................................. 735 25
Interest income............................................. (85) (59)
Interest expense............................................ 590 1,631
Recapitalization expense.................................... -- 21,513
Other expenses (income)..................................... 218 105
-------- --------
Income (loss) before income taxes........................... 9,517 (11,821)
Income tax expense (benefit)................................ 3,983 (4,361)
-------- --------
Net income (loss)........................................... $ 5,534 $ (7,460)
======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 161
TEAM HEALTH, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 5,534 $ (7,460)
Adjustments to reconcile net income:
Depreciation and amortization............................. 2,038 2,351
Amortization of deferred financing costs.................. -- 125
Gain on sale of equipment................................. (15) (10)
Parents' management fees.................................. 735 25
Recapitalization expense.................................. -- 21,513
Changes in operating assets and liabilities, net of effects
of acquisitions:
Accounts receivable, net.................................... (5,920) (8,345)
Prepaids and other assets................................... 656 (817)
Accounts payable............................................ 251 2,840
Accrued compensation and physician payable.................. 5,301 348
Other accrued liabilities................................... (140) 1,345
Income tax payable.......................................... -- (4,325)
Professional liability reserves............................. 4,576 740
Net cash provided by operating activities................... 13,016 8,330
INVESTING ACTIVITIES
Cash paid for merger expense................................ (625) (128)
Purchases of equipment...................................... (1,107) (1,529)
Proceeds from the sale of equipment......................... 600 --
Net cash paid for acquisitions.............................. (9,502) (18)
Additions to intangibles.................................... (196) --
Other investing activities.................................. 111 (124)
-------- ---------
Net cash used in investing activities....................... (10,719) (1,799)
FINANCING ACTIVITIES
Payments on notes payable................................... (184) (5,052)
Additions to notes payable.................................. -- 250,000
Additions to deferred financing costs....................... -- (10,876)
Purchase of treasury stock.................................. -- (210,739)
Cash paid for recapitalization.............................. -- (15,587)
Net transfers from parents and parents' subsidiaries........ 2,086 2,578
Change in tax accounts, included in net invested capital.... 4,030 --
-------- ---------
Net cash provided by financing activities................... 5,932 10,324
-------- ---------
Change in cash and cash equivalents......................... 8,229 16,855
Cash and cash equivalents, beginning of period.............. 5,468 3,894
-------- ---------
Cash and cash equivalents, non-consolidating 1999........... -- (422)
-------- ---------
Cash and cash equivalents, end of period.................... $ 13,697 $ 20,327
======== =========
</TABLE>
See accompanying notes.
F-23
<PAGE> 162
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 1. BASIS OF PRESENTATION
The consolidated and combined financial statements include the accounts of
Team Health, Inc. ("the Company") and its wholly owned subsidiaries and have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated and
combined financial statements contain all adjustments (consisting of normal
recurring items) necessary for a fair presentation of results for the interim
periods presented. The results of operations for any interim period are not
necessarily indicative of results for the full year. The consolidated and
combined balance sheet of the Company at December 31, 1998 has been derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. These financial statements and
footnote disclosures should be read in conjunction with the December 31, 1998
audited consolidated and combined financials statements and the notes thereto.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ from those
estimates.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. SFAS No. 131 will
have no effect on the Company's results of operations, financial position or
cash flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
no longer are useful. SFAS No. 132 is effective for financial statements for
fiscal years beginning after December 15, 1997. SFAS No. 132 has no impact on
the Company's results of operations, financial position, or cash flows.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not effective
as hedges. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and is effective for interim periods in the initial year of adoption. At
the present time, the Company does not feel the adoption of SFAS No. 133 will
have a material effect on the results of operations, financial position, or cash
flows of the Company.
In March 1998, the EITF concluded its discussion on Issue No. 97-2 related
to the Application of APB Opinion No. 16, "Business Combinations", and FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries to Physician
Practice Management Entities." The Task Force established the criteria for
determining when a Physician Practice Management Entity ("PPM") could
consolidate or
F-24
<PAGE> 163
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
combine with a physician's practice. The Company has adopted the EITF as of
December 31, 1998 and believes a controlling financial interest exists with
regards to its contracts.
NOTE 3. RECAPITALIZATION TRANSACTION
Effective March 12, 1999, Team Health was recapitalized in a transaction
providing aggregate consideration to MedPartners, Inc. ("MedPartners") of $336.9
million, consisting of $327.6 million in cash, including an $8.7 million cash
payment to some members of our management by Team Health on behalf of
MedPartners with respect to accrued management bonuses owed by MedPartners to
those members of our management, $6.8 million in equity retained by MedPartners
wholly-owned subsidiary, Pacific Physician Services, and the assumption of $2.5
million of existing indebtedness of MedPartners. In addition, Team Health
assumed the potential liability for certain future earnout payments valued at
approximately $19.8 million. The Recapitalization was funded by the net proceeds
from the $100.0 million Senior Subordinated Notes (the "Notes") due 2009, $150.0
million of borrowings by the Company under the term loan facilities of a Senior
Credit Facility, $99.7 million in a cash equity investment in the Company by an
affiliate of Madison Dearborn Partners, Inc., Cornerstone Equity Investors, LLC,
and Beecken Petty and Company, LLC, a cash equity investment of $8.5 million by
senior management of the Company and the equity of the company retained by
Pacific Physician Services, Inc. with a fair market value of $6.8 million.
In conjunction with the Recapitalization, the Company will make an election
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a
result, the Company will realize an increase in its deferred tax assets as the
Recapitalization is expected to be treated as a taxable business combination for
federal and state tax purposes, which results in a step-up in the Company's tax
basis. This step-up in basis will result in an anticipated cash tax benefit of
approximately $6.7 million per year over each of the next 15 years, if fully
utilized.
Total financing fees and legal, accounting, and other related costs of the
Recapitalization amounted to approximately $32.7 million. Of these costs, $21.5
million were expensed at the date of the Recapitalization. Financing costs of
$11.2 million associated with the Senior Credit Facility and Senior Subordinated
Notes were capitalized and will be amortized over the term of the Senior Credit
Facility and Notes.
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
12% Senior Subordinated Notes............................... $100,000 $ --
Senior Credit Facilities:................................... --
Revolving Credit Facility................................. --
Term Loan Facility........................................ 145,000
Other long-term debt........................................ 2,508 2,544
-------- ------
247,508 2,544
Less current portion........................................ (10,608) (164)
-------- ------
$236,900 $2,380
======== ======
</TABLE>
In conjunction with the Recapitalization, the Company entered into the
Senior Credit Facilities agreement with a syndicate of financial institutions.
The Senior Credit Facilities are comprised of a five-year Revolving Credit
Facility of up to $50.0 million, including a Swing-Line sub-facility of $5.0
million
F-25
<PAGE> 164
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
and Letter of Credit sub-facility of $5.0 million and a Term Loan Facility,
consisting of a $60.0 million 5-year tranche A term loan facility and a $90.0
million 6-year tranche B term loan facility. No funds have been borrowed under
the Revolving Credit Facility as of March 31, 1999. The Senior Credit Facilities
are secured by stock and assets of the Company and its subsidiaries.
Borrowings under the Senior Credit Facilities bear interest at variable
rates based, at the Company's option, on prime or the eurodollar rate. Interest
rates as of March 31, 1999 were as follows:
<TABLE>
<S> <C>
Revolving Credit Facility -- Commitment..................... 0.50%
Revolving Credit Facility -- Interest....................... 8.31%
Term Loan A Facility........................................ 8.31%
Term Loan B Facility........................................ 8.81%
</TABLE>
Borrowings under the Senior Credit Facilities were used to consummate the
Recapitalization and pay fees and expenses related to the transaction.
Additionally, the Senior Credit Facilities will provide financing for future
working capital, capital expenditures, and other general corporate purposes. The
credit facility contains affirmative and negative covenants which include
requirements that the Company maintain certain financial ratios and a minimum
level of EBITDA.
Additionally, as part of the Recapitalization, the Company issued $100
million of Senior Subordinated Notes due March 15, 2009. The Notes are
subordinated in right of payment to all Senior Debt of the Company and are
senior in right of payment to all existing and future subordinated indebtedness
of the Company. Interest on the Notes will accrue at the rate of 12% per annum,
payable semi-annually in arrears on March 15 and September 15 of each year
commencing September 15, 1999.
Prior to March 15, 2002, the Company may redeem a portion of the Notes with
the proceeds of certain offerings of the Company's equity. Beginning March 15,
2004, the Company may redeem some or all of the Notes at any time at various
redemption prices. The Notes were issued under an indenture with a Trustee that
contains affirmative and negative covenants.
The other long-term debt relates to acquisitions, payable in varying
amounts through 2000, with effective interest rates ranging from 7.50% to
10.80%.
Aggregate maturities of long-term debt at March 31, 1999 are as follows:
<TABLE>
<S> <C>
1999...................................................... $ 10,608
2000...................................................... 10,500
2001...................................................... 12,900
2002...................................................... 16,500
2003...................................................... 14,500
Thereafter................................................ 182,500
--------
$247,508
========
</TABLE>
NOTE 5. PROFESSIONAL LIABILITY INSURANCE
Although Team Health does not principally engage in the practice of
medicine or provide medical services, the Company requires the physicians with
whom it contracts to obtain professional liability insurance coverage and makes
this insurance available to these physicians. Team Health typically provides
claims-made coverage of $1,000,000 per incident and $3,000,000 annual aggregate
per physician to affiliated physicians and other healthcare practitioners. In
addition, Team Health and its affiliates obtain claims-made coverage of
$1,000,000 per incident and $10,000,000 annual aggregate. These limits are
F-26
<PAGE> 165
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
deemed appropriate by management based upon historical claims, the nature and
risks of the business and standard industry practice.
As part of the Recapitalization transaction, MedPartners retained the
liability for all medical malpractice claims originating prior to the
Recapitalization and purchased insurance coverage to cover such claims. As a
result, approximately $49.5 million of professional liability reserves were
transferred to MedPartners at closing.
NOTE 6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Deferred tax assets:
Amortization & Depreciation............................. $100,297
Recapitalization Expense................................ 8,175
--------
Net deferred tax asset.................................... $108,472
========
</TABLE>
Significant components of federal income tax expense were as follows (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1999
--------------
<S> <C>
Current:
Federal.............................................. $ 2,213
State................................................ 306
-------
Total current.......................................... 2,519
Deferred:
Federal.............................................. (6,044)
State................................................ (836)
-------
Total deferred......................................... (6,880)
-------
Total expense.......................................... $(4,361)
=======
</TABLE>
The reconciliation of income tax expense computed at the federal statutory
tax rate to income tax expense is as follows for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1999
--------------
<S> <C>
Tax at statutory rate.................................. $(4,129)
State income tax (net of federal tax benefit).......... (345)
Meals and Entertainment................................ 112
Other.................................................. 1
-------
$(4,361)
=======
</TABLE>
F-27
<PAGE> 166
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
NOTE 7. STOCKHOLDERS' EQUITY
Effective March 12, 1999, in conjunction with the Recapitalization, the
Company exchanged with MedPartners all outstanding common stock for 100,000 new
shares of 10% cumulative preferred stock ($.01 par) and 150,492,442.67 new
shares of common stock ($.01 par) in the Company.
The Company purchased from MedPartners 140,492,442.67 shares of outstanding
common stock for $210.7 million. These shares have been recorded as Treasury
Stock and are carried at cost.
As part of the Recapitalization, the Company established a deferred
compensation plan and related Rabbi Trust for the benefit of certain members of
the Company's senior management. The Company funded the Rabbi Trust with $5.5
million as of the closing. The Rabbi Trust used these funds to purchase
preferred stock in Team Health Holdings, L.L.C., the parent company of the
Company. The deferred compensation liability under this newly created plan as
well as the investments of the Rabbi Trust are carried as components of the
stockholders' equity in the consolidated and combined financial statements of
the Company.
Prior to the Recapitalization, all equity accounts of the Company were
combined and reported as Net Invested Capital on the consolidated and combined
financial statements due to the Company's status as a subsidiary of MedPartners.
NOTE 8. RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated and combined
balance sheet as of December 31, 1998 to conform to the March 31, 1999
presentation.
F-28
<PAGE> 167
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999 CONFIDENTIAL
TEAM HEALTH, INC.
$100,000,000
12% SENIOR SUBORDINATED NOTES DUE 2009
----------------------------------------------------------------------
PROSPECTUS
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS OFFERING MEMORANDUM. YOU MUST NOT RELY ON
UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF , 1999.
- --------------------------------------------------------------------------------
<PAGE> 168
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) the director or officer acted in good faith,
(ii) in the case of conduct in his or her official capacity with the
corporation, the director or officer reasonably believed such conduct was in the
corporation's best interests, (iii) in all or other cases, the director or
officer reasonably believed that his or her conduct was not opposed to the best
interest of the corporation, and (iv) in connection with any criminal
proceeding, the director or officer had no reasonable cause to believe that his
or her conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged to be liable to the corporation. In cases
where the director or officer is wholly successful, on the merits or otherwise,
in the defense of any proceeding instigated because of his or her status as an
officer or director of a corporation, the TBCA mandates that the corporation
indemnify the director or officer against reasonable expenses incurred in the
proceeding. The TBCA also provides that in connection with any proceeding
charging improper personal benefit to an officer or director, no indemnification
may be made if such officer or director is adjudged liable on the basis that
personal benefit was improperly received. Notwithstanding the foregoing, the
TBCA provides that a court of competent jurisdiction, upon application, may
order that an officer or director be indemnified if, in consideration of all
relevant circumstances, the court determines that such individual is fairly and
reasonably entitled to indemnification, whether or not the director met the
standard of conduct set forth above or was adjudged liable, provided that if
such officer or director was adjudged liable, indemnification is limited to
reasonable expenses.
The Company's Charter provides that the Company may indemnify expenses to
persons who are or were directors or officers of the Company. Additionally, the
Charter provides that no director of the Company shall be personally liable to
the Company or any of its shareholders, and no such person may be sued by the
Company or its shareholders, for monetary damages for breach of any fiduciary
duty as a director except for liability arising from (i) any breach of a
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, or (iii) any unlawful distributions.
[Directors' and officers' liability insurance has also been obtained by the
Company, the effect of which is to indemnify certain directors and officers of
the Company against certain damages and expenses because of certain claims made
against them caused by their negligent act, error or omission.]
The above discussion of the Charter and the TBCA is not intended to be
exhaustive and is qualified in its entirety by reference thereto.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S> <C>
(a) EXHIBITS
2.1 Recapitalization Agreement dated January 25, 1999 by and
among Team Health, Inc., MedPartners, Inc., Pacific
Physician Services, Inc. and Team Health Holdings,
L.L.C.**
3.1 Articles of Amendment to the Articles of Incorporation of
Alliance Corporation dated January 15, 1997.**
3.2 By-laws of Alliance Corporation.**
3.3 Articles of Incorporation of Emergency Management
Specialists, Inc. dated August 12, 1983.**
3.4 By-laws of Emergency Management Specialists, Inc.**
3.5 Articles of Incorporation of EMSA South Broward, Inc. dated
December 3, 1996.**
</TABLE>
II-1
<PAGE> 169
<TABLE>
<C> <S> <C>
3.6 By-laws of EMSA South Broward, Inc.**
3.7 Articles of Incorporation of Herschel Fischer, Inc. dated
February 18, 1997.**
3.8 By-laws of Herschel Fischer, Inc. dated February 21, 1997.**
3.9 Articles of Incorporation of IMBS, Inc. dated November 30,
1995.**
3.10 By-laws of IMBS, Inc.**
3.11 Articles of Incorporation of InPhyNet Hospital Services,
Inc. dated November 30, 1995.**
3.12 By-laws of InPhyNet Hospital Services, Inc.**
3.13 Certificate of Amendment of Certificate of Incorporation of
InPhyNet Medical Management Institute, Inc. dated February
28, 1996.**
3.14 By-laws of InPhyNet Medical Management Institute, Inc.**
3.15 Articles of Incorporation of Karl G. Mangold, Inc. dated
February 14, 1997.**
3.16 By-laws of Karl G. Mangold, Inc. dated February 20, 1997.**
3.17 Amended and Restated Articles of Incorporation of Charles L.
Springfield, Inc. dated November 21, 1997.**
3.18 Amendment to By-laws of Charles L. Springfield, Inc. dated
November 20, 1997.**
3.19 Articles of Amendment to the Charter of Clinic Management
Services, Inc. dated March 25, 1994.**
3.20 By-laws of Clinic Management Services, Inc.**
3.21 Articles of Incorporation of Daniel & Yeager, Inc. dated
October 25, 1989.**
3.22 By-laws of Daniel & Yeager, Inc. dated October 6, 1989.**
3.23 Articles of Incorporation of Drs. Sheer, Ahearn &
Associates, Inc. dated March 31, 1969.**
3.24 Amended and Restated By-laws of Drs. Sheer, Ahearn &
Associates, Inc. dated February 15, 1989.**
3.25 Articles of Amendment to the Charter of Emergency Coverage
Corporation dated February 15, 1993.**
3.26 Amendment to By-laws of Emergency Coverage Corporation dated
June 12, 1995.**
3.27 Restated Certificate of Incorporation of Emergency Physician
Associates, Inc. dated June 25, 1996.**
3.28 By-laws of Emergency Physician Associates, Inc.**
3.29 Articles of Incorporation of Emergency Physicians of
Manatee, Inc. dated June 1, 1988.**
3.30 By-laws of Emergency Physicians of Manatee, Inc.**
3.31 Certificate to Amend the Articles of Incorporation of
Emergency Professional Services, Inc. dated September 30,
1997.**
3.32 Code Regulations of Emergency Professional Services, Inc.
amended June 22, 1987.**
3.33 Amended and Restated Charter of Emergicare Management,
Incorporated dated February 28, 1995.**
3.34 By-laws of Emergicare Management, Incorporated dated
December 29, 1972.**
3.35 Articles of Incorporation of EMSA Contracting Service, Inc.
dated November 30, 1995.**
3.36 By-laws of EMSA Contracting Service, Inc.**
3.37 Articles of Amendment of EMSA Louisiana, Inc. dated May 28,
1989.**
3.38 By-laws of EMSA Louisiana, Inc.**
3.39 Articles of Amendment to the Charter of Hospital Based
Physician Services, Inc. dated March 25, 1994.**
3.40 By-laws of Hospital Based Physician Services, Inc. dated
July 18, 1993.**
</TABLE>
II-2
<PAGE> 170
<TABLE>
<C> <S> <C>
3.41 Articles of Incorporation of InPhyNet Anesthesia of West
Virginia, Inc. dated February 28, 1997.**
3.42 By-laws of InPhyNet Anesthesia of West Virginia, Inc.**
3.43 Articles of Amendment to the Charter of Med: Assure Systems,
Inc. dated October 28, 1992.**
3.44 By-laws of Med: Assure Systems, Inc. dated February 25,
1987.**
3.45 Articles of Incorporation of MetroAmerican Radiology, Inc.
dated April 19, 1989.**
3.46 By-laws of MetroAmerican Radiology, Inc. dated April 23,
1989.**
3.47 Articles of Incorporation of Neo-Med, Inc. dated November
15, 1993.**
3.48 By-laws of Neo-Med, Inc.**
3.49 Articles of Incorporation of Northwest Emergency Physicians,
Incorporated dated June 4, 1985.**
3.50 By-laws of Northwest Emergency Physicians, Incorporated.**
3.51 Certificate of Amendment of Certificate of Incorporation of
Paragon Anesthesia, Inc. dated September 20, 1994.**
3.52 By-laws of Paragon Anesthesia, Inc.**
3.53 Articles of Incorporation of Paragon Contracting Services,
Inc. dated November 30, 1995.**
3.54 By-laws of Paragon Contracting Services, Inc.**
3.55 Certificate of Amendment of Certificate of Incorporation of
Paragon Imaging Consultants, Inc. dated May 7, 1993.**
3.56 By-laws of Paragon Imaging Consultants, Inc.**
3.57 Articles of Incorporation of Quantum Plus, Inc. dated
January 27, 1997.**
3.58 By-laws of Quantum Plus, Inc. dated February 1, 1997.**
3.59 Amendment and Restated Articles of Incorporation of Reich,
Seidelmann & Janicki Co. dated November 7, 1997.**
3.60 Code Regulations of Reich, Seidelmann & Janicki Co.**
3.61 Articles of Incorporation of Rosendorf, Marguiles, Borushok
& Shoenbaum Radiology Associates of Hollywood, Inc. dated
October 25, 1968.**
3.62 By-laws of Rosendorf, Marguiles, Borushok & Shoenbaum
Radiology Associates of Hollywood, Inc.**
3.63 Articles of Amendment to the Articles of Incorporation of
Sarasota Emergency Medical Consultants, Inc. dated August
7, 1997.**
3.64 By-laws of Sarasota Emergency Medical Consultants, Inc.**
3.65 Articles of Amendment to the Charter of Southeastern
Emergency Physicians, Inc. dated November 25, 1992.**
3.66 By-laws of Southeastern Emergency Physicians, Inc. dated
July 1, 1986.**
3.67 Articles of Amendment to the Charter of Southeastern
Emergency Physicians of Memphis, inc. dated June 15,
1992.**
3.68 By-laws of Southeastern Emergency Physicians of Memphis,
Inc.**
3.69 Charter of Team Health Financial Services, Inc. dated
October 9, 1997.**
3.70 By-laws of Team Health Financial Services, Inc.**
3.71 Articles of Incorporation of Team Radiology, Inc. dated
October 6, 1993.**
3.72 By-laws of Team Radiology, Inc. dated November 5, 1993.**
3.73 Certificate of Incorporation of THBS, Inc. dated October 20,
1997.**
3.74 By-laws of THBS, Inc.**
</TABLE>
II-3
<PAGE> 171
<TABLE>
<C> <S> <C>
3.75 Amended and Restated Articles of Incorporation of The
Emergency Associates for Medicine, Inc. dated August 30,
1996.**
3.76 By-laws of The Emergency Associates for Medicine, Inc.**
3.77 Articles of Incorporation of Virginia Emergency Physicians,
Inc. dated June 25, 1992.**
3.78 Amended and Restated By-laws of Virginia Emergency
Physicians, Inc.**
3.79 Articles of Incorporation of EMSA Joilet, Inc. dated
December 30, 1988.**
3.80 By-laws of EMSA Joilet, Inc.**
3.81 Certificate of limited Partnership of Paragon Healthcare
Limited Partnership, dated August 3, 1993.**
3.82 Certificate of Limited Partnership of Team Health Southwest,
L.P., dated May 20, 1998.**
3.83 Certificate of Limited Partnership of Team Health Billing
Services, L.P., dated October 21, 1997.**
3.84 Partnership Agreement of Fischer Mangold Group Partnership,
dated February 21, 1996.**
3.85 Partnership Agreement of Mt. Diablo Emergency Physicians, a
California General Partnership, dated June 1, 1997.**
3.86 Articles of Incorporation of Team Health, Inc.*
3.87 By-laws of Team Health, Inc.*
4.1 Indenture dated as of March 12, 1999 by and among Team
Health, Inc. the Guarantors listed on the signature pages
thereto and the United States Trust Company of New York.**
5.1 Opinion of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis with respect to federal tax
consequences.+
9.1 Stockholders Agreement dated as of March 12, 1999 by and
among Team Health, Inc., Team Health Holdings, L.L.C.,
Pacific Physicians Services, Inc., and certain other
stockholders of the Team Health, Inc. who are from time to
time party hereto.**
9.2 Securityholders Agreement dated as of March 12, 1999 by and
among Team Health Holdings, L.L.C., each of the persons
listed on Schedule A thereto and certain other
securityholders of Team Health Holdings, L.L.C. who are
from time to time party thereto.**
10.1 Registration Rights Agreement dated as of March 12, 1999 by
and among Team Health, Inc., the guarantors listed on the
signature pages thereto and Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities
LLC and Fleet Securities, Inc.**
10.2 Purchase Agreement dated as of March 5, 1999 by and among
Team Health, Inc. and the guarantors listed on the
signature pages thereto and Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities
LLC and Fleet Securities, Inc.**
10.3 Equity Deferred Compensation Plan of Team Health, Inc.
effective January 25, 1999.**
10.4 Management Services Agreement dated as of March 12, 1999 by
and among Team Health, Inc., Madison Dearborn Partners II,
L.P., Beecken, Petty & Company, L.L.C. and Cornerstone
Equity Investors LLC.**
10.5 Registration Agreement dated as of March 12, 1999 by and
among Team Health, Inc., Team Health Holdings, L.L.C.,
Pacific Physician Services, Inc. and certain other
stockholders of Team Health, Inc. who are from time to
time party thereto.**
10.6 Registration Agreement dated as of March 12, 1999 by and
among Team Health Holdings, L.L.C., each of the persons
listed on Schedule A thereto and certain other
securityholders of Team Health, Inc. who are from time to
time party thereto.**
10.7 Trust Agreement dated as of January 25, 1999 by and among
Team Health, Inc. and The Trust Company of Knoxville.**
</TABLE>
II-4
<PAGE> 172
<TABLE>
<C> <S> <C>
10.8 Credit Agreement dated as of March 12, 1999 by and among Team Health, Inc., the banks, financial
institutions and other institutional lenders named herein, Fleet National Bank, NationsBank, N.A.,
NationsBanc Montgomery Securities LLC and Donaldson, Lufkin & Jenrette Securities Corporation.**
10.9 Sheer Ahearn & Associates Plan Provision Nonqualified Excess Deferral Plan effective September 1, 1998.**
10.10 Amendment and Restatement of Emergency Professional Services, Inc. Deferred Compensation Plan effective
January 31, 1996.**
10.11 Lease Agreement dated August 27, 1992 between Med: Assure Systems and Winston Road Properties for our
corporate headquarters located at 1900 Winston Road, Knoxville, TN.**
10.12 Lease Agreement dated August 27, 1999 between Americare Medical Services, Inc. and Winston Road
Properties for space located at 1900 Winston Road, Knoxville, TN.**
10.13 1999 Stock Option Plan of Team Health, Inc.*
12.1 Statement of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Ernst & Young, LLP.*
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).**
24.1 Powers of Attorney (included in signature pages).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Letter of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
ITEM 21(b). FINANCIAL STATEMENT SCHEDULES.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO
BALANCE AT -------------------- BALANCE AT
BEGINNING COSTS AND END OF
FISCAL YEAR END OF PERIOD EXPENSES OTHER DEDUCTIONS PERIOD
- --------------- ---------- ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996....................... $181,525 $462,314 $-- $376,361 $267,478
December 31, 1997....................... 267,478 524,023 -- 507,443 284,058
December 31, 1998....................... 284,058 662,467 -- 582,225 364,300
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission, except for Schedule II
above, have been omitted because they are not required under the related
instructions, or are inapplicable, or because the information has been provided
in the Consolidated and Combined Financial Statements or the Notes thereto.
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
II-5
<PAGE> 173
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 or otherwise, each
undersigned registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Each undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Each undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Team Health, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President, Chief Executive Officer, Assistant
- --------------------------------------------- Secretary and Director (principal executive
H. Lynn Massingale, M.D. officer)
* Chief Operating Officer
- ---------------------------------------------
Michael Hatcher
/s/ DAVID JONES Chief Financial Officer, Treasurer and
- --------------------------------------------- Assistant Secretary (principal financial
David Jones officer and accounting officer)
* Executive Vice President, Finance and
- --------------------------------------------- Administration
Stephen Sherlin
* Director
- ---------------------------------------------
Dana J. O'Brien
* Director
- ---------------------------------------------
Timothy P. Sullivan
* Director
- ---------------------------------------------
Tyler Wolfram
* Director
- ---------------------------------------------
Nicholas W. Alexos
* Director
- ---------------------------------------------
Timothy P. Sullivan
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-7
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Alliance Corporation
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-8
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Charles L. Springfield, Inc.
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Richard Gillespie, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-9
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Clinic Management Services, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-10
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Daniel & Yeager, Inc.
By: *
------------------------------------
Name: John Daniel
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
John Daniel
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-11
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Drs. Sheer, Ahearn & Associates, Inc.
By: *
------------------------------------
Name: H. Kirby Blankenship, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
H. Kirby Blankenship, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-12
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergency Coverage Corporation
By: *
------------------------------------
Name: John Staley, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
John Staley, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-13
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergency Management Specialists, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-14
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergency Physician Associates, Inc.
By: *
------------------------------------
Name: James E. George, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
James E. George, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-15
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergency Physicians of Manatee, Inc.
By: *
------------------------------------
Name: James V. Hillman, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
James V. Hillman, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-16
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergency Professional Services, Inc.
By: *
------------------------------------
Name: James L. Ryback, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
James L. Ryback, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-17
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Emergicare Management, Incorporated
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-18
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Fischer Mangold Partnership
By: Herschel Fischer, Inc.,
Its General Partner
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
By: Karl G. Mangold, Inc.,
Its General Partner
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President of each of Herschel Fischer, Inc. and Karl
- --------------------------------------------- G. Mangold, Inc. (principal executive officer)
Richard Gillespie, M.D.
/s/ DAVID JONES Vice President and Treasurer of each of Herschel
- --------------------------------------------- Fischer, Inc. and Karl G. Mangold, Inc. (principal
David Jones financial officer and accounting officer)
* Vice President and Director of each of Herschel
- --------------------------------------------- Fischer, Inc. and Karl G. Mangold, Inc.
H. Lynn Massingale
* Vice President, Secretary and Director of each of
- --------------------------------------------- Herschel Fischer, Inc. and Karl G. Mangold, Inc.
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-19
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Herschel Fischer, Inc.
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Richard Gillespie, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-20
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Hospital Based Physician Services,
Inc.
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-21
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
IMBS, Inc.
By: *
------------------------------------
Name: Jeffrey Bettinger, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Jeffrey Bettinger, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-22
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Anesthesia of West Virginia,
Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-23
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Contracting Services, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-24
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Hospital Services, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-25
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Joliet, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-26
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Louisiana, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-27
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet Medical Management Institute,
Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-28
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
InPhyNet South Broward, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-29
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Karl G. Mangold, Inc.
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Richard Gillespie, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-30
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Med: Assure Systems, Inc.
By: *
------------------------------------
Name: Jeffrey Bettinger, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Jeffrey Bettinger, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-31
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
MetroAmerican Radiology, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale,M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-32
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
MT. DIABLO EMERGENCY PHYSICIANS
By: Herschel Fischer, Inc.,
its general partner
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
By: Karl G. Mangold, Inc.,
its general partner
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer) of each
- --------------------------------------------------- of Herschel Fischer, Inc. and Karl G.
Richard Gillespie, M.D. Mangold, Inc.
/s/ DAVID JONES Vice President and Treasurer (principal
- --------------------------------------------------- financial officer
David Jones and accounting officer) of each of Herschel
Fischer, Inc. and Karl G. Mangold, Inc.
* Vice President and Director of each of Herschel
- --------------------------------------------------- Fischer, Inc. and Karl G. Mangold, Inc.
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director of each
- --------------------------------------------------- of Herschel Fischer, Inc. and Karl G.
Michael Hatcher Mangold, Inc.
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-33
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Neo-Med, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-34
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Northwest Emergency Physicians,
Incorporated
By: *
------------------------------------
Name: Gerard LaSalle, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Gerard LaSalle, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-35
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Paragon Anesthesia, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-36
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, July 26, 1999.
Paragon Contracting Services, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-37
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Paragon Healthcare Limited Partnership
By: InPhyNet Hospital Services, Inc.,
its general partner
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer) of
- --------------------------------------------------- InPhyNet Hospital Services, Inc.
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------------- officer and accounting officer) of InPhyNet
David Jones Hospital Services, Inc.
* Vice President and Director of InPhyNet Hospital
- --------------------------------------------------- Services, Inc.
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director of
- --------------------------------------------------- InPhyNet Hospital Services, Inc.
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-38
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Paragon Imaging Consultants, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-39
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Quantum Plus, Inc.
By: *
------------------------------------
Name: Richard Gillespie, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Richard Gillespie, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-40
<PAGE> 208
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Reich, Seidelman & Janicki Co.
By: *
------------------------------------
Name: Norbert Reich, D.O.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Norbert Reich, D.O.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-41
<PAGE> 209
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Rosendorf, Margulies, Borushok &
Schoenbaum
Radiology Associates of
Hollywood, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale,M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-42
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Sarasota Emergency Medical
Consultants, Inc.
By: *
------------------------------------
Name: James Hillman, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
James Hillman, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-43
<PAGE> 211
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Southeastern Emergency Physicians of
Memphis,
Inc.
By: *
------------------------------------
Name: Randal Dabbs, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Randal Dabbs, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-44
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Southeastern Emergency Physicians Inc.
By: *
------------------------------------
Name: Randal Dabbs, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Randal Dabbs, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial and
- --------------------------------------------- accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-45
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Team Health Billing Services, L.P.
By: Team Health, Inc., its general
partner
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President, Chief Executive Officer, Assistant
- --------------------------------------------- Secretary and Director of Team Health, Inc.
H. Lynn Massingale, M.D. (principal executive officer)
/s/ DAVID JONES Vice President and Treasurer of Team Health, Inc.
- --------------------------------------------- (principal financial officer and accounting officer)
David Jones
* Director of Team Health, Inc.
- ---------------------------------------------
Dana J. O'Brien
* Director of Team Health, Inc.
- ---------------------------------------------
Timothy P. Sullivan
* Director of Team Health, Inc.
- ---------------------------------------------
Tyler Wolfram
* Director of Team Health, Inc.
- ---------------------------------------------
Nicholas W. Alexos
* Director of Team Health, Inc.
- ---------------------------------------------
Kenneth O'Keefe
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-46
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Team Health Financial Services, Inc.
By: *
------------------------------------
Name: Jeffrey Bettinger, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Jeffrey Bettinger, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-47
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
TEAM HEALTH SOUTHWEST, L.P.
By: Team Radiology, Inc., its general
partner
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director of
- --------------------------------------------------- of Team Radiology, Inc.
H. Lynn Massingale, M.D. (principal executive officer)
/s/ DAVID JONES Vice President and Treasurer of Team Radiology,
- --------------------------------------------------- Inc. (principal financial officer and
David Jones accounting officer)
* Vice President, Secretary and Director of Team
- --------------------------------------------------- Radiology, Inc.
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-48
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Team Radiology, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-49
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
THBS, Inc.
By: *
------------------------------------
Name: H. Lynn Massingale, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Director (principal executive officer)
- ---------------------------------------------
H. Lynn Massingale, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-50
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
The Emergency Associates for Medicine,
Inc.
By: *
------------------------------------
Name: James V. Hillman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
James V. Hillman
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-51
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Knoxville, State of Tennessee, on July 26, 1999.
Virginia Emergency Physicians, Inc.
By: *
------------------------------------
Name: Neil J. Principe, M.D.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President (principal executive officer)
- ---------------------------------------------
Neil J. Principe, M.D.
/s/ DAVID JONES Vice President and Treasurer (principal financial
- --------------------------------------------- officer and accounting officer)
David Jones
* Vice President and Director
- ---------------------------------------------
H. Lynn Massingale, M.D.
* Vice President, Secretary and Director
- ---------------------------------------------
Michael Hatcher
</TABLE>
- ---------------
* Signed by power-of-attorney.
II-52
<PAGE> 220
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Recapitalization Agreement dated January 25, 1999 by and
among Team Health, Inc., MedPartners, Inc., Pacific
Physician Services, Inc. and Team Health Holdings,
L.L.C.**
3.1 Articles of Amendment to the Articles of Incorporation of
Alliance Corporation dated January 15, 1997.**
3.2 By-laws of Alliance Corporation.**
3.3 Articles of Incorporation of Emergency Management
Specialists, Inc. dated August 12, 1983.**
3.4 By-laws of Emergency Management Specialists, Inc.**
3.5 Articles of Incorporation of EMSA South Broward, Inc. dated
December 3, 1996.**
3.6 By-laws of EMSA South Broward, Inc.**
3.7 Articles of Incorporation of Herschel Fischer, Inc. dated
February 18, 1997.**
3.8 By-laws of Herschel Fischer, Inc. dated February 21, 1997.**
3.9 Articles of Incorporation of IMBS, Inc. dated November 30,
1995.**
3.10 By-laws of IMBS, Inc.**
3.11 Articles of Incorporation of InPhyNet Hospital Services,
Inc. dated November 30, 1995.**
3.12 By-laws of InPhyNet Hospital Services, Inc.**
3.13 Certificate of Amendment of Certificate of Incorporation of
InPhyNet Medical Management Institute, Inc. dated February
28, 1996.**
3.14 By-laws of InPhyNet Medical Management Institute, Inc.**
3.15 Articles of Incorporation of Karl G. Mangold, Inc. dated
February 14, 1997.**
3.16 By-laws of Karl G. Mangold, Inc. dated February 20, 1997.**
3.17 Amended and Restated Articles of Incorporation of Charles L.
Springfield, Inc. dated November 21, 1997.**
3.18 Amendment to By-laws of Charles L. Springfield, Inc. dated
November 20, 1997.**
3.19 Articles of Amendment to the Charter of Clinic Management
Services, Inc. dated March 25, 1994.**
3.20 By-laws of Clinic Management Services, Inc.**
3.21 Articles of Incorporation of Daniel & Yeager, Inc. dated
October 25, 1989.**
3.22 By-laws of Daniel & Yeager, Inc. dated October 6, 1989.**
3.23 Articles of Incorporation of Drs. Sheer, Ahearn &
Associates, Inc. dated March 31, 1969.**
3.24 Amended and Restated By-laws of Drs. Sheer, Ahearn &
Associates, Inc. dated February 15, 1989.**
3.25 Articles of Amendment to the Charter of Emergency Coverage
Corporation dated February 15, 1993.**
3.26 Amendment to By-laws of Emergency Coverage Corporation dated
June 12, 1995.**
3.27 Restated Certificate of Incorporation of Emergency Physician
Associates, Inc. dated June 25, 1996.**
3.28 By-laws of Emergency Physician Associates, Inc.**
3.29 Articles of Incorporation of Emergency Physicians of
Manatee, Inc. dated June 1, 1988.**
3.30 By-laws of Emergency Physicians of Manatee, Inc.**
3.31 Certificate to Amend the Articles of Incorporation of
Emergency Professional Services, Inc. dated September 30,
1997.**
</TABLE>
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.32 Code Regulations of Emergency Professional Services, Inc.
amended June 22, 1987.**
3.33 Amended and Restated Charter of Emergicare Management,
Incorporated dated February 28, 1995.**
3.34 By-laws of Emergicare Management, Incorporated dated
December 29, 1972.**
3.35 Articles of Incorporation of EMSA Contracting Service, Inc.
dated November 30, 1995.**
3.36 By-laws of EMSA Contracting Service, Inc.**
3.37 Articles of Amendment of EMSA Louisiana, Inc. dated May 28,
1989.**
3.38 By-laws of EMSA Louisiana, Inc.**
3.39 Articles of Amendment to the Charter of Hospital Based
Physician Services, Inc. dated March 25, 1994.**
3.40 By-laws of Hospital Based Physician Services, Inc. dated
July 18, 1993.**
3.41 Articles of Incorporation of InPhyNet Anesthesia of West
Virginia, Inc. dated February 28, 1997.**
3.42 By-laws of InPhyNet Anesthesia of West Virginia, Inc.**
3.43 Articles of Amendment to the Charter of Med: Assure Systems,
Inc. dated October 28, 1992.**
3.44 By-laws of Med: Assure Systems, Inc. dated February 25,
1987.**
3.45 Articles of Incorporation of MetroAmerican Radiology, Inc.
dated April 19, 1989.**
3.46 By-laws of MetroAmerican Radiology, Inc. dated April 23,
1989.**
3.47 Articles of Incorporation of Neo-Med, Inc. dated November
15, 1993.**
3.48 By-laws of Neo-Med, Inc.**
3.49 Articles of Incorporation of Northwest Emergency Physicians,
Incorporated dated June 4, 1985.**
3.50 By-laws of Northwest Emergency Physicians, Incorporated.**
3.51 Certificate of Amendment of Certificate of Incorporation of
Paragon Anesthesia, Inc. dated September 20, 1994.**
3.52 By-laws of Paragon Anesthesia, Inc.**
3.53 Articles of Incorporation of Paragon Contracting Services,
Inc. dated November 30, 1995.**
3.54 By-laws of Paragon Contracting Services, Inc.**
3.55 Certificate of Amendment of Certificate of Incorporation of
Paragon Imaging Consultants, Inc. dated May 7, 1993.**
3.56 By-laws of Paragon Imaging Consultants, Inc.**
3.57 Articles of Incorporation of Quantum Plus, Inc. dated
January 27, 1997.**
3.58 By-laws of Quantum Plus, Inc. dated February 1, 1997.**
3.59 Amendment and Restated Articles of Incorporation of Reich,
Seidelmann & Janicki Co. dated November 7, 1997.**
3.60 Code Regulations of Reich, Seidelmann & Janicki Co.**
3.61 Articles of Incorporation of Rosendorf, Marguiles, Borushok
& Schoenbaum Radiology Associates of Hollywood, Inc. dated
October 25, 1968.**
3.62 By-laws of Rosendorf, Marguiles, Borushok & Schoenbaum
Radiology Associates of Hollywood, Inc.**
3.63 Articles of Amendment to the Articles of Incorporation of
Sarasota Emergency Medical Consultants, Inc. dated August
7, 1997.**
3.64 By-laws of Sarasota Emergency Medical Consultants, Inc.**
</TABLE>
<PAGE> 222
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.65 Articles of Amendment to the Charter of Southeastern
Emergency Physicians, Inc. dated November 25, 1992.**
3.66 By-laws of Southeastern Emergency Physicians, Inc. dated
July 1, 1986.**
3.67 Articles of Amendment to the Charter of Southeastern
Emergency Physicians of Memphis, Inc. dated June 15,
1992.**
3.68 By-laws of Southeastern Emergency Physicians of Memphis,
Inc.**
3.69 Charter of Team Health Financial Services, Inc. dated
October 9, 1997.**
3.70 By-laws of Team Health Financial Services, Inc.**
3.71 Articles of Incorporation of Team Radiology, Inc. dated
October 6, 1993.**
3.72 By-laws of Team Radiology, Inc. dated November 5, 1993.**
3.73 Certificate of Incorporation of THBS, Inc. dated October 20,
1997.**
3.74 By-laws of THBS, Inc.**
3.75 Amended and Restated Articles of Incorporation of The
Emergency Associates for Medicine, Inc. dated August 30,
1996.**
3.76 By-laws of The Emergency Associates for Medicine, Inc.**
3.77 Articles of Incorporation of Virginia Emergency Physicians,
Inc. dated June 25, 1992.**
3.78 Amended and Restated By-laws of Virginia Emergency
Physicians, Inc.**
3.79 Articles of Incorporation of EMSA Joliet, Inc. dated
December 30, 1998.**
3.80 By-laws of EMSA Joliet, Inc.**
3.81 Certificate of Limited Partnership of Paragon Healthcare
Limited Partnership, dated August 3, 1993.**
3.82 Certificate of Limited Partnership of Team Health Southwest,
L.P., dated May 20, 1998.**
3.83 Certificate of Limited Partnership of Team Health Billing
Services, L.P., dated October 21, 1997.**
3.84 Partnership Agreement of Fischer Mangold Group Partnership,
dated February 21, 1996.**
3.85 Partnership Agreement of Mt. Diablo Emergency Physicians, a
California General Partnership, dated June 1, 1997.**
3.86 Articles of Incorporation of Team Health, Inc.*
3.87 By-laws of Team Health, Inc.*
4.1 Indenture dated as of March 12, 1999 by and among Team
Health, Inc. the Guarantors listed on the signature pages
thereto and the United States Trust Company of New York.**
5.1 Opinion of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis with respect to federal tax
consequences.+
9.1 Stockholders Agreement dated as of March 12, 1999 by and
among Team Health, Inc., Team Health Holdings, L.L.C.,
Pacific Physicians Services, Inc., and certain other
stockholders of the Team Health, Inc. who are from time to
time party thereto.**
9.2 Securityholders Agreement dated as of March 12, 1999 by and
among Team Health Holdings, L.L.C., each of the persons
listed on Schedule A thereto and certain other
securityholders of Team Health Holdings, L.L.C. who are
from time to time party thereto.**
10.1 Registration Rights Agreement dated as of March 12, 1999 by
and among Team Health, Inc., the guarantors listed on the
signature pages thereto and Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities
LLC and Fleet Securities, Inc.**
</TABLE>
<PAGE> 223
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.2 Purchase Agreement dated as of March 5, 1999 by and among
Team Health, Inc. and the guarantors listed on the
signature pages thereto and Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities
LLC and Fleet Securities, Inc.**
10.3 Equity Deferred Compensation Plan of Team Health, Inc.
effective January 25, 1999.**
10.4 Management Services dated as of March 12, 1999 by and among
Team Health, Inc., Madison Dearborn Partners II, L.P.,
Beecken, Petty & Company, L.L.C. and Cornerstone Equity
Investors LLC.**
10.5 Registration Agreement dated as of March 12, 1999 by and
among Team Health, Inc., Team Health Holdings, L.L.C.,
Pacific Physician Services, Inc. and certain other
stockholders of Team Health, Inc. who are from time to
time party thereto.**
10.6 Registration Agreement dated as of March 12, 1999 by and
among Team Health Holdings, L.L.C., each of the persons
listed on Schedule A thereto and certain other
securityholders of Team Health, Inc. who are from time to
time party thereto.**
10.7 Trust Agreement dated as of January 25, 1999 by and among
Team Health, Inc. and The Trust Company of Knoxville.**
10.8 Credit Agreement dated as of March 12, 1999 by and among
Team Health, Inc., the banks, financial institutions and
other institutional lenders named herein, Fleet National
Bank, NationsBank, N.A., NationsBanc Montgomery Securities
LLC and Donaldson, Lufkin & Jenrette Securities
Corporation.**
10.9 Sheer Ahearn & Associates Plan Provision Nonqualified Excess
Deferral Plan effective September 1, 1998.**
10.10 Amendment and Restatement of Emergency Professional
Services, Inc. Deferred Compensation Plan effective
January 31, 1996.**
10.11 Lease Agreement dated August 27, 1999 between Med: Assure
Systems and Winston Road Properties for our corporate
headquarters located at 1900 Winston Road, Knoxville,
TN.**
10.12 Lease Agreement dated August 27, 1999 between Americare
Medical Services, Inc. and Winston Road Properties for
space located at 1900 Winston Road, Knoxville, TN.**
10.13 1999 Stock Option Plan of Team Health, Inc.*
12.1 Statement of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Ernst & Young, LLP.*
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).**
24.1 Powers of Attorney (included in signature pages).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Letter of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.86
CHARTER OF
TEAM HEALTH GROUP, INC.
ARTICLE I
The name of the corporation is Team Health Group, Inc.
ARTICLE II
The address of the corporation's registered office in this
state, and the name of its registered agent at such address is:
The Corporation Trust Company
530 Gay Street
Knox County
Knoxville, Tennessee 37902
ARTICLE III
The address of the corporation's principal office is:
1900 Winston Road
Third Floor
Knoxville, Tennessee 37919
ARTICLE IV
The corporation is for profit.
ARTICLE V
The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the Tennessee Business
Corporation Act, as amended ("Act")
ARTICLE VI
The total number of shares of all classes of stock that the
corporation shall have authority to issue is 10,588,000 shares, of which 588,000
shares shall be designated as Class A Preferred Stock, of the par value of $1.00
per share, and 10,000,000 shares shall be designated as Common Stock, of the par
value of $.10 per share.
CLASS A PREFERRED STOCK
<PAGE> 2
1. DIVIDENDS.
The holders of shares of Class A Preferred Stock shall not be
entitled to receive any dividends with respect to the Class A Preferred Stock.
2. VOTING RIGHTS.
Except as otherwise provided by law, the shares of Class A
Preferred Stock shall not have any voting rights, either general or special,
except that:
a. Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the
holders of at least 66-2/3% of all of the shares of the Class
A Preferred Stock at the time outstanding, given in person or
by proxy, either in writing or by a vote at a meeting called
for that purpose at which the holders of shares of Class A
Preferred Stock shall vote together as a separate class, shall
be necessary for authorizing, effecting or validating the
amendment, alteration or repeal of any of the provisions of
the Charter of the corporation or of any amendment thereto
which would adversely affect the preferences, rights, powers
or privileges of the Class A Preferred Stock;
b. Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the
holders of at least 66-2/3% of all of the shares of the Class
A Preferred Stock and all other series of preferred stock
ranking on a parity with shares of the Class A Preferred
Stock, given in person or by proxy, either in writing or by a
vote at a meeting called for that purpose at which the holders
of shares of the Class A Preferred Stock and such other series
of preferred stock shall vote together as a single class
without regard to series, shall be necessary for authorizing,
effecting or validating the creation, authorization or issue
of any shares of any class of stock of the corporation ranking
prior to the shares of the Class A Preferred Stock upon
liquidation or the reclassification of any authorized stock of
the corporation into any such prior shares, or the creation,
authorization or issue of any obligation or security
convertible into or evidencing the right to purchase any such
prior shares.
3. CONVERSION.
a. Each share of Class A Preferred Stock shall automatically be
converted into shares of Common Stock at the ten-effective
conversion price ("Conversion Price") upon the earlier of (the
"Conversion Date") (i) immediately prior to the closing of a
firm commitment, underwritten public offering pursuant to an
effective registration statement, under the Securities Act of
1933, as amended (the "Securities Act"), covering the offer
and sale of the corporation's Common Stock at an aggregate
offering price of not less than $15,000,000, other than a
registration relating solely to a transaction under Rule 145
under the Securities Act (or any successor thereto) or to an
employee benefit plan of the corporation, or (ii) on March 31,
1998, or (iii)
<PAGE> 3
immediately prior to any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation. The merger or
consolidation of the corporation into or with another
corporation in which this corporation shall not survive and in
which the stockholders of the corporation shall own less than
fifty (50%) percent of the voting securities of the surviving
corporation or the sale, transfer or lease (but not including
a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the
corporation shall be deemed to be a liquidation, dissolution
or winding up of the corporation as those terms are used in
this Article VI. The number of shares of Common Stock into
which each share of the Class A Preferred Stock shall be
converted shall be determined by dividing $40.00 by the
Conversion Price determined in the manner hereinafter provided
at the Conversion Date.
b. (i) The Conversion Price in the case of a firm
commitment, underwritten public offering as provided above
shall be the price at which such shares of Common Stock are
initially offered to the public;
(ii) If the after-tax earnings of the corporation as
shown in a statement of profits and losses for the year ended
March 31, 1998, audited by the corporation's certified public
accountants, which statement shall fairly present the results
of operations for that year and have been prepared in
accordance with generally accepted accounting principles
applied on a basis consistent with that of the preceding years
(the "Earnings") are $12,500,000 or less, the Conversion Price
on March 31, 1998 shall be $40.00. If the Earnings exceed
$12,500,000, the Conversion Price on March 31, 1998 shall be
equal to (A) the Earnings, less (B) $12,500,000, divided by
(C) 2, plus (D) $3,900,000 divided by (E) the Earnings,
divided into (F) 490,000, less (G) 980,000, and divided into
(H) 23,520,000;
(iii) Upon the liquidation, dissolution or winding up
of the corporation, the Conversion Price shall be $8.16 if the
total value of or received by the corporation, as appropriate,
in such transaction (the "Liquidation Value") is $31,520,000
or less. If the Liquidation Value exceeds $31,520,000, the
Conversion Price shall be equal to (A) the Liquidation Value,
less (B) $31,520,000, divided by (C) 2, plus (D) $4 million,
divided by (E) the Liquidation Value, divided into (F)
490,000, less (G) 980,000, and divided into (H) 23,520,000. In
the event of any liquidation, dissolution or winding up of the
corporation, which will involve the distribution of assets
other than cash, the corporation shall promptly engage
competent independent appraisers to determine the Liquidation
Value (it being understood that with respect to the valuation
of securities, the corporation shall engage such appraisers as
shall be approved by the holders of a majority of shares of
the corporation's outstanding Class A Preferred Stock). The
corporation shall, upon receipt of such appraiser's valuation,
give prompt written notice to each holder of shares of Class A
Preferred Stock of the appraiser's valuation.
c. From and after the applicable Conversion Date, the shares of
Class A Preferred Stock will cease to be outstanding and the
holders thereof shall cease to be
<PAGE> 4
shareholders with respect to such shares and shall have no
interest in or claim against the corporation with respect to
such shares other than to receive the shares of Common Stock
of the corporation to which the shares of Class A Preferred
Stock have been converted, upon surrender of their
certificates of Class A Preferred Stock with endorsement
thereon if required.
d. No fractional shares of Common Stock or script shall be issued
upon conversion of shares of Class A Preferred Stock. Instead
of any fractional shares of Common Stock which would otherwise
be issuable upon conversion of any shares of Class A Preferred
Stock, the corporation shall pay a cash adjustment in respect
of such fractional interest equal to the fair market value of
such fractional interest as determined by the corporation's
Board of Directors.
e. To the extent ascertainable, the corporation shall at all
times reserve and keep available, out of its authorized but
unissued Common Stock, solely for the purpose of effecting the
conversion of the Class A Preferred Stock, the full number of
shares of Common Stock deliverable upon the conversion of all
shares of Class A Preferred Stock from time to time
outstanding. The corporation shall from time to time (subject
to obtaining necessary director and shareholder action) in
accordance with the laws of the State of Tennessee, increase
the authorized amount of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all the
shares of Class A Preferred Stock at the time outstanding.
f. If any shares of Common Stock to be reserved for the purpose
of conversion of shares of Class A Preferred Stock require
registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise, before such
shares may be validly issued or delivered upon conversion, the
corporation will in good faith and as expeditiously as
possibly endeavor to secure such registration, listing or
approval, as the case may be.
g. All shares of Common Stock which may be issued upon conversion
of the shares of the Class A Preferred Stock will upon
issuance by the corporation be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.
h. In case the outstanding cares of Class A Preferred Stock shall
be subdivided into a greater number of shares of Class A
Preferred Stock, the Conversion Price shall be proportionally
increased, and, conversely, in case outstanding shares of
Class A Preferred Stock shall be combined into a smaller
number of shares of Class A Preferred Stock, the Conversion
Price shall be proportionally reduced, so that, in either
event, the holders of the Class A Preferred Stock will receive
the number of shares of Common Stock to which they would have
been entitled if the subdivision or combination had not taken
place.
<PAGE> 5
i. In case the corporation shall (A) declare a
dividend on its Common Stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock, or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price in
effect at the time of the record date or of the effective date
of such subdivision or combination shall be proportionately
adjusted so that the holder of any share of Class A Preferred
Stock surrendered for conversion after such time shall be
entitled to receive the kind and amount of shares which he
would have owned or have been entitled to receive had such
shares of Class A Preferred Stock been converted immediately
prior to such time. Such adjustment shall be made successively
whenever any event listed above shall occur.
j. The corporation will not, by amendment of its
Charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of any
securities, or any other voluntary action, avoid or seek to
avid the observance or performance of any of the terms to be
observed or performed hereunder by the corporation, but will
at all times in good faith assist in the carrying out of all
the provisions of its Charter and the taking of all such
action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Class A Preferred
Stock against impairment.
k. Upon the occurrence of each event of conversion,
the corporation at its expense shall promptly compute the
Conversion Price in accordance with the terms hereof, cause
independent public accountants selected by the corporation to
verify such computation, and prepare and furnish to each
holder of Class A Preferred Stock a certificate setting forth
such Conversion Price and the number of shares of Common Stock
which are to be received upon the conversion of each share of
Class A Preferred Stock and showing in detail the facts upon
which such computation is based.
4. OPTIONAL REDEMPTION.
a. All but not less than all of the Class A Preferred
Stock is redeemable in whole but not in part at any time at
the option of the corporation upon the vote of at least 70% of
all directors of the corporation at the redemption price
("Redemption Price") of $40 per share in cash.
b. In case the outstanding shares of Class A
Preferred Stock shall be subdivided into a greater number of
shares of Class A Preferred Stock, the Redemption Price shall
be proportionately reduced, and conversely, in case
outstanding shares of Class A Preferred Stock shall be
combined into a smaller number of shares of Class A Preferred
Stock, the Redemption Price shall be proportionately
increased, so that the holder of any share of Class A
Preferred Stock after such subdivision or combination shall be
entitled to receive the same total amount on redemption that
he would have received had such share of Class A Preferred
Stock been redeemed immediately prior to such subdivision or
combination.
<PAGE> 6
c. Notice of redemption will be mailed at least
fifteen (15) days but not more than sixty (60) days before the
redemption date to each holder of record of shares of Class A
Preferred Stock at the address shown on the stock books of the
corporation (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption.
d. From and after the redemption date, the shares of
Class A Preferred Stock will cease to be outstanding to the
holders thereof shall cease to be shareholders with respect to
such shares and shall have no interest in or claim against the
corporation with respect to such shares other than to receive
the Redemption Price for the shares of Class A Preferred Stock
which had been redeemed, upon surrender of their certificates
of Class A Preferred Stock with endorsement thereon if
required.
COMMON STOCK
The Common Stock shall have unlimited voting rights. Holders
of Common Stock are entitled to one vote for each share at all meetings of
shareholders and have no preemptive or other rights to subscribe for additional
shares. There are no cumulative voting rights. Holders of Common Stock are
entitled to such dividends as may be declared by the Board of Directors from
time to time out of funds legally available therefor. The holders of Common
Stock are entitled to share ratably in any assets remaining after satisfaction
of all prior claims upon liquidation of the corporation.
ISSUANCE OF CAPITAL STOCK
The issuance of the corporation of shares of capital stock of
the corporation to the initial shareholders of the corporation and their
immediate family members shall require the vote of at least 70% of all directors
of the corporation.
ARTICLE VII
Except as otherwise provided in this Charter, whenever the
vote of shareholders of any class of the capital stock of the corporation at a
meeting of such shareholders is required or permitted to be taken for or in
connection with any corporate action, the meeting and vote of such shareholders
may be dispensed with and such action may be taken with the written consent of
shareholders holding shares of the capital stock of the corporation with voting
power of not less than the minimum percentage of the vote required by statute,
this Charter or the bylaws of the corporation for the proposed corporate action,
provided that prompt notice shall be given to all shareholders of the
corporation of the taking of such corporate action without a meeting of the
shareholders and by less than unanimous consent.
<PAGE> 7
ARTICLE VIII
The name and mailing address of the incorporator is:
Norman R. Miller
Boult, Cummings, Conners & Berry
414 Union Street, Suite 1600
Nashville, Tennessee 37219
ARTICLE IX
The corporation may indemnify and advance expenses to persons
who are or were directors or officers of the corporation in accordance with the
Act.
ARTICLE X
No person who is or was a director of this corporation, nor
his heirs, executors or administrators, shall be personally liable to this
corporation or its shareholders, and no such person may be sued by the
corporation or its shareholders, for monetary damages for breach of fiduciary
duty as a director; provided, however, that this provision shall not eliminate
or limit the liability of any such party (i) for any breach of a director's duty
of loyalty to the corporation or its shareholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, or (iii) for unlawful distributions under Section 48-18-304 of the Act.
Any repeal or modification of the provisions of this Article
X, directly or by the adoption of an inconsistent provision of this charter,
shall not adversely affect any right or protection set forth herein in favor of
a particular individual at the time of such repeal or modification.
ARTICLE XI
In addition to the requisite vote of shareholders of the
corporation, the vote of 70% of all directors of the corporation is required to
amend, alter or repeal Article VI of this Charter.
Dated: March 29, 1994.
/s/ Norman R. Miller
--------------------
Norman R. Miller, Incorporator
<PAGE> 8
ARTICLES OF AMENDMENT
TO THE CHARTER OF
TEAM HEALTH GROUP, INC.
Pursuant to the provisions of Section 48-20-101 through Section
48-20-106 of the Tennessee Business Corporation Act, the undersigned corporation
adopts the following Articles of Amendment to its Charter:
1. The name of the corporation is Team Health Group, Inc.
2. The text of each amendment adopted is:
The first paragraph of Article Six shall be deleted
in its entirety and the following shall be inserted
in lieu thereof:
The total number of shares of all classes of stock
that the corporation shall have authority to issue is
10,609,326 shares, of which 609,326 shares shall be
designated as Class A Preferred Stock, no par value
per share, and 10,000,000 shares shall be designated
as Common Stock, no par value per share.
3. The amendment was duly adopted on December 30, 1994 by the
shareholders.
December 30, 1994 TEAM HEALTH GROUP, INC.
By: /s/ G. Edward Alexander
---------------------------
G. Edward Alexander, Jr.
Chief Financial Officer
<PAGE> 9
ARTICLES OF MERGER
PF
PPS ACQUISITION, INC.
INTO
TEAM HEALTH GROUP, INC.
PPS ACQUISITION, INC., a Tennessee corporation ("PPSA") and TEAM HEALTH
GROUP, INC., a Tennessee corporation ("Team Health"), acting pursuant to
Sections 48-21-105 and 48-21-107 of the Tennessee Business Corporation Act, as
amended, hereby adopt the following Articles of Merger:
1. The Plan of Merger is attached hereto.
2. The Plan of Merger was duly adopted and approved by the
affirmative vote of the required percentage of holders of the issued and
outstanding voting stock of PPSA entitled to vote thereon, by written consent in
lieu of a meeting, dated as of June 27, 1995.
3. The Plan of Merger was duly adopted and approved by the
affirmative vote of the required percentage of holders of the issued and
outstanding voting stock of Team Health entitled to vote thereon at a meeting
held on June 27, 1995.
4. This merger is to be effective when these Articles of Merger
are filed by the Secretary of State.
Dated as of this 27th day of June 1995.
PPS ACQUISITION, INC.
By: /s/ Gary L. Groves
----------------------
Gary L. Groves, M.D., President
TEAM HEALTH GROUP, INC.
By: /s/ Lynn Massingale
-----------------------
Lynn Massingale, M.D., F.A.C.E.P.,
President and Chief Executive Officer
<PAGE> 10
ARTICLES OF AMENDMENT TO THE CHARTER
OF
TEAM HEALTH GROUP, INC.
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
articles of amendment to its charter:
1. The name of the Corporation is Team Health Group, Inc.
2. The text of the amendment adopted is as follows:
Article I of the Charter of Team Health Group, Inc.
is hereby deleted in its entirety and the following inserted
in lieu thereof:
1. The name of the corporation is TEAM HEALTH, INC.
3. The Corporation is a for-profit corporation.
4. The amendment was duly adopted by the Board of Directors of
the Corporation as of the 7th day of March, 1997, and pursuant to Section
48-20-102 of the Tennessee Business Corporation Act, does not require
shareholder approval.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th
day of March, 1997.
3/7/97 TEAM HEALTH GROUP, INC.
- -------------- -------------------
Signature Date Name of Corporation
Vice President /s/ Harold C. Knight
-------------- --------------------
Signer's Capacity Signature
Harold C. Knight, Jr.
---------------------
Name (typed or printed)
<PAGE> 11
ARTICLES OF MERGER
OF
TEAM HEALTH GROUP, INC.
(A NORTH CAROLINA CORPORATION)
INTO
TEAM HEALTH GROUP, INC.
(A TENNESSEE CORPORATION)
Pursuant to the provisions of Section 48-21-107 of the
Tennessee Business Corporation Act, the undersigned corporations adopt the
following Articles of Merger to effect the merger of a foreign wholly owned
subsidiary into a domestic parent corporation.
1. a. The attached Plan of Merger (Exhibit "A"), was approved
by each of the undersigned corporations in the manner prescribed by the
Tennessee Business Corporation Act.
b. As to Team Health Group, Inc., a North Carolina
Corporation, the Plan of Merger and the performance of its terms where duly
authorized by all action required by the Business Corporation Act of the State
of North Carolina, and by its charter.
2. Approval by the Shareholders of each corporation that is a
party to the merger is not required by the Tennessee Business Corporation act,
T.C.A. section 48-21-105.
3. AS to the subsidiary corporation, Team Health Group, Inc.,
( a North Carolina Corporation), the plan was duly adopted and approved by the
Board of Directors by the written consent of all Directors on December 12, 1995.
1
<PAGE> 12
4. As to the parent corporation Team Health Group, Inc., (a
Tennessee Corporation), the plan was duly adopted and approved by the Board of
Directors by the written consent of all Directors on December 12, 1995.
5. These Articles of Merger shall take effect on December 31,
1995.
6. The parent corporation, being the sole shareholder of the
wholly owned subsidiary, has waived the requirement of mailing a copy of the
Plan of Merger pursuant to T.C.A. Section 48-21-105(c).
IN WITNESS WHEREOF, these Articles of Merger are executed and
approved on behalf of the parties to the merger by the undersigned, pursuant to
the authorization of the directors of each corporation.
Dated: December 12, 1995.
TEAM HEALTH GROUP, INC.
(a North Carolina Corporation)
By: /s/
------------------------------
Its:
------------------------------
TEAM HEALTH GROUP, INC.
(a Tennessee Corporation)
By: /s/
------------------------------
Its: Secretary
------------------------------
2
<PAGE> 13
ARTICLES OF MERGER
OF
AMERICARE MEDICAL SERVICES, INC.
INTO
TEAM HEALTH GROUP, INC.
(A TENNESSEE CORPORATION)
Pursuant to the provisions of Sections 48-21-105 and
48-21-107 of the Tennessee Business Corporation Act, the undersigned
corporations, each of which is a Tennessee Corporation, adopt the following
Articles of Merger:
1. The attached Plan of Merger (Exhibit "A"), was approved by
each of the undersigned corporations in the manner prescribed by the Tennessee
Business Corporation Act.
2. Approval by the Shareholders of each corporation that is a
party to the merger is not required by the Tennessee Business Corporation Act.
3. As to Americare Medical Services, Inc., a Tennessee
corporation, the plan was duly adopted by the Board of Directors on December 26,
1996.
4. As to Team Health Group, Inc., a Tennessee corporation, the
plan was duly adopted by the Board of Directors on December 26, 1996.
5. These Articles of Merger shall take effect on January 1,
1997.
IN WITNESS WHEREOF, these Articles of Merger are executed and
approved on behalf of the parties to the merger by the undersigned, pursuant to
the authorization of the directors and the sole shareholder of each corporation.
1
<PAGE> 14
Dated: December 26, 1996
AMERICARE MEDICAL SERVICES, INC.
a Tennessee Corporation
By: /s/ H. Lynn Massingale
--------------------------------
H. Lynn Massingale, M.D.
Its: President
TEAM HEALTH GROUP, INC.
a Tennessee Corporation
By: /s/ H. Lynn Massingale
--------------------------------
H. Lynn Massingale, M.D.
Its: President
2
<PAGE> 1
EXHIBIT 3.87
BYLAWS
OF
TEAM HEALTH GROUP, INC.
ARTICLE I
Corporate Offices
In addition to its registered office in the State of
Tennessee, the Corporation may also have such other offices, including its
principal office, at such places, within or without the State of Tennessee, as
the board of directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
Meetings of Shareholders
SECTION 1. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held at 10:00 A.M. on the third Tuesday of the month of September each
year, or on such other date during the year and at such other time as may be
designated by the board of directors and stated in the notice of meeting, for
the purpose of electing directors and transacting such other business as may be
properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of shareholders
may be called for any purpose or purposes by the board of directors or by
holders of at least twenty-five percent of all the votes entitled to be cast on
any issue to be considered at the proposed special meeting who sign, date and
deliver to the Corporation's secretary one or more written demands for the
meeting. Such demand or demands must describe the purpose or purposes for which
the meeting is to be held. Special meetings of the shareholders may be called by
the board of directors or by such person or persons as may be authorized by the
charter or the bylaws.
SECTION 3. NOTICE OF MEETINGS. Whenever shareholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and in the case of a special meeting, the purpose or purposes for which
the meeting is called. Unless otherwise provided by Tennessee law, the written
notice of any meeting shall be given not less than ten days nor more than two
months before the date of the meeting to each shareholder entitled to vote at
such meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the shareholder at his address as it appears
on the records of the Corporation. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
<PAGE> 2
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall
be held at such places, within or without the State of Tennessee, as may be
designated by the board of directors and stated in the notice of meeting.
SECTION 5. QUORUM; VOTE REQUIRED. Unless otherwise required by
Tennessee law with respect to a specified action, (i) a majority of the shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at a meeting of shareholders; (ii) in all matters other than the election
of directors, the affirmative vote of the majority of shares present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders; and (iii) directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
SECTION 6. VOTING RIGHTS; PROXIES. Subject to the provisions
of Article III, each shareholder shall be entitled to one vote for each share of
common stock held by such shareholder. Each shareholder entitled to vote at a
meeting of shareholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after eleven (11)
months from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power.
SECTION 7. LIST OF SHAREHOLDERS. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each shareholder and the number of shares registered in the name of
each shareholder. Such list shall be open to the examination of any shareholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meting during the whole time thereof, and may be inspected by any
shareholder who is present. The stock ledger shall be the only evidence as to
who are the shareholders entitled to examine the stock ledger, the list required
by this section or the books of the Corporation, or to vote in person or by
proxy at any meeting of shareholders.
ARTICLE III
Record Date for Determination of Shareholders
SECTION 1. NOTICES. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, the board of directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors, and which record
date shall not be more than seventy nor less than ten days before the date of
such meeting. If no record date is fixed by the board of directors, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the day next preceding the
<PAGE> 3
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
SECTION 2. WRITTEN CONSENT. In order that the Corporation may
determine the shareholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record date has been fixed by the board of
directors, the record date for determining shareholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by this Article III, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Tennessee, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
shareholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by Tennessee law, the record date for
determining shareholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
SECTION 3. DIVIDENDS, DISTRIBUTIONS AND RIGHTS. In order that
the Corporation may determine the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than seventy days prior to such action.
If no record date is fixed, the record date for determining shareholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
ARTICLE IV
Consent of Shareholders
Any action required or permitted to be taken at a meeting of
the shareholders may be taken without a meeting, if all shareholders consent to
the taking of such action without a meeting by signing one or more written
consents describing the action taken and indicating each shareholder's vote or
abstention on the action. The affirmative vote of the number of shares which
would be necessary to authorize or take action at a meeting of shareholders is
the act of the shareholders without a meeting. The written consent or consents
shall be included in the minutes or filed with the corporate records reflecting
the action taken. Action taken by written consent is effective when the last
shareholder signs the consent, unless the consent specifies a different
effective date.
<PAGE> 4
ARTICLE V
Directors
SECTION 1. AUTHORITY. The business and affairs of the
Corporation shall be managed by or under the direction of the board of
directors, except as otherwise provided in Tennessee law.
SECTION 2. NUMBER AND TERM. The board of directors shall
consist of nine members. For so long as the Class A Preferred Stock of the
Corporation remains issued and outstanding, five of the nine members shall e
designated by those shareholders who were issued Class A Preferred Stock upon
the formation of the Corporation (shareholders who owned the Tennessee
predecessor corporation acquired by the Corporation in connection with its
formation) ("Group I") and four of the nine members shall be designated by those
shareholders were issued only Common Stock upon the formation of the Corporation
(shareholders who owned the Alabama and North Carolina pred4ecessor corporations
acquired by the Corporation in connection with its formation) ("Group II").
Directors need not be shareholders. Each director shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
SECTION 3. COMMITTEES. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have the power or
authority (i) to amend the charter (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Tennessee law, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), (ii) adopt an agreement of merger or consolidation, (iii)
recommend to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, (iv) recommend to
the shareholders a dissolution of the Corporation or a revocation of a
dissolution, (v) amend the bylaws of the Corporation, (vi) declare a dividend,
(vii) authorize the issuance of stock or (viii) adopt a certificate of ownership
and merger pursuant to Tennessee law.
SECTION 4. COMPENSATION. The board of directors shall have the
authority to fix the compensation of directors.
SECTION 5. REMOVAL. Any director may be removed, with or
without cause, by the
<PAGE> 5
holders of a majority of the shares who designated such director pursuant to
Section 2 above.
SECTION 6. RESIGNATION. Any director may resign at any time
upon written notice to the Corporation.
SECTION 7. VACANCIES. Vacancies may be filled by a majority of
the remaining directors then in office, although less than a quorum. For so long
as the Class A Preferred Stock remains issued and outstanding, when one or more
directors designated by either Group I or Group II resign from the board, or
otherwise ceases to be a director, a majority of the remaining directors
designated by such Group I or Group II, as the case may be, shall have power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office in the filling of other vacancies.
SECTION 8. QUORUM AND VOTING. A majority of the total number
of directors then in office shall constitute a quorum for the transaction of
business. The vote of the majority of the total number of directors then in
office shall be the act of the board of directors, except as otherwise provided
by Tennessee law, the charter or bylaws.
SECTION 9. REGULAR MEETINGS. Regular meetings of the board of
directors may be held on at least ten days' written notice at such places,
within or without the State of Tennessee, on such dates and at such times as the
board of directors may determine from time to time. The notice need not describe
the purpose of the meeting. Notice of an adjourned meeting need not be given if
the time and place to which the meeting is adjourned are fixed at the meeting at
which the adjournment is taken and if the period of any one adjournment does not
exceed one month.
SECTION 10. SPECIAL MEETINGS; NOTICES. Special meetings of the
board of directors may be called by the president or by a majority of the
directors and shall be held at such places, within or without the State of
Tennessee, on such dates and at such times as may be stated in the notice of
meeting. Special meetings must be preceded by at least ten days' written notice
of the date, time and place of the meeting. The notice need not describe the
purpose of the meeting. Notice of an adjourned meeting need not be given if the
time and place to which the meeting is adjourned are fixed at the meeting at
which the adjournment is taken and if the period of any one adjournment does not
exceed one month.
SECTION 11. MEETING BY TELEPHONE. Members of the board of
directors of the Corporation, or any committee thereof, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
SECTION 12. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the board of directors, or of any
committee thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
<PAGE> 6
ARTICLE VI
Waiver of Notice
Whenever notice is required to be given under Tennessee law or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the shareholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE VII
Officers
SECTION 1. TITLE AND DUTIES. The Corporation shall have a
president and a secretary and such other officers with such titles and duties as
shall be stated in these bylaws or in a resolution of the board of directors not
inconsistent with these by laws. Officers shall be chosen by the board of
directors. The secretary shall record the proceedings of the meetings of the
shareholders and directors in a book to be kept for that purpose. Any number of
offices may be held by the same person, except that the offices of president and
secretary may not be held by the same person.
SECTION 2. TERM OF OFFICE; RESIGNATION AND REMOVAL. Each
officer shall hold his office until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. The board of directors may remove any
officer at any time, with or without cause, but no such removal shall affect the
contract rights, if any, of the person so removed.
SECTION 3. VACANCIES. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise, shall be filled by
the board of directors.
ARTICLE VIII
Stock Certificates
SECTION 1. ALL SHARES REPRESENTED BY CERTIFICATES. All shares
of the Corporation's capital stock shall be represented by certificates. Every
holder of stock shall be entitled to have a certificate signed by, or in the
name of the Corporation by the chairman or vice-chairman of the board of
directors, or the president or vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation representing the number of shares held by such holder. Any or all
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
<PAGE> 7
SECTION 2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES. The
Corporation may issue a new certificate of stock in place of any certificate
therefore issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give the Corporation a bond sufficient to
indemnify it, or other such assurances that the Corporation will be indemnified
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE IX
Corporate Seal
The Corporation may have a corporate seal, but the use of or
failure to use any such seal shall not have any legal effect on any action taken
or instrument executed by or on behalf of the Corporation, unless otherwise
provided by law. The seal may be used by impressing or affixing it to an
instrument or by causing a facsimile thereof to be printed or otherwise
reproduced thereon.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall end on the
thirty-first day of March of the following year.
ARTICLE XI
Amendment
The vote of 70% of the total number of directors is required
to amend, alter or repeal Sections 2, 5 and 7 of Article V of the bylaws of the
Corporation.
<PAGE> 1
EXHIBIT 10.13
TEAM HEALTH, INC.
1999 STOCK OPTION PLAN
1. PURPOSE: RESTRICTIONS ON AMOUNT AVAILABLE UNDER THE PLAN.
This Team Health, Inc. 1999 Stock Option Plan (the "Plan") is intended
to afford an incentive to selected employees, consultants and directors of Team
Health, Inc., a Tennessee corporation ("Team Health") or any Subsidiary (as
defined in Section 2 hereof) (collectively referred to as the "Company"), to
acquire a proprietary interest in the Company, to continue to perform services
for the Company, to increase their efforts on behalf of the Company and to
promote the success of the Company's business.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
"Board" shall mean the Board of Directors of Team Health.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" means Team Health's Common Stock, par value
$.01 per share.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" means:
(a) If the Common Stock is publicly traded, Fair Market Value
means the average of the closing prices of the sales of the Common Stock on all
stock exchanges on which such security may at the time be listed, or, if there
have been no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative bid
and asked prices quoted on The Nasdaq Stock Market as of 4:00 P.M., New York
time, or, if on any day such security is not quoted The Nasdaq Stock Market, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each case, for the
business day immediately preceding the day as of which the Fair Market Value is
being determined.
(b) If the Common Stock is not, as of the date of
determination of Fair Market Value, listed on any stock exchange or quoted on
The Nasdaq Stock Market or the over-the-counter market, the Fair Market Value
thereof shall be the fair value of the Common Stock determined in good faith by
the Board taking into account all relevant factors determinative of value
(including the lack of liquidity of such securities due to the Company's status
as a privately held company, but without regard to any discounts for minority
interests), using valuation techniques then prevailing in the securities
industry (e.g. discounted cash flows and/or comparable companies) and assuming
<PAGE> 2
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale. The forgoing valuation by the Board shall be conclusive
as to the Fair Market Value.
"Independent Third Party" means any Person who, immediately
prior to the contemplated transaction, does not own in excess of 15% of the
Common Stockholder Shares (a "15% Owner"), who is not an Affiliate of any such
15% Owner and who is not the spouse or descendent (by birth or adoption) of any
such 15% Owner or a trust for the benefit of any such 15% Owner and/or such
other Persons.
"Option" shall mean the right, granted pursuant to this Plan,
of a holder to purchase shares of Common Stock at a price and upon terms and
conditions specified by this Plan, the related Option Agreement and as otherwise
specified by the Committee.
"Option Agreement" shall mean any written agreement, contract
or other instrument or document between the Company and a Participant evidencing
an Option.
"Participant" shall mean an officer, employee, director or
consultant of the Company who is, pursuant to Section 4 of the Plan, selected to
participate herein.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Sale of the Company" means the sale of the Company to an
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the Company's
Board of Directors (whether by merger, consolidation, sale or transfer of the
Company's capital stock) or (ii) more than 50% of the Company's assets
determined on a consolidated basis.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the limited liability company, partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control the
managing director or general partner of such limited liability company,
partnership, association or other business entity.
2
<PAGE> 3
3. ADMINISTRATION.
Unless otherwise determined by the Board, the Plan shall be
administered by the Board or a committee thereof (the "Compensation Committee"),
which shall consist of two or more members of the Board. Following such time
that the Common Stock is registered pursuant to Section 12 of the Exchange Act,
members of the Compensation Committee shall be "non-employee directors" as
defined in Rule 16b-3 under the Exchange Act. The Compensation Committee may, in
its discretion, delegate to a subcommittee its duties hereunder, including the
grant of Options. The full Board shall also have the authority, in its
discretion, to grant Options under the Plan and to administer the Plan. For all
purposes under the Plan, any entity which performs the duties described herein,
shall be referred to as the "Committee."
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options; to
determine the persons to whom and the time or times at which Options shall be
granted; to determine the type and number of Options to be granted, the number
of shares of Common Stock to which an Option may relate and the terms,
conditions and restrictions relating to any Option; to determine whether, to
what extent and under what circumstances an Option may be settled, canceled,
forfeited, exchanged or surrendered; to construe and interpret the Plan and any
Option; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of Option Agreements; and to make
all other determinations deemed necessary or advisable for the administration of
the Plan.
No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
4. ELIGIBILITY.
Options may be granted to employees, consultants and directors of the
Company or a Subsidiary. In determining the persons to whom Options shall be
granted and the number of shares to be covered by each Option, the Committee
shall take into account the duties of the respective persons, their present and
potential contributions to the success of the Company and such other factors as
the Committee shall deem relevant in connection with accomplishing the purpose
of the Plan.
5. COMMON STOCK.
The equity securities subject to Options hereunder shall be shares of
Common Stock. Such Common Stock may, in whole or in part, be authorized but
unissued share or shares that shall have been or that may be reacquired by the
Company. The aggregate number of Common Stock as to which Options may be granted
from time to time under the Plan shall not exceed 526,316 shares of Common
Stock.
3
<PAGE> 4
The limitations established in this Section 5 shall be subject to
adjustment as provided in Section 7 hereof.
6. STOCK OPTIONS.
The Committee shall have authority to grant Options to Participants on
the following terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the
number of shares of Common Stock to which the Option relates.
(b) Type of Option. No Option granted pursuant to this Plan
shall be an incentive stock option within the meaning of Section 422 of the
Code.
(c) Exercise Price. Each Option Agreement shall state the
Exercise Price. The "Exercise Price" per share of Common Stock purchasable under
an Option shall be the Fair Market Value of such share of Common Stock on the
date of grant of the Option.
(d) Method and Time of Payment. The Exercise Price shall be
paid in full, at the time of exercise, (i) in cash, (ii) in the sole discretion
of the Committee, in shares of Common Stock, valued at then Fair Market Value,
which have been held by the Participant free and clear for at least six months
prior to the use thereof to pay part or all of the Exercise Price, (iii) so long
as the Common Stock is publicly traded, by delivery to the Committee of
irrevocable instructions to a stockbroker to deliver promptly to the Company an
amount of sale or loan proceeds sufficient to pay the Exercise Price, or (iv) in
the sole discretion of the Committee, by authorizing the Company to withhold
from issuance a number of shares of Common Stock issuable upon exercise of the
Option which, when multiplied by the Fair Market Value of a share of Common
Stock on the date of exercise, is equal to the Exercise Price.
(e) Term and Exercisability of Options. Options shall be
exercisable over the exercise period, at such times and upon such conditions as
the Committee may determine, as reflected in the Option Agreement; provided
that, the Committee shall have the authority to accelerate the exercisability of
any outstanding Option at such time and under such circumstances as it, in its
sole discretion, deems appropriate. An Option may be exercised, as to any or all
full shares of Common Stock as to which the Option has become exercisable, by
written notice delivered in person or by mail to the Committee or as it shall
direct, specifying the number of shares of Common Stock with respect to which
the Option is being exercised. The exercise period shall be subject to earlier
termination as provided in Section 6(f) hereof. At the time any Option granted
under the Plan is exercised, the Company shall be entitled to legend the
certificates representing the shares of Common Stock purchased pursuant to the
Option to clearly identify them as representing shares purchased upon exercise
of an Option.
(f) Termination. If a Participant's employment by, or service
as a consultant to or director with, the Company terminates, all Options that
are not then exercisable shall immediately
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terminate and all Options that are then exercisable shall remain exercisable for
the period provided in the applicable Option Agreements.
(g) Other Provisions. Options may be subject to such other
conditions including, but not limited to, vesting provisions and restrictions on
transferability of the shares of Common Stock acquired upon exercise of such
Options, as the Committee may prescribe in the Option Agreement in its sole
discretion.
7. EFFECT OF CERTAIN CHANGES; SALE OF THE COMPANY.
In the event of a reorganization, recapitalization, stock dividend or
stock split, or combination or other change in the shares of Common Stock, the
Committee shall, in order to prevent the dilution or enlargement of rights under
outstanding Options, make such adjustments in the number and type of shares
authorized by the Plan, the number and type of shares covered by outstanding
Options and the exercise prices specified therein as may be determined to be
appropriate and equitable. Such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
In the event of a Sale of the Company for which the Company has
provided reasonable prior notice thereof to Participants, the Committee may
provide, in its discretion, that the Options shall become immediately
exercisable by any Participants who are employed by the Company at the time of
the Sale of the Company and/or that any Options, whether exercisable or
unexercisable, shall terminate as of the date of the Sale of the Company or
other prescribed period of time.
In the event the Company issues subordinated debt securities with
associated common equity features (e.g., nominal strike price warrants) the
proceeds of which are used to redeem shares of the Company's Preferred Stock,
then the Committee will adjust (i) the number of shares of Common Stock
acquirable upon exercise of all outstanding Options and (ii) the aggregate
number of Common Stock as to which Options may be granted from time to time
under the Plan but have not yet been granted, in each case to the extent
necessary in order to protect the Participants from dilution for such issuance.
8. GENERAL PROVISIONS.
(a) Restrictions on Delivery and Sale of Stock. Each Option
granted under the Plan is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing, registration or
qualification of the shares covered by such Option upon any securities exchange
or under any state or federal law is necessary as a condition of or in
connection with the purchase or delivery of shares thereunder, the delivery of
any or all shares pursuant to such Option may be withheld unless and until such
listing, registration or qualification shall have been effected, and the Company
shall use its reasonable best efforts to effectuate such listing, registration
or qualification as promptly as reasonably practicable. If a registration
statement is not in effect under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state securities laws with respect to the
Common Stock purchasable or otherwise deliverable under Options then
outstanding, the Committee may require, as a condition of exercise of any
Option, that the Option
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<PAGE> 6
holder or other recipient of an Option represent, in writing, that the shares
received pursuant to the Option are being acquired for investment and not with a
view to distribution and agree that the shares will not be disposed of except
pursuant to an effective registration statement, unless the Company shall have
received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act and any applicable state securities laws.
The Company may endorse on certificates representing shares delivered pursuant
to an Option, such legends referring to the foregoing representation or
restrictions or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
(b) Nontransferability. Except to the extent provided
otherwise in the applicable Option Agreement, Options shall not be transferable
by a Participant except by a duly executed will or the laws of descent and
distribution and shall be exercisable during the lifetime of a Participant only
by such Participant or his guardian or legal representative.
(c) No Right To Continued Employment. Nothing in the Plan or
in any Option granted or any Option Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employment or service of the Company or to be entitled to any remuneration or
benefits not set forth in the Plan or such Option Agreement or other agreement
or to interfere with or limit in any way the right of the Company to terminate
such Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive Common Stock pursuant to an Option hereunder, the Company
shall have the right to require the Participant or such other person to pay to
the Company the amount of any taxes which the Company may be required to
withhold before delivery to such Participant or other person of cash or a
certificate, certificates representing such shares. Unless otherwise prohibited
by applicable law, a Participant may satisfy any such withholding tax obligation
by either of the following methods, or by a combination of such methods: (a)
tendering a cash payment; or (b) delivering to the Company previously acquired
Common Stock, or having the Company withhold Common Stock otherwise deliverable
upon exercise of an Option, in either case having an aggregate Fair Market
Value, determined as of the date the withholding tax obligation arises, less
than or equal to the amount of the total withholding tax obligation.
(e) Amendment and Termination of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend or
terminate the Plan in whole or in part; provided that, no amendment which
requires stockholder approval under applicable law shall be effective unless the
same shall be approved by the requisite vote of the stockholders of the Company.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent, under any Option
theretofore granted under the Plan. The power to grant Options under the Plan
will automatically terminate ten years after the adoption of the Plan by the
Board. If the Plan is terminated, any unexercised Option shall continue to be
exercisable in accordance with its terms and the terms of the Plan in effect
immediately prior to such termination.
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<PAGE> 7
(f) Participant Rights. No Participant shall have any claim to
be granted any Option under the Plan, and there is no obligation for uniformity
of treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Option shall have no rights as a stockholder
with respect to any shares covered by any Option until the date of the issuance
of a share to him.
(g) No Fractional Shares. Unless otherwise determined by the
Committee, no fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan or any Option. The Committee shall determine (in its sole
discretion) whether cash, other Options or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(h) Governing Law. The corporate law of the State of Tennessee
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stock holders. All other issues and questions
concerning the construction, validity, enforcement, and interpretation of this
Plan and the exhibits and schedules hereto shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
any choice of law or conflict of law rules or provisions (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
(i) Headings. The section and subsection headings contained
herein are for convenience only and shall not affect the construction hereof.
9. EFFECTIVENESS.
The Plan shall take effect upon its adoption by the Board.
* * * * *
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<PAGE> 1
Exhibit 12.1
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended
(in 000's)
1994 1995 1996 1997 1998 3/31/98 3/31/99
------- ------- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest Expense $ 1,394 $ 1,900 $ 1,400 $ 600 $ 400 $ 590 $ 1,631
Interest Component of
Rental Expense 833 833 1,500 1,933 1,900 467 367
Debt Issuance Cost -- -- -- -- -- -- 125
Total Fixed Charges 2,227 2,733 2,900 2,533 2,300 1,057 2,123
Earnings
Income before income taxes 19,926 34,358 28,807 7,160 37,216 9,517 (11,821)
Add: fixed charges 2,227 2,733 2,900 2,533 2,300 1,057 2,123
Total 22,153 37,091 31,707 9,693 39,516 10,574 (9,698)
Ratio 9.95 13.57 10.93 3.83 17.18 10.01 (4.57)
</TABLE>
<PAGE> 1
Exhibit 23.1
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 29, 1999 and our report included in the
following paragraph, in the Registration Statement (Form S-4 No. 222-80337) and
related Prospectus of Team Health, Inc. for the registration of Team Health,
Inc. 12% Senior Subordinated Notes due 2009.
Our audits also included the financial statement schedule of Team Health, Inc.,
listed in Item 21(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Birmingham, Alabama
July 26, 1999
