<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1996
REGISTRATION NO. 333-07125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PEDIATRIX MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 8099 65-0271219
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1455 NORTHPARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
(954) 384-0175
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
ROGER J. MEDEL, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEDIATRIX MEDICAL GROUP, INC.
1455 NORTHPARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
(954) 384-0175
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
REBECCA R. ORAND, ESQ. JOHN J. HUBER, ESQ.
GREENBERG, TRAURIG, HOFFMAN, LATHAM & WATKINS
LIPOFF, ROSEN & QUENTEL, P.A. SUITE 1300
1221 BRICKELL AVENUE 1001 PENNSYLVANIA AVENUE, N.W.
MIAMI, FLORIDA 33131 WASHINGTON, D.C. 20004
(305) 579-0557 (202) 637-2200
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
PEDIATRIX MEDICAL GROUP, INC.
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
---------------------------------------- ----------------------------------------
<C> <C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of the Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... *
7. Selling Security Holders..................... Principal and Selling Shareholders
8. Plan of Distribution......................... Underwriting
9. Description of Securities to be Registered... Description of Capital Stock; Price
Range of Common Stock and Dividends
10. Interests of Named Experts and Counsel....... *
11. Information with Respect to the Registrant...
(a) Description of Business................. Prospectus Summary; The Company; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business
(b) Description of Property................. Business
(c) Legal Proceedings....................... Business
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Shareholder Matters................... Prospectus Summary; Price Range of
Common Stock and Dividends;
Description of Capital Stock; Price
Range of Common Stock and Dividends;
Shares Eligible for Future Sale
(e) Financial Statements.................... Consolidated Financial Statements;
Unaudited Pro Forma Condensed
Consolidated Information
(f) Selected Financial Data................. Selected Consolidated Financial Data
(g) Supplementary Financial Information..... *
(h) Management's Discussion and Analysis of
Financial Condition and Results
of Operations......................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................. *
(j) Directors and Executive Officers........ Management; Principal and Selling
Shareholders
(k) Executive Compensation.................. Management
(l) Security Ownership of Certain Beneficial
Owners and Management................. Principal and Selling Shareholders
(m) Certain Relationships and Related
Transactions.......................... Management
12. Disclosure of Commission Position on
Indemnification for Securities Act *
Liabilities................................
</TABLE>
- ---------------
* Not applicable or answer thereto is negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
Dated July 23, 1996
5,000,000 SHARES
[PEDIATRIX LOGO]
COMMON STOCK
---------------------
Of the 5,000,000 shares of Common Stock offered hereby (the "Shares"), 1,500,000
shares are being offered by Pediatrix Medical Group, Inc. (the "Company"),
and 3,500,000 shares are being offered by certain shareholders
of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders."
---------------------
The Common Stock is included in the Nasdaq National Market under the symbol
"PEDX." On July 22, 1996, the last reported sales price for the Common
Stock on the Nasdaq National Market was $41.00 per share. See
"Price Range of Common Stock and Dividends."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL(3) $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) Certain Selling Shareholders have granted the Underwriters a 30-day option
to purchase up to an additional 750,000 shares to cover over-allotments, if
any. If all such shares are purchased, the total price to public,
underwriting discounts and commissions, proceeds to Company and proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
---------------------
The Shares are offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject any order
in whole or in part and subject to certain other conditions. It is expected that
delivery of the Shares will be made in New York, New York, on or about
, 1996.
---------------------
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
, 1996
<PAGE> 4
[MAP OF THE U.S.]
The graphic is a map of the United States which designates the locations
of the neonatal intensive care units, pediatric intensive care units and
pediatrics clinics where the Company provides physician management services.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
The Company........................... 13
Recent Developments................... 13
Use of Proceeds....................... 15
Price Range of Common Stock and
Dividends........................... 16
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Unaudited Pro Forma Condensed
Consolidated Information............ 19
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 37
Principal and Selling Shareholders.... 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Index to Consolidated Financial
Statements.......................... 50
</TABLE>
---------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and, in each instance,
reference is made to the contract or document filed as an exhibit to the
Registration Statement and incorporated by reference herein. The Company is
subject to the information requirements of the Exchange Act and in accordance
therewith files reports, proxy statements and other information with the
Commission (collectively, "Exchange Act Filings"). The Registration Statement,
including exhibits and schedules thereto, as well as the Company's Exchange Act
Filings may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission, or accessed through
the Commission's Internet address at http://www.sec.gov.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Consolidated Financial Statements
and notes thereto included elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Unless the context otherwise requires,
references in this Prospectus to the Company or Pediatrix include Pediatrix
Medical Group, Inc., its predecessor and its subsidiaries and the professional
associations and partnerships (the "PA Contractors") which are separate legal
entities that contract with the Company to provide physician services in certain
states and Puerto Rico, and references to PMG refer only to Pediatrix Medical
Group, Inc.
THE COMPANY
Pediatrix is the nation's leading provider of physician management services
to hospital-based neonatal intensive care units ("NICUs"). NICUs provide medical
care to newborn infants with low birth weight and other medical complications,
and are staffed with specialized pediatric physicians, known as neonatologists.
Based upon its own market research, knowledge of the health care industry and
experience in neonatology, the Company believes that it is the only provider of
NICU physician management services that markets its services on a national
basis. The Company also provides physician management services to hospital-based
pediatric intensive care units ("PICUs"), units which provide medical care to
critically ill children and are staffed with specially-trained pediatricians,
and to pediatrics departments in hospitals. As of June 15, 1996, the Company
provided services to 58 NICUs, eight PICUs and three pediatrics departments in
14 states and Puerto Rico and employed or contracted with 162 physicians.
The Company staffs and manages NICUs and PICUs in hospitals, providing the
physicians, professional management and administrative support, including
physician billing and reimbursement expertise and services. The Company's policy
is to provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.
Pediatrix established its leading position in physician management services
to NICUs by developing a comprehensive care model and management and systems
infrastructure that address the needs of patients, hospitals, payor groups and
physicians. Pediatrix addresses the needs of (i) patients by providing
continuous, comprehensive, professional quality care, (ii) hospitals by
recruiting, credentialing, and retaining neonatologists and hiring related staff
to operate NICUs in a cost-effective manner thereby relieving hospitals of the
financial and administrative burdens of operating the NICUs, (iii) payor groups
by providing cost-effective care to patients, and (iv) physicians by providing
administrative support, including billing and reimbursement expertise and
services, to enable them to focus on providing care to patients, and by offering
an opportunity for career advancement within Pediatrix.
Of the approximately four million babies born in the United States in 1994,
approximately 10% required neonatal treatment. Demand for neonatal services is
primarily due to premature births, which are often characterized by low birth
weight and other medical complications. A majority of high-risk mothers whose
births require neonatal treatment are not identified until the time of delivery,
thus heightening the need for continuous coverage by neonatologists. Across the
United States, NICUs are concentrated primarily among hospitals located in
metropolitan areas with a higher volume of births. NICUs are important to
hospitals since obstetrics generates one of the highest volumes of admissions
and obstetricians generally prefer to perform deliveries at hospitals with
NICUs. Hospitals must maintain cost-effective care and service in these units to
enhance the hospital's desirability to the community, physicians and managed
care payors.
4
<PAGE> 7
The Company's objective is to enhance its position as the nation's leading
provider of physician management services to NICUs by adding new units and
increasing same unit growth. The key elements of the Company's strategy are as
follows:
- Continue to focus exclusively on neonatology and pediatrics
- Acquire well-established neonatal physician group practices
- Develop regional networks to facilitate relationships with third party
payors
- Increase same unit growth
- Assist hospitals by promoting cost-effective, quality care
- Continue to develop new business models to meet the challenges of managed
care
Since its initial public offering in September 1995 (the "IPO"), the
Company has completed six acquisitions (the "Recent Acquisitions") of neonatal
physician group practices, which (i) added 24 NICUs, four PICUs and one
pediatrics department, (ii) added 50 physicians, (iii) established the Company
in three new markets, Denver, Phoenix and El Paso and (iv) expanded the
Company's presence in Southern California. To support this growth and to
facilitate the integration of acquisitions, the Company has enhanced its
management infrastructure. See "Recent Developments."
The Company's net patient service revenue increased from $10.5 million in
1991 to $43.9 million for the year ended December 31, 1995 ($69.4 million for
the year ended December 31, 1995 on a pro forma basis), representing a compound
annual growth rate of 43.0% (60.4% on a pro forma basis). Over the same period,
net income increased from $1.8 million in 1991 to $6.7 million for the year
ended December 31, 1995, representing a compound annual growth rate of 38.1%.
The Company's net patient service revenue was $17.8 million for the three
months ended June 30, 1996, as compared with $9.1 million for the same period in
1995, representing an increase of 95.6%. Net income increased 150.0% to $3.0
million for the three months ended June 30, 1996 as compared with $1.2 million
for the same period in 1995. Net income per share increased 100.0% to $0.22 per
share for the three months ended June 30, 1996 as compared with $0.11 per share
for the same period in 1995. The Company's net patient service revenue was $33.9
million for the six months ended June 30, 1996, as compared with $18.0 million
for the same period in 1995, representing an increase of 88.3%. Net income
increased 133.3% to $5.6 million for the six months ended June 30, 1996 as
compared with $2.4 million for the same period in 1995. Net income per share
increased 95.2% to $0.41 per share for the six months ended June 30, 1996 as
compared with $0.21 per share for the same period in 1995.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................... 1,500,000 shares
Common Stock Offered by the Selling Shareholders...... 3,500,000 shares
Common Stock Outstanding After the Offering........... 14,576,170 shares(1)
Use of Proceeds by the Company........................ Estimated net proceeds of $69.2
million to the Company will be used
for possible future acquisitions,
working capital requirements for
new hospital contracts and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol......................... "PEDX"
</TABLE>
- ---------------
(1) Excludes (i) 2,430,954 shares of Common Stock reserved for issuance under
the Company's amended and restated stock option plan (the "Stock Option
Plan"), of which options for an aggregate of 1,941,029 shares of Common
Stock were issued and outstanding as of June 15, 1996 and options for an
aggregate of 444,127 shares of Common Stock were exercisable as of June 15,
1996, and (ii) 1,000,000 shares of Common Stock reserved for issuance under
the Company's 1996 Qualified Employee Stock Purchase Plan and 1996
Non-Qualified Employee Stock Purchase Plan (collectively the "Stock
Purchase Plans"), none of which had been issued as of June 15, 1996. See
"Management -- Stock Option Plans."
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ --------------------------
1995 1996
------------------ -----------------
PRO PRO
1991 1992 1993 1994 ACTUAL FORMA(1) 1995 ACTUAL FORMA(2)
------- ------- ------- ------- ------- -------- ------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue........ $10,497 $15,438 $23,570 $32,779 $43,860 $69,423 $8,886 $16,127 $21,342
Operating expenses:
Salaries and benefits............ 6,291 9,585 14,852 20,723 29,545 47,204 6,270 10,796 14,216
Supplies and other operating
expenses....................... 1,044 1,743 2,230 2,774 3,451 8,568 607 1,213 2,017
Depreciation and amortization.... 39 60 95 244 363 1,763 74 233 460
Nonrecurring expense(3).......... -- 15,400 -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- ------ ------- --------
Total operating expenses... 7,374 26,788 17,177 23,741 33,359 57,535 6,951 12,242 16,693
------- ------- ------- ------- ------- -------- ------ ------- --------
Income (loss) from operations...... 3,123 (11,350) 6,393 9,038 10,501 11,888 1,935 3,885 4,649
Investment income.................. 81 160 45 208 804 537 107 499 92
Interest expense................... -- (49) (105) (90) (117) (124 ) (28) (35) (35 )
Other income (expense), net........ -- 45 (17) -- -- 58 -- -- --
------- ------- ------- ------- ------- -------- ------ ------- --------
Income (loss) before income
taxes............................ 3,204 (11,194) 6,316 9,156 11,188 12,359 2,014 4,349 4,706
Income tax provision (benefit)..... 1,358 (3,536) 2,166 3,749 4,475 5,262 805 1,737 1,904
------- ------- ------- ------- ------- -------- ------ ------- --------
Net income (loss)(4)............... $ 1,846 $(7,658) $ 4,150 $ 5,407 $ 6,713 $ 7,097 $1,209 $ 2,612 $ 2,802
======= ======= ======= ======= ======= ========= ====== ======= =========
Net income per common and common
equivalent share(5).............. $ .47 $ .55 $ .58 $ .10 $ .19 $ .20
======= ======= ========= ====== ======= =========
Weighted average shares
outstanding(5)................... 11,430 12,216 12,216 11,614 13,726 13,726
======= ======= ========= ====== ======= =========
OTHER OPERATING DATA:
Number of units at end of period:
NICU............................. 6 13 18 22 37 23 47
PICU............................. 2 2 3 5 4 5 7
Other pediatric services......... -- -- 1 1 2 2 3
Number of physicians at end of
period........................... 25 42 52 75 114 77 131
Number of births(6)................ 16,127 23,289 32,532 39,541 59,186 10,991 25,337
NICU admissions.................... 2,563 3,600 4,777 5,823 7,611 1,528 2,798
NICU patient days.................. N/A N/A 59,024 64,615 87,672 17,248 33,424
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
PRO PRO FORMA
ACTUAL FORMA(7) AS ADJUSTED(8)
------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $7,084 $7,084 $ 76,326
Working capital..................................................................... 39,717 21,267 90,509
Total assets........................................................................ 77,371 77,956 147,198
Total liabilities................................................................... 11,809 12,394 12,394
Long-term debt, including current maturities........................................ 799 799 799
Stockholders' equity................................................................ 65,562 65,562 134,804
</TABLE>
6
<PAGE> 9
(1) Gives effect to the Recent Acquisitions and the acquisition of Neonatal
Pediatric Intensive Care Medical Group, Inc. ("NAPIC") as if such
transactions had occurred as of January 1, 1995. See "Recent Developments"
and "Unaudited Pro Forma Condensed Consolidated Information."
(2) Gives effect to the Recent Acquisitions as if such transactions had occurred
as of January 1, 1995. See "Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Information."
(3) Reflects nonrecurring payments aggregating $15.4 million to certain of the
Company's physicians as bonuses for prior services and for covenants not to
compete occuring at the time of the investment in the Company by Summit
Ventures III, L.P. and Summit Investors II, L.P. (collectively "Summit") in
1992.
(4) Immediately prior to the consummation of the IPO, the outstanding shares of
redeemable cumulative convertible preferred stock (the "Convertible
Preferred Stock") were converted into 4,571,063 shares of Common Stock and
unpaid dividends on the Convertible Preferred Stock of approximately $3.7
million were forgiven pursuant to the terms of the Series A Preferred Stock
Purchase Agreement, dated as of October 26, 1992. Upon conversion, such
amounts were credited to the common stock and additional paid-in capital
accounts. The net income (loss) amounts do not include accrued and unpaid
dividends with respect to the Convertible Preferred Stock.
(5) Such amounts represent net income per common share and common equivalent
share, pro forma, to give effect to the conversion of the Convertible
Preferred Stock, which was not determined to be a Common Stock equivalent,
into Common Stock in connection with the IPO for 1994 and 1995. The net
income per common share is computed based upon the weighted average number
of shares of Common Stock and Common Stock equivalents, including the
number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock, outstanding during the period. Common Stock
issued by the Company during the 12 months immediately preceding the
initial filing of the registration statement relating to the IPO, plus
Common Stock equivalents relating to the grant of Common Stock options
during the same period, have been included in the calculation of weighted
average number of Common Stock equivalents outstanding for 1994 and 1995,
using the treasury stock method and the IPO price of $20 per share.
(6) Represents number of births at the hospitals with which the Company provided
physician management services during the periods indicated.
(7) Adjusted to give effect to the acquisitions consummated in the second
quarter of 1996 (the "1996 Second Quarter Acquisitions") described in
"Recent Developments" and "Unaudited Pro Forma Condensed Consolidated
Information," as if all of these transactions occurred as of March 31,
1996.
(8) Adjusted to give effect to (i) the sale of 1,500,000 shares of Common Stock
offered hereby by the Company and the application of the estimated net
proceeds therefrom, as described under "Use of Proceeds" and (ii) the 1996
Second Quarter Acquisitions as if all of these transactions occurred as of
March 31, 1996. See "Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Information."
7
<PAGE> 10
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in evaluating
an investment in the Shares offered hereby. This Prospectus contains certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth below, which could cause actual results to
differ materially from those indicated by such forward-looking statements.
Health Care Regulatory Environment Could Increase Restrictions on the
Company. The health care industry and physicians' medical practices are highly
regulated. Neonatal and other health care services that the Company offers and
proposes to offer are subject to extensive federal and state laws and
regulations governing matters such as licensure and certification of facilities
and personnel, conduct of operations, audit and retroactive reimbursement
policies, adjustment of prior government billings and prohibitions on payments
for the referral of business and self referrals. Failure to comply with these
laws, or a determination that in the past the Company has failed to comply with
these laws, could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or limit the expansion of its business. Changes in
government regulation could also impose new requirements, involving compliance
costs which cannot be recovered through price increases. See
"Business -- Government Regulation."
Reliance upon Government Programs; Possible Reduction in
Reimbursement. Approximately 26%, 31% and 30% of the Company's net patient
service revenue in 1994, 1995 and the three months ended March 31, 1996,
respectively, was derived from payments made by government-sponsored health care
programs (principally Medicaid). Increasing budgetary pressures may lead to
reimbursement reductions or limits, reductions in these programs or elimination
of coverage for certain individuals or treatments under these programs. Federal
legislation could result in a reduction of Medicaid funding or an increase in
state discretionary funding through block grants, or a combination thereof.
State Medicaid waiver requests if granted by the federal government could
increase discretion, or reduce coverage of or funding for certain individuals or
treatments under the Medicaid program, in the absence of new federal
legislation. Increased state discretion in Medicaid, coupled with the fact that
Medicaid expenditures comprised a substantial and growing share of state
budgets, could lead to significant reductions in reimbursement. In addition,
these programs generally reimburse on a fee schedule basis, rather than a
charge-related basis. Therefore, the Company generally cannot increase its
revenues by increasing the amount it charges for services provided. To the
extent the Company's costs increase, the Company may not be able to recover such
cost increases from government reimbursement programs. In various states,
Medicaid managed care is encouraged and may become mandated. In such systems
health maintenance organizations ("HMOs") bargain for reimbursement with
competing providers and contract with the state to provide benefits to Medicaid
enrollees. Such systems are intended and expected to reduce Medicaid
reimbursement of providers. Legislation enacted in states could result in
reduced payments to the Company for Medicaid patients. Additionally, Proposition
187, which was adopted by referendum in California, but has been enjoined by a
California court, may limit the access by illegal aliens to Medicaid funds in
California. In the event similar legislation is passed in other states with
large illegal alien populations, such as Arizona and Florida, the Company's
ability to collect for medical services rendered to such patients could be
adversely affected. Changes in government-sponsored health care programs which
result in the Company being unable to recover cost increases through price
increases or otherwise could have a material adverse effect on the Company's
financial condition and results of operations. Because of cost containment
measures and market changes in non-governmental insurance plans, the Company may
not be able to shift cost increases to, or recover them from, non-governmental
payors. In addition, funds received under government programs are subject to
audit with respect to the proper billing for physician services and,
accordingly, retroactive adjustments of revenue from these programs may occur.
See "Business -- Government Regulation."
8
<PAGE> 11
State Laws Regarding Prohibition of Corporate Practice of
Medicine. Business corporations, such as PMG, are generally not permitted under
state law to practice medicine, exercise control over the medical judgments or
decisions of physicians or engage in certain practices, such as fee splitting,
with physicians. In the states in which the Company operates, other than
Florida, there exist potential judicial or governmental interpretations which
may extend the scope of the corporate practice of medicine and/or medical
practices acts principles. For such reasons, or for business reasons, PMG
contracts with the PA Contractors (which are owned by a licensed physician in
the state) in such states, which in turn employ or contract with physicians to
provide necessary physician services to hospitals with which the Company
provides physician management services. There can be no assurance that
regulatory authorities or other parties will not assert that PMG is engaged in
the corporate practice of medicine or that the percentage fee arrangements
between PMG and the PA Contractors constitute fee splitting or the corporate
practice of medicine. If such a claim were successfully asserted in any
jurisdiction, PMG could be subject to civil and criminal penalties under such
jurisdiction's laws and could be required to restructure its contractual
arrangements. Such results or the inability to successfully restructure
contractual arrangements could have a material adverse effect on the Company's
financial condition and results of operations. In states where PMG is not
permitted to practice medicine, PMG performs only non-medical administrative
services, does not represent to the public or its clients that it offers medical
services and does not exercise influence or control over the practice of
medicine by the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws relating to the
corporate practice of medicine. See "Business -- Contractual Relationships."
Risk of Applicability of Anti-Kickback and Self-Referral Laws. Federal
anti-kickback laws and regulations prohibit any knowing and willful offer,
payment, solicitation or receipt of any form of remuneration, either directly or
indirectly, in return for, or to induce (i) referral of an individual for a
service for which payment may be made by Medicaid or another
government-sponsored health care program or (ii) purchasing, leasing, ordering
or arranging for, or recommending the purchase, lease or order of, any service
or item for which payment may be made by a government-sponsored health care
program. Violations of anti-kickback rules are punishable by monetary fines,
civil and criminal penalties and exclusion from participation in Medicare and
Medicaid programs. Effective January 1, 1995, federal physician self-referral
laws became applicable to inpatient and outpatient hospital services. Subject to
certain exceptions, these laws, such as "Stark I" and "Stark II," prohibit
Medicare or Medicaid payments for services furnished by an entity pursuant to a
referral by a physician who has a financial relationship with the entity through
ownership, investment, or a compensation arrangement. Possible sanctions for
violation of these laws include civil monetary penalties, exclusion from
Medicare and Medicaid programs and forfeiture of amounts collected in violation
of such prohibitions. Certain states in which the Company does business have
similar anti-kickback, anti-fee splitting and self-referral laws, imposing
substantial penalties for violations. The Company's relationships, including fee
payments, among PA Contractors, hospital clients and physicians have not been
examined by federal or state authorities under these laws and regulations.
Although the Company believes it is in compliance with these laws and
regulations, there can be no assurance that federal or state regulatory
authorities will not challenge the Company's current or future activities under
these laws. See "Business -- Strategy" and "Business -- Government Regulation."
Uncertainty Relating to Federal and State Legislation. Federal and state
governments have recently focused significant attention on health care reform.
Some of the proposals under consideration, or others which may be introduced,
could, if adopted, have a material adverse effect on the Company's financial
condition and results of operations. It is not possible to predict which, if
any, proposal that has been or will be considered will be adopted. The Company
cannot predict what effect any future legislation will have on the Company.
There can be no assurance that any future state or federal legislation or other
changes in the administration or interpretation of governmental health care
programs will not adversely affect the Company's financial condition and results
of operations. See "Business -- Government Regulation."
Risks Relating to Acquisition Strategy. The Company has expanded and
intends to continue to expand its geographic and market penetration primarily
through acquisitions of physician group practices. In implementing this
acquisition strategy, the Company will compete with other potential acquirers,
some of which may have greater financial or operational resources than the
Company. Competition for acquisitions
9
<PAGE> 12
may intensify due to the ongoing consolidation in the health care industry,
which may increase the costs of capitalizing on such opportunities. While the
Company has recently completed the Recent Acquisitions, there can be no
assurance that future acquisition candidates will be identified or that any
future acquisition will be consummated or, if consummated, that any acquisition,
including the Recent Acquisitions, will be integrated successfully into the
Company's operations or that the Company will be successful in achieving its
objectives. The Recent Acquisitions also involve numerous short and long term
risks, including diversion of management's attention, failure to retain key
personnel, amortization of acquired intangible assets and the effects of
contingent earn-out payments. At March 31, 1996, approximately $17.7 million, or
approximately 22.9% of total assets, was goodwill relating to acquisitions.
Subsequent to March 31, 1996, the Company made three acquisitions, resulting in
additional aggregate goodwill of approximately $18.5 million. The Company may
also incur one-time acquisition expenses in connection with acquisitions.
Consummation of acquisitions could result in the incurrence or assumption by the
Company of additional indebtedness and the issuance of additional equity. The
issuance of shares of Common Stock for an acquisition may result in dilution to
shareholders. Also, as the Company enters into new geographic markets, the
Company will be required to comply with laws and regulations of states that
differ from those in which the Company's operations are currently conducted.
There can be no assurance that the Company will be able to effectively establish
a presence in these new markets. While many of the expenses arising from the
Company's efforts in these areas may have a negative effect on operating results
until such time, if at all, as these expenses are offset by increased revenues,
there can be no assurance that the Company will be able to implement its
acquisition strategy, or that this strategy will ultimately be successful. See
"Use of Proceeds," "Unaudited Pro Forma Condensed Consolidated Information,"
"Business -- Strategy," "Business -- Marketing," and "Business -- Government
Regulation."
Growth Strategy; Rapid Growth. Since the IPO, the Company has experienced
rapid growth in its business and number of employees. Continued rapid growth may
impair the Company's ability to efficiently provide its physician management
services and to adequately manage its employees. While the Company is taking
steps to manage rapid growth, future results of operations could be materially
adversely affected if it is unable to do so effectively.
Quarterly Fluctuations in Operating Results; Potential Volatility. The
Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and associated net income
due to unit specific volume and cost fluctuations. The Company has a high level
of fixed operating costs, including physician costs, and, as a result, is highly
dependent on the volume of births and capacity utilization of NICUs and PICUs to
sustain profitability. Results of operations for any quarter are not necessarily
indicative of results of operations for any future period or for the full year.
As a result, there can be no assurance that results of operations will not
fluctuate significantly from period to period. There has been significant
volatility in the market price of securities of health care companies that often
has been unrelated to the operating performance of such companies. The Company
believes that certain factors, such as legislative and regulatory developments,
quarterly fluctuations in the actual or anticipated results of operations of the
Company, lower revenues or earnings in the financial results of the Company than
those anticipated by securities analysts, the overall economy and the financial
markets, could cause the price of the Common Stock to fluctuate substantially.
Impact of Payor Discounts and Capitation Arrangements. The evolving
managed care environment has created substantial cost containment pressures for
the health care industry. The Company's business could be adversely affected by
reductions in reimbursement amounts or rates, changes in services covered and
similar measures which may be implemented by government sponsored health care
programs or by other third party payors. The Company's contracts with payors and
managed care organizations traditionally have been fee-for-service arrangements.
At June 15, 1996, the Company had six shared-risk capitated arrangements with
payors in Southern California, Arizona and Texas. These arrangements and any
future arrangements may adversely affect the Company's financial condition and
results of operations if the Company is unable to limit the risks associated
with such arrangements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Contractual Relationships"
and "Business -- Government Regulation."
10
<PAGE> 13
Professional Liability and Insurance. The Company's business entails an
inherent risk of claims of physician professional liability. The Company
periodically becomes involved as a defendant in medical malpractice lawsuits,
some of which are currently ongoing, and is subject to the attendant risk of
substantial damage awards. See "Business -- Proceedings." The Company's
contracts with hospitals generally require the Company to indemnify certain
parties for losses resulting from the negligence of physicians who are managed
by or affiliated with the Company. While the Company believes it has adequate
professional liability insurance coverage, there can be no assurance that a
pending or future claim or claims will not be successful or if successful will
not exceed the limits of available insurance coverage or that such coverage will
continue to be available at acceptable costs and on favorable terms. See
"Business -- Professional Liability and Insurance."
Collection and Reimbursement Risk. The Company assumes the financial risk
related to collection, including the potential uncollectibility of accounts and
delays attendant to reimbursement by third party payors, such as government
programs, private insurance plans and managed care plans. Failure to manage
adequately the collection risks and working capital demands could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Contractual Relationships" and "Business --
Government Regulation."
Contract Administrative Fees; Cancellation or Non-renewal of
Contracts. The Company's net patient service revenue is derived primarily from
fee-for-service billings for patient care provided by its physicians and from
administrative fees. Certain contracting hospitals that do not generate
sufficient patient volume pay the Company administrative fees to assure the
Company a minimum revenue level. If, at the time of renewal of the contracts
with the hospitals currently paying administrative fees to the Company, such
hospitals continue to generate insufficient patient volume but elect not to pay
administrative fees to assure the Company a minimum revenue level, then the
Company could either choose not to renew the contract or renew the contract with
lower gross profit margins at such hospitals. Administrative fees include
guaranteed payments to the Company, as well as fees paid to the Company by
certain hospitals for administrative services performed by the Company's medical
director at such hospital. Administrative fees accounted for 13%, 12% and 10% of
the Company's net patient service revenue during 1994, 1995 and the three months
ended March 31, 1996, respectively. The Company's contracts provide for
approximately three-year terms and are generally terminable by the hospital upon
90 days' written notice. The Company has six contracts representing ten NICUs,
five PICUs and one pediatrics department that have come up for renewal or are
scheduled to be renewed in 1996. The administrative fees for these contracts
aggregate approximately $3.2 million on an annual basis under their current
terms. The Company has not been notified that these contracts will not be
renewed and is currently providing services and receiving payment pursuant to
the terms of such contracts. While the Company has in most cases been able to
negotiate renewal of its contracts in the past, no assurance can be given that
the Company's contracts with hospitals will not be canceled or will be renewed
in the future or that the administrative fees will be continued. To the extent
that the Company's contracts with hospitals are canceled or are not renewed or
replaced with other contracts with at least as favorable terms, the Company's
financial condition and results of operations could be adversely affected. See
"Business -- Contractual Relationships."
Competition. The health care industry is highly competitive and subject to
continual changes in the method in which services are provided and the manner in
which health care providers are selected and compensated. The Company believes
that private and public reforms in the health care industry emphasizing cost
containment and accountability will result in an increasing shift of NICU and
related pediatric care from highly fragmented, individual or small practice
neonatology providers to physician management companies. Companies in other
health care industry segments, such as managers of other hospital-based
specialties or currently expanding large physician group practices, some of
which have financial and other resources greater than those of the Company, may
become competitors in providing management of neonatal and pediatric intensive
care services to hospitals. Increased competition could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business -- Competition."
Dependence on Qualified Neonatologists. The Company's business strategy is
dependent upon its ability to recruit and retain qualified neonatologists. The
Company has been able to compete with many types of health care providers, as
well as teaching, research and governmental institutions, for the services of
such
11
<PAGE> 14
physicians. No assurance can be given that the Company will be able to continue
to recruit and retain a sufficient number of qualified neonatologists who
provide services in markets served by the Company on terms similar to its
current arrangements. The inability to successfully recruit and retain
physicians could adversely affect the Company's ability to service existing or
new units at hospitals, or expand its business.
Dependence on Key Personnel. The Company's success depends to a
significant extent on the continued contributions of its key management,
business development, sales and marketing personnel, including one of the
Company's principal shareholders, President, Chief Executive Officer and
co-founder, Dr. Roger Medel, for management of the Company and successful
implementation of its growth strategy. The loss of Dr. Medel or other key
personnel could have a material adverse effect on the Company's financial
condition, results of operations and plans for future development.
Dependence on PA Contractors. The Company has a management agreement with
a PA Contractor in each state in which it operates except Florida. The
agreements provide that the terms of the arrangements are permanent, subject
only to termination by PMG and that the PA Contractor shall not terminate the
agreement without PMG's prior written consent. Any disruption of the Company's
relationships with the PA Contractors' relationships with contracting hospitals
(including the determination that the PA Contractors' arrangements with PMG
constitute the corporate practice of medicine) or any other event adverse to the
PA Contractors could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Government Regulation" and
"Business -- Contractual Relationships."
Shares Eligible for Future Sale; Possible Adverse Effect on Market
Price. Upon completion of this offering, the Company will have 14,576,170
shares of Common Stock outstanding, based upon the number of shares outstanding
as of June 15, 1996. There are 7,269,270 shares of Common Stock (the "Restricted
Shares"), which are deemed "restricted securities" under Rule 144 under the
Securities Act and are eligible for future sale in the public market at
prescribed times pursuant to Rule 144 or the exercise of registration rights. In
addition, as of June 15, 1996, the Company had (i) 2,430,954 shares of Common
Stock reserved for issuance under the Stock Option Plan, of which options for an
aggregate of 1,941,029 shares of Common Stock were issued and outstanding as of
June 15, 1996 and options for an aggregate of 444,127 shares of Common Stock
were exercisable as of June 15, 1996, and (ii) 1,000,000 shares of Common Stock
reserved for issuance under the Stock Purchase Plans, none of which had been
issued as of June 15, 1996. See "Management -- Stock Option Plans." Shares
issued under the Stock Option Plan and Stock Purchase Plans will be freely
tradeable unless acquired by affiliates of the Company, as defined in Rule 144
of the Securities Act. Sales of such shares in the public market, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock or impair the Company's ability to raise additional capital in
the future. See "Shares Eligible for Future Sale" and "Underwriting."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Articles of Incorporation and Bylaws contain provisions that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of, the Company.
These provisions establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings and provide that only the Board of
Directors may call special meetings of the shareholders. In addition, the
Company's Articles of Incorporation authorize the Board of Directors to issue
preferred stock ("Preferred Stock") without shareholder approval and upon such
terms as the Board of Directors may determine. While no shares of Preferred
Stock will be outstanding upon the consummation of this offering and the Company
has no present plans to issue any shares of Preferred Stock, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of any holders of Preferred Stock that may be issued in the future.
See "Description of Capital Stock."
12
<PAGE> 15
THE COMPANY
Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. The Company also provides physician management services
to hospital-based PICUs and pediatrics departments in hospitals. The Company
staffs and manages NICUs and PICUs in hospitals, providing the physicians,
professional management and administrative support, including physician billing
and reimbursement expertise and services. As of June 15, 1996, the Company
provided services to 58 NICUs, eight PICUs and three pediatrics departments in
14 states and Puerto Rico and employed or contracted with 162 physicians.
The Company's predecessor was incorporated in 1980 by its co-founders, Drs.
Medel and Melnick, as a professional association under the name Melnick & Medel,
M.D.'s, P.A. In 1992, the Company changed its name to Pediatrix Medical Group,
Inc.
The Company's principal executive offices are located at 1455 Northpark
Drive, Ft. Lauderdale, Florida 33326 and its telephone number is (954) 384-0175.
RECENT DEVELOPMENTS
The IPO provided net proceeds to the Company of approximately $39.7
million. Since the IPO in September 1995, the Company has enhanced its
management infrastructure, thereby strengthening its ability to identify
acquisition candidates, consummate transactions and integrate acquired physician
group practices into the Company's operations. During the first half of 1996,
the Company completed six acquisitions of neonatology physician group practices
for an aggregate cash purchase price of approximately $29.5 million at the time
of acquisition. The Company has developed regional networks in Denver, Phoenix
and Southern California and intends to develop additional regional networks and
state-wide networks. The Company believes these networks, augmented by ongoing
marketing and acquisition efforts, will strengthen its position with third party
payors, such as Medicaid and managed care organizations.
RECENT ACQUISITIONS
The Recent Acquisitions have (i) added 24 NICUs, four PICUs and one
pediatrics department, (ii) added 50 physicians, (iii) established the Company
in three new markets, Denver, Phoenix and El Paso, and (iv) expanded the
Company's presence in Southern California. In the aggregate, the number of NICU
patient days attributable to the Recent Acquisitions during 1995 was
approximately 90,000. See "Unaudited Pro Forma Condensed Consolidated
Information."
Arizona. On January 16, 1996, the Company expanded its operations into
metropolitan Phoenix by acquiring all of the outstanding capital stock of
Neonatal Specialists, Ltd., an Arizona professional corporation ("NSL"), and
certain assets of certain entities affiliated with NSL, for an aggregate cash
purchase price of $6.0 million. NSL provided physician management services to
five NICUs in the Phoenix area and employed six physicians. NSL's net patient
service revenue for 1995 was approximately $4.1 million, and NICU patient days
during 1995 were approximately 21,000.
Colorado. The Company expanded its operations into metropolitan Denver by
making three acquisitions during the first half of 1996. Through these
acquisitions, the Company has established a regional network, which the Company
believes will strengthen its position with third party payors, such as Medicaid
and managed care organizations, in the Denver area.
On January 29, 1996, the Company acquired certain assets of Pediatric and
Newborn Consultants, P.C., a Colorado professional corporation ("PNC"), for an
aggregate cash purchase price of $3.6 million. The shareholders of PNC are
eligible to receive additional consideration of up to $1.3 million on or about
April 4, 1997 if certain targets are achieved at the hospitals previously served
by PNC during the period from February 1, 1996 to January 31, 1997. PNC provided
physician management services to three NICUs, three PICUs and one pediatrics
department in the Denver area and employed seven physicians. PNC's net patient
13
<PAGE> 16
service revenue for 1995 was approximately $2.3 million, and NICU patient days
during 1995 were approximately 5,000.
On January 29, 1996, the Company acquired Colorado Neonatal Associates,
P.C., a Colorado professional corporation ("CNA") through a merger, for an
aggregate cash purchase price of $1.4 million. The prior shareholders of CNA are
eligible to receive additional consideration of up to $667,000 on or about April
4, 1997 if certain targets are achieved at the hospitals previously served by
CNA during the period from February 1, 1996 to January 31, 1997. CNA provided
physician management services to two NICUs in the Denver area and employed two
physicians. CNA's net patient service revenue for 1995 was approximately $1.3
million, and NICU patient days during 1995 were approximately 5,000.
On May 1, 1996, the Company acquired Rocky Mountain Neonatology, P.C., a
Colorado professional corporation ("RMN") through a merger, for an aggregate
cash purchase price of $7.2 million. RMN provided physician management services
to two NICUs, including Denver's largest NICU, and one PICU and employed eight
physicians. RMN's net patient service revenue for 1995 was approximately $3.1
million, and NICU patient days during 1995 were approximately 15,000.
Texas. On May 30, 1996, the Company expanded its presence into El Paso by
acquiring certain assets of West Texas Neonatal Associates, a Texas general
partnership ("WTNA"), for an aggregate cash purchase price of $5.3 million. WTNA
provided physician management services to three NICUs and employed four
physicians. WTNA's net patient service revenue for 1995 was approximately $2.3
million, and NICU patient days during 1995 were approximately 12,000.
California. On June 6, 1996, the Company expanded its presence in Southern
California by acquiring certain assets of Infant Care Specialists Medical Group,
Inc. ("ICS"), relating to the operations of nine NICUs and the employment of 23
physicians. The aggregate cash payments were $6.0 million. Net patient service
revenue of ICS for 1995 was approximately $10.4 million, and NICU patient days
during 1995 were approximately 32,000. The acquisition of ICS complements the
Company's acquisition in July 1995 of NAPIC, a neonatology physician group
practice with operations in Southern California.
ADDITIONS TO MANAGEMENT INFRASTRUCTURE
To support its growth and facilitate the integration of acquisitions, the
Company has enhanced its management infrastructure by adding the following new
positions. See "Management."
Chief Medical Officer. The Chief Medical Officer ("CMO") is responsible
for overseeing all clinical operations of the Company. M. Douglas Cunningham,
M.D., who has more than 25 years experience as a practicing neonatologist and
professor of pediatrics and neonatotology, became CMO in June 1996. Dr.
Cunningham's duties include developing and monitoring research and educational
and peer review activities. In addition, Dr. Cunningham participates in sales
discussions and acts as a liaison with hospital administrators in connection
with the acquisition and hospital contracting process.
Vice President, Business Development. The Vice President, Business
Development is responsible for directing the Company's activities relating to
the growth of its business. Kristen Bratberg joined the Company as Vice
President, Business Development in November 1995. Mr. Bratberg was previously
employed by Dean Witter Reynolds Inc. in the Corporate Finance Department
specializing in the healthcare industry. Mr. Bratberg's duties include the
implementation and execution of the Company's acquisition program, the
development of regional and state-wide networks and marketing to hospital
administrators for new hospital contracts.
Vice President, Practice Integration. The Vice President, Practice
Integration is responsible for the integration of physicians joining the
Company. Brian D. Udell, M.D., who has been employed by the Company since 1983,
was appointed to this position in November 1995. Dr. Udell's duties include
familiarizing new physicians with scheduling and coverage at their units,
collecting and analyzing clinical outcomes statistics, monitoring practice
patterns and profiles and documenting patient records.
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<PAGE> 17
Chief Information Officer. The Chief Information Officer ("CIO") is
responsible for determining and defining the Company's immediate and strategic
information needs in coordination with other members of the Company's management
and staff and developing the infrastructure, systems and processes to meet such
needs in a cost-effective manner. The Company appointed Joseph M. Calabro as CIO
in January 1996. Mr. Calabro's duties include coordinating with the Chief
Operating Officer and Chief Financial Officer to upgrade and develop new
management information systems.
Director of Research and Medical Education. The Director of Research and
Medical Education will be responsible for developing and directing a program of
clinically-relevant research, establishing and monitoring programs for exchange
of clinical information among physicians, including review of significant cases
and development of accredited internal continuing medical education programs.
The Company expects to fill this position in the third quarter of 1996.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by the Company at the offering price
set forth on the cover page of this Prospectus, after deducting underwriting
discounts and commissions and estimated expenses of the offering payable by the
Company, are approximately $69.2 million. The net proceeds to the Company from
this offering will be used for possible future acquisitions, working capital
requirements for new hospital contracts and general corporate purposes. The
Company's growth strategy includes the acquisition of neonatal physician group
practices that provide physician management services to NICUs. While the Company
is actively pursuing acquisitions of neonatal physician group practices, and may
at any time be in various stages of negotiating acquisitions, there can be no
assurance that future acquisition candidates will be identified or that any
future acquisition will be consummated. See "Risk Factors -- Risks Relating to
Acquisition Strategy." Pending use of the net proceeds of this offering, the
Company will invest such funds in short-term and medium-term, investment grade,
interest-bearing obligations. The Company will not receive any of the proceeds
from the sale of the Shares offered by the Selling Shareholders. See "Principal
and Selling Shareholders."
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<PAGE> 18
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock commenced trading on the Nasdaq National Market under the
symbol "PEDX" on September 20, 1995. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
1995 HIGH LOW
---------------- ---- ---
<S> <C> <C>
Third Quarter...................................................................... 22 1/4 18 7/8
Fourth Quarter..................................................................... 28 1/2 18 1/2
1996
----------------
First Quarter...................................................................... 39 1/4 24
Second Quarter..................................................................... 64 3/4 35 1/4
Third Quarter (through July 22).................................................... 49 1/2 31 1/4
</TABLE>
On July 22, 1996, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $41.00 per share. As of July 22, 1996,
there were 95 holders of record of Common Stock. This number does not include an
indeterminate number of shareholders whose shares are held by brokers in "street
name."
The Company has not declared or paid any dividends since 1992, and does not
currently intend to declare or pay in the future any dividends on its Common
Stock. The Company intends to retain all earnings for the operation and
expansion of its business. The payment of any future dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
future earnings, results of operations, capital requirements, the general
financial condition of the Company, general business conditions and contractual
restrictions on payment of dividends, such as the Company's $30 million
unsecured line of credit, as well as such other factors as the Board of
Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996, (i) on an actual basis, (ii) on a pro forma basis
to give effect to the 1996 Second Quarter Acquisitions referenced in "Unaudited
Pro Forma Condensed Consolidated Information" and (iii) as adjusted to give
effect to the sale of the Shares being offered hereby and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with the Consolidated Financial Statements
and related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable(1):.................................................... $ 799 $ 799 $ 799
------- --------- -----------
Stockholders' equity:
Common Stock; $.01 par value; 50,000,000 shares authorized;
13,063,809 shares issued and outstanding; 13,063,809 shares
issued and outstanding, pro forma, and 14,563,809 shares issued
and outstanding, as adjusted(2)................................. 131 131 131
Additional paid-in capital.......................................... 55,809 55,809 125,051
Retained earnings................................................... 9,657 9,657 9,657
Unrealized loss on investments...................................... (35) (35) (35)
------- --------- -----------
Total stockholders' equity................................. 65,562 65,562 134,804
------- --------- -----------
Total capitalization....................................... $66,361 $66,361 $ 135,603
======== ========== ===========
</TABLE>
- ---------------
(1) Includes current portion of $64,000.
(2) Excludes 2,445,915 shares of Common Stock reserved for issuance under the
Stock Option Plan, of which options for an aggregate of 1,906,740 shares of
Common Stock were issued and outstanding as of March 31, 1996 and options
for an aggregate of 431,077 shares of Common Stock were exercisable as of
March 31, 1996, and (ii) 1,000,000 shares of Common Stock reserved for
issuance under the Stock Purchase Plans, none of which had been issued as of
March 31, 1996. See "Management -- Stock Option Plans." Between March 31,
1996 and June 15, 1996, options for an aggregate of 50,000 shares of Common
Stock were issued and as of June 15, 1996, options for an aggregate of
444,127 shares of Common Stock were exercisable.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for each
of the five years in the period ended December 31, 1995, have been derived from
the Consolidated Financial Statements, which statements have been audited by
Coopers & Lybrand L.L.P., independent accountants. The selected consolidated
financial data of the Company as of and for the three month periods ended March
31, 1995 and 1996 have been derived from the unaudited consolidated financial
statements of the Company which, in the Company's opinion, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results for the full year. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue........ $10,497 $15,438 $23,570 $32,779 $43,860 $8,886 $16,127
Operating expenses:
Salaries and benefits............ 6,291 9,585 14,852 20,723 29,545 6,270 10,796
Supplies and other operating
expenses....................... 1,044.. 1,743 2,230 2,774 3,451 607 1,213
Depreciation and amortization.... 39 60 95 244 363 74 233
Nonrecurring expense(1).......... -- 15,400 -- -- -- -- --
------- -------- ------- ------- ------- ------- -------
Total operating
expenses................ 7,374 26,788 17,177 23,741 33,359 6,951 12,242
------- -------- ------- ------- ------- ------- -------
Income (loss) from operations...... 3,123 (11,350) 6,393 9,038 10,501 1,935 3,885
Investment income.................. 81 160 45 208 804 107 499
Interest expense................... -- (49) (105) (90) (117) (28) (35)
Other income (expense), net........ -- 45 (17) -- -- -- --
------- -------- ------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 3,204 (11,194) 6,316 9,156 11,188 2,014 4,349
Income tax provision (benefit)..... 1,358 (3,536) 2,166 3,749 4,475 805 1,737
------- -------- ------- ------- ------- ------- -------
Net income (loss)(2)............... $ 1,846 $ (7,658) $ 4,150 $ 5,407 $ 6,713 $ 1,209 $ 2,612
======== ========= ======== ======== ======== ======== ========
Net income per common share(3)..... $ .47 $ .55 $ .10 $ .19
======== ======== ======== ========
Weighted average shares
outstanding(3)................... 11,430 12,216 11,614 13,726
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........... $1,576 $2,329 $2,469 $7,384 $18,499 $9,466 $7,084
Working capital..................... 3,426 6,651 8,052 13,772 53,448 14,768 39,717
Total assets........................ 6,243 11,721 14,239 20,295 69,881 21,706 77,371
Total liabilities................... 2,500 3,388 3,762 4,203 7,071 4,418 11,809
Long-term debt, including current
maturities........................ -- 1,604 965 879 815 863 799
Convertible Preferred Stock(4)...... -- 13,212 14,401 15,697 -- 16,050 --
Stockholders' equity (deficit)(5)... 3,743 (4,879) (3,924) 395 62,810 1,238 65,562
</TABLE>
- ---------------
(1) Reflects nonrecurring payments aggregating $15.4 million to certain of the
Company's physicians as bonuses for prior services and for covenants not to
compete occuring at the time of the investment in the Company by Summit in
1992.
17
<PAGE> 20
(2) The net income (loss) amounts do not include accrued and unpaid dividends
with respect to the Convertible Preferred Stock. See footnote 4 below.
(3) Such amounts represent net income per common share and common equivalent
share, pro forma, to give effect to the conversion of the Convertible
Preferred Stock, which was not determined to be a Common Stock equivalent,
into Common Stock in connection with the IPO for 1994 and 1995. The net
income per common share is computed based upon the weighted average number
of shares of Common Stock and Common Stock equivalents, including the
number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock, outstanding during the period. Common Stock
issued by the Company during the 12 months immediately preceding the
initial filing of the registration statement relating to the IPO, plus
Common Stock equivalents relating to the grant of Common Stock options
during the same period, have been included in the calculation of weighted
average number of Common Stock equivalents outstanding for 1994 and 1995,
using the treasury stock method and the IPO price of $20 per share.
(4) Immediately prior to the consummation of the IPO in September 1995, the
Convertible Preferred Stock was converted into 4,571,063 shares of Common
Stock and unpaid dividends of approximately $3.7 million were forgiven
pursuant to the terms of the Series A Preferred Stock Purchase Agreement,
dated as of October 26, 1992. Upon conversion, such amounts were credited
to the common stock and additional paid-in capital accounts.
(5) The deficit in total stockholders' equity is due to the net loss in 1992 as
well as the accrual of unpaid cumulative dividends on the Convertible
Preferred Stock. See Note 8 to the Consolidated Financial Statements.
18
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1996 is adjusted to give effect to (i) the 1996 Second Quarter
Acquisitions and (ii) the consummation of this offering and the application of
the estimated net proceeds to the Company therefrom, as if these transactions
had occurred on March 31, 1996. The following Unaudited Pro Forma Condensed
Consolidated Statements of Income for the year ended December 31, 1995 give
effect to Recent Acquisitions and the acquisition of NAPIC, and for the three
month period ended March 31, 1996 give effect to the Recent Acquisitions, as if
such transactions had occurred on January 1, 1995. The Unaudited Pro Forma
Condensed Consolidated Financial Statements should be read in conjunction with
the December 31, 1995 and March 31, 1996 historical Consolidated Financial
Statements of the Company and the related notes thereto.
The Unaudited Pro Forma Condensed Consolidated Statements of Income have
been prepared by the Company and are not necessarily indicative of the operating
results that would have been achieved had the Recent Acquisitions and the
acquisition of NAPIC actually occurred on January 1, 1995, nor do they purport
to indicate the results of future operations.
The Unaudited Pro Forma Condensed Consolidated Statements of Income combine
the Company's Consolidated Statements of Operations with the historical
operations of the Recent Acquisitions and the acquisition of NAPIC prior to the
dates the Company made such acquisitions.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 PRO FORMA
SECOND AFTER 1996
QUARTER SECOND
ACQUISITION QUARTER OFFERING PRO FORMA
COMPANY ADJUSTMENTS(A) ACQUISITIONS ADJUSTMENT AS ADJUSTED
------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $7,084 $ 7,084 $69,242(b) $ 76,326
Investments in marketable securities..... 26,552 $(18,450)(c) 8,102 8,102
Accounts receivable, net................. 15,484 585(c) 16,069 16,069
Other current assets..................... 1,671 1,671 1,671
------- -------------- ------------ ----------- -----------
Total current assets............... 50,791 (17,865) 32,926 69,242 102,168
Property and equipment, net................ 5,242 5,242 5,242
Other assets............................... 21,338 18,450(c) 39,788 39,788
------- -------------- ------------ ----------- -----------
Total assets....................... $77,371 $ 585 $ 77,956 $69,242 $ 147,198
======== ============== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $7,539 $ 585(c) $ 8,124 $ 8,124
Current portion of note payable.......... 64 64 64
Deferred income taxes.................... 3,471 3,471 3,471
------- -------------- ------------ ----------- -----------
Total current liabilities.......... 11,074 585 11,659 11,659
Note payable............................... 735 735 735
------- -------------- ------------ ----------- -----------
Total liabilities.................. 11,809 585 12,394 12,394
------- -------------- ------------ ----------- -----------
Stockholders' equity:
Common stock............................. 131 131 131
Additional paid-in capital............... 55,809 55,809 $69,242(b) 125,051
Retained earnings........................ 9,657 9,657 9,657
Unrealized loss on investments........... (35 ) (35) (35)
------- -------------- ------------ ----------- -----------
Total stockholders' equity......... 65,562 65,562 69,242 134,804
------- -------------- ------------ ----------- -----------
Total liabilities and stockholders'
equity........................... $77,371 $ 585 $ 77,956 $69,242 $ 147,198
======== ============== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
19
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
RECENT PRO FORMA
ACQUISITIONS ACQUISITION AFTER
COMPANY AND NAPIC(A) ADJUSTMENTS ACQUISITIONS
------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Net patient service revenue............................... $43,860 $25,563 $ 69,423
------- ------- ----------- ------------
Operating expenses:
Salaries and benefits................................... 29,545 19,105 $(1,446)(d) 47,204
Supplies and other operating expenses................... 3,451 5,651 (534)(e) 8,568
Depreciation and amortization........................... 363 101 1,299(f) 1,763
------- ------- ----------- ------------
Total operating expenses.......................... 33,359 24,857 (681) 57,535
------- ------- ----------- ------------
Income from operations.................................... 10,501 706 681 11,888
Investment income......................................... 804 59 (326)(g) 537
Interest expense.......................................... (117 ) (7) (124)
Other income, net......................................... -- 58 58
------- ------- ----------- ------------
Income before income taxes........................ 11,188 816 355 12,359
Income tax provision (benefit)............................ 4,475 (476) 843(h) 5,262
420(i)
------- ------- ----------- ------------
Net income........................................ $6,713 $ 1,292 $ (908) $ 7,097
======== ============= =========== ===========
Earnings per share(j)..................................... $ 0.55 $ 0.58
Weighted average shares used in computing net income per
common and common equivalent share...................... 12,216 12,216
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
PRO FORMA
RECENT ACQUISITION AFTER
COMPANY ACQUISITIONS(A) ADJUSTMENTS ACQUISITIONS
------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Net patient service revenue............................... $16,127 $ 5,215 $ 21,342
------- ------- ----------- ------------
Operating expenses:
Salaries and benefits................................... 10,796 3,609 $ (189)(d) 14,216
Supplies and other operating expenses................... 1,213 933 (129)(e) 2,017
Depreciation and amortization........................... 233 23 204(f) 460
------- ------- ----------- ------------
Total operating expenses.......................... 12,242 4,565 (114) 16,693
------- ------- ----------- ------------
Income from operations.................................... 3,885 650 114 4,649
Investment income......................................... 499 -- (407)(g) 92
Interest expense.......................................... (35 ) -- (35)
Other income, net......................................... -- -- --
------- ------- ----------- ------------
Income before income taxes........................ 4,349 650 (293) 4,706
Income tax provision...................................... 1,737 101 148(h) 1,904
(82)(i)
------- ------- ----------- ------------
Net income........................................ $2,612 $ 549 $ (359) $ 2,802
======== ============= =========== ===========
Earnings per share
Primary............................................... $ 0.19 $ 0.20
Fully diluted......................................... $ 0.19 $ 0.20
Weighted average shares used in computing net income per
common and common equivalent share
Primary............................................... 13,697 13,697
Fully diluted......................................... 13,726 13,726
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
20
<PAGE> 23
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A description of the adjustments included in the pro forma consolidated
financial statements are as follows (in thousands, unless otherwise noted):
(a) The following acquisitions have been accounted for using the purchase
method of accounting.
<TABLE>
<CAPTION>
NAME OF PURCHASE TOTAL ASSETS TOTAL LIABILITIES GOODWILL
ACQUISITION DATE OF ACQUISITION PRICE RECORDED RECORDED(1) RECORDED
- ------------------ --------------------- -------- ------------ ----------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NAPIC............. July 27, 1995 $3.0 $4.6 $ 1.4 $3.8
NSL............... January 16, 1996 6.0 6.5 0.5 5.7
CNA(2)............ January 29, 1996 1.4 2.0 0.6 1.6
PNC(2)............ January 29, 1996 3.6 3.8 0.3 3.8
RMN............... May 1, 1996 7.2 7.7 0.6 7.2
WTNA.............. May 30, 1996 5.3 5.3 -- 5.3
ICS............... June 6, 1996 6.0 6.0 -- 6.0
</TABLE>
- ---------------
(1) Total liabilities recorded by the Company consist of expenses incurred in
connection with the acquisition and liabilities recorded for accounts
receivable due to the prior shareholders of the entities acquired. The
Company's liabilities for NAPIC and NSL include the purchase and payment of
premiums for professional liability tail coverage. Liability tail coverage
has been purchased and the premiums are being paid by the prior shareholders
in all of the other Recent Acquisitions.
(2) The prior shareholders of CNA and the shareholders of PNC are also eligible
to receive additional cash consideration in an amount not to exceed $667,000
and $1.3 million, respectively, in April 1997 if certain targets are
achieved at the hospitals previously served by such acquired entity during
the period from February 1, 1996 to January 31, 1997.
PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(b) Reflects the estimated net proceeds of the offering of $69.2 million
(assuming sale of 1.5 million shares at $48.25 per share (closing price at July
2, 1996), estimated offering expenses of $600,000 and 3.5% underwriters'
discounts and commissions).
(c) Reflects the purchase by the Company of the 1996 Second Quarter
Acquisitions for consideration of $18.5 million in cash. Net assets acquired are
as follows:
<TABLE>
<S> <C>
Accounts receivable........................................ $ 585
Other noncurrent assets.................................... 18,450
Current liabilities........................................ (585)
-------
Total cash consideration......................... $18,450
=======
</TABLE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME ADJUSTMENTS
(d) Reflects the elimination of certain amounts of compensation, bonuses
and other benefits paid principally to shareholders and other physicians that
will not be paid in the future as a result of the following acquisitions and the
employment agreements entered into as a result of these acquisitions. For the
acquisition of WTNA, the adjustments represent amounts to be paid by the Company
under employment agreements.
21
<PAGE> 24
Such amounts were previously not recorded by WTNA in the historical financial
statements as compensation expense since WTNA was a Partnership and such amounts
were treated as Partnership draws.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
NAPIC................................... $ -- $ --
NSL..................................... 966 40
CNA..................................... 91 (27)
PNC..................................... 599 50
RMN..................................... 573 322
WTNA.................................... (783) (196)
ICS..................................... -- --
------- -------
Total......................... $ 1,446 $ 189
================== ===============
</TABLE>
(e) Reflects the reduction in the cost of malpractice insurance incurred by
the Recent Acquisitions and NAPIC prior to the respective dates of their
acquisition as a result of the Company's existing insurance arrangements.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
NAPIC................................... $ 156 $ --
NSL..................................... 45 2
CNA..................................... 10 1
PNC..................................... 17 1
RMN..................................... 36 10
WTNA.................................... 6 --
ICS..................................... 264 115
------- -------
Total......................... $ 534 $ 129
================== ===============
</TABLE>
(f) Reflects the amortization of goodwill, based on the allocation of the
purchase prices paid in the Recent Acquisitions and the acquisition of NAPIC,
which is being amortized on a straight-line basis over 25 years as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
NAPIC................................... $ 114 $ --
NSL..................................... 229 14
CNA..................................... 65 1
PNC..................................... 153 4
RMN..................................... 288 72
WTNA.................................... 210 53
ICS..................................... 240 60
------- -------
Total......................... $ 1,299 $ 204
================== ===============
</TABLE>
(g) Reflects the elimination of that portion of investment income from
interest on the investment of the net proceeds of the IPO assumed to be used by
the Company for acquisitions and thus are no longer available by the Company for
investment purposes assuming an average interest rate of 4.0% for 1995 and 5.0%
for the first quarter ended March 31, 1996.
(h) Reflects the incremental income taxes on the operations of the
following entities that were either a Subchapter S corporation or a general
partnership prior to the respective dates of their acquisition and assuming an
effective income tax rate of 40% as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
NSL..................................... $ 162 $ 7
PNC..................................... 32 3
WTNA.................................... 649 138
------ ------
Total......................... $ 843 $148
================== ===============
</TABLE>
(i) Reflects the income tax benefit of the pro forma adjustments at an
assumed income tax rate of 40%.
(j) Such amount represents pro forma net income per common share and common
equivalent share as a result of the conversion of the Convertible Preferred
Stock in connection with the IPO. See Note 2 to the Consolidated Financial
Statements.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. The Company also provides physician management services
to hospital-based PICUs and pediatrics departments in hospitals. Pediatrix was
incorporated in 1980 by its co-founders, Drs. Roger Medel and Gregory Melnick.
Since obtaining its first hospital contract in 1980, the Company has grown by
increasing revenues at existing units ("same unit growth") and by adding new
units.
In July 1995, the Company completed its first acquisition of a neonatal
physician group practice. Since its IPO in September 1995, the Company has
enhanced its management infrastructure, thereby strengthening its ability to
identify acquisition candidates, consummate transactions and integrate acquired
physician group practices into the Company's operations. During the first half
of 1996, the Company completed the Recent Acquisitions, which added 24 NICUs,
four PICUs, one pediatrics department and 50 physicians. In the aggregate, the
number of NICU patient days attributable to the Recent Aquisitions during 1995
was approximately 90,000. The Company has developed regional networks in Denver,
Phoenix and Southern California and intends to develop additional regional and
state-wide networks. The Company believes these networks, augmented by ongoing
marketing and acquisition efforts, will strengthen its position with third party
payors, such as Medicaid and managed care organizations. See
"Business -- Strategy."
The following chart identifies the number and geographic distribution of
the hospitals as of June 15, 1996 where the Company provides services. See
"Business -- Physician Management Services."
<TABLE>
<CAPTION>
TYPE OF
LOCATION OF HOSPITAL EFFECTIVE DATE FACILITY
- --------------------- ----------------- ----------
<S> <C> <C>
FT. LAUDERDALE, FL July, 1980 NICU
BOYNTON BEACH, FL January, 1983 NICU
CORAL SPRINGS, FL February, 1987 NICU/PICU
CHARLESTON, WV July, 1990 NICU
FT. LAUDERDALE, FL July, 1991 PICU
ALEXANDRIA, VA November, 1991 NICU
PONCE, PR March, 1992 NICU
LEESBURG, VA July, 1992 NICU
FREDERICKSBURG, VA July, 1992 NICU
VIRGINIA BEACH, VA September, 1992 NICU
TRENTON, NJ October, 1992 NICU
WICHITA, KS April, 1993 NICU
HATO REY, PR August, 1993 NICU/PICU
STRATFORD, NJ August, 1993 NICU
TURNERSVILLE, NJ August, 1993 NICU
BOCA RATON, FL September, 1993 NICU
ELMIRA, NY October, 1993 NICU
TRENTON, NJ December, 1993 PEDS(a)
UTICA, NY March, 1994 NICU
WICHITA, KS June, 1994 PICU
BARRINGTON, IL July, 1994 NICU
WATERTOWN, NY July, 1994 NICU
HARRISBURG, PA September, 1994 NICU
GRAND RAPIDS, MI October, 1994 NICU
TRENTON, NJ January, 1995 NICU
TRENTON, NJ January, 1995 PEDS(a)
HOUSTON, TX June, 1995 NICU
PONTIAC, MI July, 1995 NICU
DAYTON, OH July, 1995 NICU
KETTERING, OH July, 1995 NICU
DAYTON, OH July, 1995 NICU
HOBOKEN, NJ July, 1995 NICU
<CAPTION>
TYPE OF
LOCATION OF HOSPITAL EFFECTIVE DATE FACILITY
- --------------------- ----------------- ----------
<S> <C> <C>
APPLE VALLEY, CA August, 1995 NICU
FULLERTON, CA August, 1995 NICU
NEWPORT BEACH, CA August, 1995 NICU
OCEANSIDE, CA August, 1995 NICU
SANTA ANA, CA August, 1995 NICU
MESA, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
GLENDALE, AZ January, 1996 NICU
DENVER, CO January, 1996 NICU
WESTMINSTER, CO January, 1996 NICU
DENVER, CO January, 1996 NICU/PICU
LITTLETON, CO January, 1996 NICU/PICU
DENVER, CO January, 1996 PEDS(a)
ENGLEWOOD, CO January, 1996 NICU/PICU
SANTURCE, PR February, 1996 NICU
DENVER, CO May, 1996 NICU/PICU
AURORA, CO May, 1996 NICU
EL PASO, TX May, 1996 NICU
EL PASO, TX May, 1996 NICU
EL PASO, TX May, 1996 NICU
LAGUNA HILLS, CA June, 1996 NICU
RIVERSIDE, CA June, 1996 NICU
WEST COVINA, CA June, 1996 NICU
WEST COVINA, CA June, 1996 NICU
FOUNTAIN VALLEY, CA June, 1996 NICU
ENCINO, CA June, 1996 NICU
VENTURA, CA June, 1996 NICU
SAN LUIS OBISPO, CA June, 1996 NICU
SOUTH LAGUNA, CA June, 1996 NICU
</TABLE>
- ---------------
(a) The Company provides physician management services to pediatrics departments
at these locations.
23
<PAGE> 26
The Company bills payors for services provided by physicians based upon
rates for the specific services provided. The rates are substantially the same
for all patients in a particular geographic area regardless of the party
responsible for paying the bill. The Company determines its net patient service
revenue based upon the difference between the gross fees for services and the
ultimate collections from payors which differ from the gross fees due to (i)
Medicaid reimbursements at government established rates, (ii) managed care
payments at contracted rates, (iii) various reimbursement plans and negotiated
reimbursements from other third party payors and (iv) discounted and
uncollectible accounts of private pay patients.
The Company seeks to increase revenue at existing units in hospitals by
providing support to areas of the hospital outside the NICU and PICU,
particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical. The following table
summarizes the fees for services by the point at which services originate,
expressed as a percentage of total net patient service revenue, exclusive of
administrative fees, for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED
----------------- MARCH 31,
1994 1995 1996
----- ----- ------------
<S> <C> <C> <C>
NICU....................................................... 73.4% 74.7% 78.2%
PICU and PEDS.............................................. 7.7 6.0 3.8
Other(1)................................................... 18.9 19.3 18.0
----- ----- ------
100.0% 100.0% 100.0%
===== ===== ==========
</TABLE>
- ---------------
(1) Represents the net patient service revenue generated by physicians providing
support to areas of hospitals outside the NICU and PICU and by physicians
in pediatric subspecialty offices outside of hospitals.
PAYOR MIX
The Company's payor mix is comprised of government (principally Medicaid),
managed care payors, other third party payors and private pay patients. The
Company benefits when more patients are covered by Medicaid, despite Medicaid's
lower reimbursement rates as compared with those of managed care payors, other
third party payors and private payors, because typically these patients would
not otherwise be able to pay for services due to lack of insurance coverage. In
addition, the Company benefits from the fact that most of the medical services
provided at the NICU or PICU are classified as emergency services, a category
typically classified as a covered service by managed care payors. A significant
increase in the managed care or capitated components of the Company's payor mix,
however, could result in reduced reimbursement rates and, in the absence of
increased patient volume, could have a material adverse effect on the Company's
financial condition and results of operations. See "Risk Factors -- Reliance
upon Government Programs; Possible Reduction in Reimbursement." The following is
a summary of the Company's payor mix, expressed as a percentage of total net
patient service revenue, exclusive of administrative fees, for the periods
indicated.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED
--------------- MARCH 31,
1994 1995 1996
---- ---- ------------
<S> <C> <C> <C>
Government................................................... 26 % 31 % 30%
Managed care................................................. 23 24 31
Other third party payors..................................... 44 39 34
Private pay.................................................. 7 6 5
---- ---- ---
100 % 100 % 100%
==== ==== ==========
</TABLE>
24
<PAGE> 27
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and should be read in conjunction with the Unaudited Pro Forma
Condensed Consolidated Information and the Consolidated Financial Statements and
related notes thereto appearing elsewhere in this Prospectus. The operating
results for the periods presented were not significantly affected by inflation.
The following table sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as a percentage of
the Company's net patient service revenue (patient billings net of contractual
adjustments and uncollectibles, and including administrative fees):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED MARCH
31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net patient service revenue.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits...................... 63.0 63.2 67.4 70.6 66.9
Supplies and other operating expenses...... 9.5 8.5 7.9 6.8 7.6
Depreciation and amortization.............. .4 .7 .8 .8 1.4
----- ----- ----- ----- -----
Total operating expenses........... 72.9 72.4 76.1 78.2 75.9
----- ----- ----- ----- -----
Income from operations..................... 27.1 27.6 23.9 21.8 24.1
Other income (expense), net.................. (.3) .3 1.6 .9 2.9
----- ----- ----- ----- -----
Income before income taxes................. 26.8 27.9 25.5 22.7 27.0
Income tax provision......................... 9.2 11.4 10.2 9.1 10.8
----- ----- ----- ----- -----
Net income................................. 17.6% 16.5% 15.3% 13.6% 16.2%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1996 as Compared to Three Months Ended March 31,
1995
The Company reported net patient service revenue of $16.1 million for the
three months ended March 31, 1996, as compared with $8.9 million for the same
period in 1995, a growth rate of 81.5%. Of this $7.2 million increase, $6.3
million, or 87.5%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue, exclusive of administrative fees, increased $559,000, or 7.2%, for the
three months ended March 31, 1996, compared to the same period in 1995. Same
units are those units at which the Company provided services for the entire
period for which the percentage is calculated and the entire prior comparable
period. The same unit growth resulted from volume increases as there were no
general price increases during the periods. See "-- Quarterly Results."
Salaries and benefits increased $4.5 million, or 72.2%, to $10.8 million
for the three months ended March 31, 1996, as compared with $6.3 million for the
same period in 1995. Of this $4.5 million increase, $3.4 million, or 75.6%, was
attributable to hiring new physicians, primarily to support new unit growth, and
the remaining $1.1 million was primarily attributable to increased support staff
and resources added in the areas of nursing, management and billing and
reimbursement. Supplies and other operating expenses increased $606,000, or
100%, to $1.2 million for the three months ended March 31, 1996, as compared
with $607,000 for the same period in 1995, primarily as a result of new units.
Depreciation and amortization expense increased by $159,000, or 214.9%, to
$233,000 for the three months ended March 31, 1996, as compared with $74,000 for
the same period in 1995, primarily as a result of amortization of goodwill in
connection with acquisitions.
Income from operations increased approximately $2.0 million, or 100.8%, to
$3.9 million for the three months ended March 31, 1996, as compared with $1.9
million for the same period in 1995, representing an increase in the operating
margin from 21.8% to 24.1%. The increase in operating margin was primarily due
to increased volume, principally from acquisitions.
The Company earned net interest income of approximately $499,000 for the
three months ended March 31, 1996, as compared with $107,000 for the same period
in 1995. The increase in net interest income
25
<PAGE> 28
resulted primarily from additional funds available for investment due to
proceeds from the initial public offering and cash flow from operations.
The effective income tax rate was approximately 40% for both of the three
month periods ended March 31, 1996 and 1995.
Net income increased 116.0% to $2.6 million for the three months ended
March 31, 1996, as compared with $1.2 million for the same period in 1995. Net
income as a percentage of net patient service revenue increased to 16.2% for the
three months ended March 31, 1996, compared to 13.6% for the same period in
1995.
Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Net patient service revenue increased by $11.1 million, or 33.8%, to $43.9
million for the year ended December 31, 1995 compared to $32.8 million for the
year ended December 31, 1994. Of this $11.1 million increase, $10.9 million, or
98.2%, was attributable to new contracts, including $2.7 million, or 24.3%,
attributable to contracts acquired in connection with the acquisition of NAPIC
in the third quarter of 1995. Same unit patient service revenue, exclusive of
administrative fees, increased $689,000, or 2.6%. Same units are those units at
which the Company provided services for the entire period for which the
percentage is calculated and the entire prior comparable period. The same unit
growth resulted from volume increases as there were no general price increases
during the periods.
Salaries and benefits increased by $8.8 million, or 42.6%, to $29.5 million
for the year ended December 31, 1995, compared to $20.7 million for the year
ended December 31, 1994. Of this $8.8 million increase, $6.5 million, or 73.9%,
was attributable to hiring of new physicians, primarily to support new contract
growth, and the remaining $2.3 million was primarily attributable to increased
support staff and resources added in the areas of nursing, executive management
and billing and reimbursement. Supplies and other operating expenses increased
$677,000, or 24.4%, to $3.5 million for the year ended December 31, 1995,
compared to $2.8 million for the year ended December 31, 1994, primarily as a
result of increased contract activity. Depreciation and amortization expense
increased by $119,000 or 48.8%, to $363,000 for the year ended December 31, 1995
compared to $244,000 in 1994, primarily as a result of additions of computer
equipment and amortization of goodwill in connection with the acquisition of
NAPIC.
Income from operations increased $1.5 million, or 16.2%, to $10.5 million
for the year ended December 31, 1995, compared to $9.0 million for the year
ended December 31, 1994, representing a decrease in the operating income margin
from 27.6% to 23.9%. The decrease in operating income margin was primarily due
to increases in salaries and benefits to support new contract growth.
The Company earned net interest income of $687,000 for the year ended
December 31, 1995, compared to net interest income of $118,000 for the year
ended December 31, 1994. This increase in net interest income primarily resulted
from the investment of IPO net proceeds.
The effective income tax rate was approximately 40.0% for the year ended
December 31, 1995 compared with 40.9% for the year ended December 31, 1994.
Net income increased by $1.3 million, or 24.1%, to $6.7 million for the
year ended December 31, 1995, compared to $5.4 million for the year ended
December 31, 1994. Net income as a percentage of net patient service revenue
decreased to 15.3% for the year ended December 31, 1995, compared to 16.5% for
the year ended December 31, 1994.
Year Ended December 31, 1994 as Compared to Year Ended December 31, 1993
Net patient service revenue increased by $9.2 million, or 39.1%, to $32.8
million in 1994, compared to $23.6 million in 1993. Of this $9.2 million
increase, $8.5 million, or 92%, was attributable to new contracts, and $716,000
was attributable to same units which grew 3.4%. Same units are those units that
were under contract with the Company prior to 1993. Same unit growth resulted
generally from volume increases with little or no impact from price increases.
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<PAGE> 29
Salaries and benefits increased by $5.9 million, or 39.5%, to $20.7 million
in 1994, compared to $14.9 million in 1993. Of this $5.9 million increase, $4.6
million, or 78.0%, was attributable to hiring of new physicians, primarily to
support new contract growth, and the remaining $1.3 million was primarily
attributable to increased support staff and resources added in the areas of
executive management and billing and reimbursement. Supplies and other operating
expenses increased $544,000, or 24.4%, to $2.8 million in 1994, compared to $2.2
million in 1993, primarily as a result of increased advertising and contract
activity. Depreciation expenses increased by $148,000 to $244,000 in 1994,
primarily as a result of a full year's depreciation in 1994 of the Company's
executive offices, which were occupied in July 1993.
Income from operations increased by $2.6 million, or 41.4%, to $9.0 million
in 1994, compared to $6.4 million in 1993, representing an increase in the
operating income margin from 27.1% to 27.6%. The increase in operating income
margin was primarily due to same unit growth.
The Company earned net interest income of $118,000 in 1994, while it
incurred net interest expense of $60,000 in 1993. This increase in net interest
income primarily resulted from the reduction in 1993 of the debt incurred by the
Company with respect to a stock repurchase and land and building acquisition and
the accumulation of cash balances which amounted to $7.4 million as of December
31, 1994.
The effective income tax rate was approximately 40.9% in 1994 compared to
approximately 34.3% in 1993 with the increase resulting primarily from the
effect of state income taxes.
Net income increased by $1.3 million, or 30.3%, to $5.4 million in 1994,
compared to $4.1 million in 1993. Net income as a percentage of net patient
service revenue decreased to 16.5% in 1994, compared to 17.6% in 1993 due
primarily to the higher effective tax rate in 1994.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data for
each of the quarters in the years ended December 31, 1994 and 1995 and the
quarter ended March 31 1996. This information has been prepared on the same
basis as the Consolidated Financial Statements appearing elsewhere in this
Prospectus and include, in the opinion of the Company, all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the quarterly results when read in conjunction with the Consolidated Financial
Statements and the notes thereto. The Company has historically experienced and
expects to continue to experience quarterly fluctuations in net patient service
revenue and net income. As a result, the operating results for any quarter are
not necessarily indicative of results for any future period or for the full
year. See "Risk Factors -- Quarterly Fluctuations in Operating Results;
Potential Volatility."
<TABLE>
<CAPTION>
1994 CALENDAR QUARTERS 1995 CALENDAR QUARTERS 1996 CALENDAR
--------------------------------- ----------------------------------- QUARTER
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
------ ------ ------ ------ ------ ------ ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service revenue.......... $7,190 $7,612 $9,032 $8,945 $8,886 $9,131 $12,478 $13,365 $16,127
Operating expenses:
Salaries and benefits.............. 4,481 4,639 5,455 6,148 6,270 6,322 8,212 8,741 10,796
Supplies and other operating
expenses......................... 496 711 689 878 607 831 967 1,046 1,213
Depreciation and amortization...... 49 59 65 71 74 66 99 124 233
------ ------ ------ ------ ------ ------ ------- ------- -------------
Total operating expenses..... 5,026 5,409 6,209 7,097 6,951 7,219 9,278 9,911 12,242
------ ------ ------ ------ ------ ------ ------- ------- -------------
Income from operations............... 2,164 2,203 2,823 1,848 1,935 1,912 3,200 3,454 3,885
Other income, net.................... 7 15 37 59 79 116 85 407 464
------ ------ ------ ------ ------ ------ ------- ------- -------------
Income before income taxes........... 2,171 2,218 2,860 1,907 2,014 2,028 3,285 3,861 4,349
Income tax provision................. 889 908 1,171 781 805 812 1,314 1,544 1,737
------ ------ ------ ------ ------ ------ ------- ------- -------------
Net income........................... $1,282 $1,310 $1,689 $1,126 $1,209 $1,216 $ 1,971 $ 2,317 $ 2,612
====== ====== ====== ====== ====== ====== ======= ======= =============
</TABLE>
27
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Prior to the IPO, the Company generated sufficient cash flow from
operations to support its growth strategy, which primarily consisted of
marketing directly to hospital administrators. The Company significantly
increased its acquisition activities commencing with the fourth quarter of 1995.
During the first quarter of 1996, the Company completed three acquisitions of
neonatology physician group practices, utilizing approximately $11.0 million of
net proceeds from the IPO. As of March 31, 1996, the Company had approximately
$33.6 million of cash, cash equivalents and marketable securities. From April 1,
1996 through June 15, 1996, the Company completed three additional acquisitions
utilizing approximately $18.5 million of net proceeds from the IPO.
As of March 31, 1996, the Company had working capital of approximately
$39.7 million, a decrease of $13.7 million from the working capital of $53.4
million available at December 31, 1995. The decrease is due principally to the
acquisition of three physician group practices for aggregate consideration of
approximately $11.0 million in cash as well as additions to property and
equipment and other assets.
On June 27, 1996, the Company entered into a $30.0 million unsecured
revolving credit facility (the "Credit Facility") with The First National Bank
of Boston ("Bank of Boston") and SunTrust Bank, which includes a $2.0 million
amount reserved to cover deductibles under the Company's malpractice insurance
policies. The Company intends to use amounts available under the Credit Facility
primarily for acquisitions. The Credit Facility matures on June 30, 1999. At the
Company's option, the Credit Facility bears interest at either LIBOR plus .875%
or the prime rate announced by Bank of Boston. There is no balance currently
outstanding under the Credit Facility.
The Company is constructing a new building, which is scheduled to be
completed in the third quarter of 1996 at an anticipated total cost of
approximately $2.3 million. The Company has been funding the construction of the
new building with available cash. The Company has an $800,000 mortgage loan with
Bank of Boston which is secured by the corporate headquarters building. The
Company has received a $3.0 million commitment from Bank of Boston for a
mortgage loan on the new building and the corporate headquarters, which will
replace the $800,000 mortgage loan.
The Company's annual capital expenditures have typically been for computer
hardware and software and for furniture, equipment and improvements at the
corporate headquarters. During the three months ended March 31, 1996, capital
expenditures amounted to approximately $800,000. For the remainder of 1996, the
Company anticipates capital expenditures of approximately $3.3 million,
including approximately $1.0 million for computer hardware and software, $1.5
million for the completion of the new building, and other expenditures, such as
furnishing the new building and renovating the corporate headquarters. See
"Business -- Properties." Capital expenditures during 1997 are not expected to
exceed $2.0 million, principally for computer hardware and software.
The Company anticipates that funds generated from operations, together with
the net proceeds of this offering, cash and marketable securities on hand and
funds available under the Credit Facility, will be sufficient to meet its
working capital requirements and finance any required capital expenditures and
acquisitions for both the short-term and long-term.
28
<PAGE> 31
BUSINESS
Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. NICUs provide medical care to newborn infants with low
birth weight and other medical complications, and are staffed with specialized
pediatric physicians, known as neonatologists. Based upon its own market
research, knowledge of the health care industry and experience in neonatology,
the Company believes that it is the only provider of NICU physician management
services that markets its services on a national basis. The Company also
provides physician management services to hospital-based PICUs, units which
provide medical care to critically ill children and are staffed with
specially-trained pediatricians, and pediatrics departments in hospitals. As of
June 15, 1996, the Company provided services to 58 NICUs, eight PICUs and three
pediatrics departments in 14 states and Puerto Rico and employed or contracted
with 162 physicians. See "Recent Developments."
The Company staffs and manages NICUs and PICUs in hospitals, providing the
physicians, professional management and administrative support, including
billing and reimbursement expertise and services. The Company's policy is to
provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.
Pediatrix established its leading position in physician management services
to NICUs by developing a comprehensive care model and management and systems
infrastructure that address the needs of patients, hospitals, payor groups and
physicians. Pediatrix addresses the needs of (i) patients by providing
continuous, comprehensive, professional quality care, (ii) hospitals by
recruiting, credentialing, and retaining neonatologists and hiring related staff
to operate NICUs in a cost-effective manner thereby relieving hospitals of the
financial and administrative burdens of operating the NICUs, (iii) payor groups
by providing cost-effective care to patients and (iv) physicians by providing
administrative support, including physician billing and reimbursement expertise
and services, to enable them to focus on providing care to patients, and by
offering an opportunity for career advancement within Pediatrix.
INDUSTRY OVERVIEW
The evolving managed care environment has created substantial cost
containment pressures for all constituents of the health care industry. The
increasing use of fixed-payment systems that shift financial risk from payors to
providers has forced hospitals, in particular, to be more cost-effective in all
aspects of their operations. A trend among hospitals is to utilize third party
contract management companies to manage specialized functions in an effort to
contain costs, improve utilization management, and reduce administrative
burdens. Physician management organizations provide hospitals with professional
management of staff, including recruiting, staffing and scheduling of
physicians.
Physicians are responding to cost containment pressures by joining group
practices through which they have greater leverage to negotiate and contract
with hospitals and managed care payors. Physician management organizations
provide a physician group practice an alternative to self management that
enables physicians to maintain their clinical autonomy while creating greater
negotiating power with payors and hospitals, and providing administrative
support to deal with the increasing complexity of billing and reimbursement.
Physician group practices are becoming larger and more prevalent. The Company
believes that as cost pressures continue to influence the medical industry, the
trend of physicians joining group practices will continue. Although the Company
continues to market its services to hospitals to obtain new contracts, the
Company has shifted its strategy to growth through acquisitions as physicians
become more receptive to being acquired.
The Company believes that hospitals will continue to outsource certain
units, such as NICUs and PICUs, on a contract management basis. NICUs and PICUs
present significant operational challenges for hospitals, including complex
billing procedures, highly variable admissions rates, and difficulties in
recruiting and retaining qualified physicians. These operational challenges
generally make it difficult for hospitals to operate these units profitably.
Traditionally, hospitals have staffed their NICUs internally, through
affiliations with small, local physician groups or with independent
practitioners. These small practices typically lack the necessary expertise and
support services in billing and reimbursement, recruiting and effective medical
29
<PAGE> 32
management to operate NICUs on a cost-effective basis. Hospitals are
increasingly seeking to contract with physician management services
organizations that have the capital resources, information and reimbursement
systems and practice management expertise that NICUs require to accept and
manage risk in the evolving managed care environment.
Of the approximately four million babies born in the United States in 1994,
approximately 10% required neonatal treatment. Demand for neonatal services is
primarily due to premature births, which are often characterized by low birth
weight and other medical complications. A majority of high-risk mothers whose
births require neonatal treatment are not identified until the time of delivery,
thus heightening the need for continuous coverage by neonatologists. Across the
United States, NICUs are concentrated primarily among hospitals located in
metropolitan areas with a higher volume of births. NICUs are important to
hospitals since obstetrics generates one of the highest volumes of admissions
and obstetricians generally prefer to perform deliveries at hospitals with
NICUs. Hospitals must maintain cost-effective care and service in these units to
enhance the hospital's desirability to the community, physicians and managed
care payors.
STRATEGY
The Company's objective is to enhance its position as the nation's leading
provider of physician management services to NICUs by adding new units and
increasing same unit growth. The key elements of the Company's strategy are as
follows:
Focus on Neonatology and Pediatrics. Since its founding in 1980, the
Company has focused exclusively on neonatology and pediatrics. As a result
of this focus the Company believes it has (i) developed significant
expertise in the complexities of billing and reimbursement for neonatology
physician services and (ii) a competitive advantage in recruiting and
retaining neonatologists seeking to join a group practice. The Company
believes its continued focus will allow it to enhance its position as the
nation's leading provider of physician management services to NICUs.
Acquire Neonatal Physician Group Practices. The Company intends to
further increase the number of units at which it provides physician
management services by acquiring well-established neonatal physician group
practices. The Company believes that it will continue to benefit from
physicians joining larger practice groups in an effort to increase
negotiating power with managed care organizations and eliminate
administrative burdens, while maintaining clinical autonomy. The Company
completed its first acquisition of a neonatology physician group practice
in California in July 1995 and completed acquisitions of six neonatology
physician group practices in the first half of 1996. The Company is
actively pursuing acquisitions of other neonatal physician group practices.
No assurance can be given that future acquisition candidates will be
identified or that any future acquisitions will be consummated. See "Recent
Developments."
Develop Regional Networks. The Company intends to develop regional
and state-wide networks of NICUs in geographic areas with high
concentrations of births. The Company operates regional networks in Denver,
Phoenix and Southern California. The Company believes that the development
of regional and state-wide networks will strengthen its position with third
party payors, such as Medicaid and managed care organizations, since such
networks will offer more choice to the patients of third party payors.
Increase Same Unit Growth. The Company seeks to provide its services
to hospitals where the Company can benefit from increased admissions and
intends to increase revenues at existing units by providing support to
areas of the hospital outside the NICU and PICU, particularly in the
obstetrics, nursery and pediatrics departments, where immediate
accessibility to specialized care is critical. These services generate
incremental revenue to the Company, contribute to the Company's overall
profitability, enhance the hospital's profitability, strengthen the
Company's relationship with the hospital, and assist the hospital in
attracting more admissions by enhancing the hospital's reputation in the
community as a full-service critical care provider.
Assist Hospitals to Control Costs. The Company intends to continue
assisting hospitals to control costs. The Company's comprehensive care
model, which promotes early intervention by neonatologists in emergency
situations, as well as the retention of qualified neonatologists, improves
the overall cost-effectiveness of care. The Company believes that its
ability to assist hospitals to control costs will allow it
30
<PAGE> 33
to continue to be successful in adding new units at which the Company
provides physician management services.
Address Challenges of Managed Care Environment. The Company intends
to continue to develop new methods of doing business with managed care and
third party payors, which will allow it to develop relationships among
payors, hospitals and the Company. The Company is also prepared to enter
into flexible arrangements with third party payors, including capitation
arrangements. As the nation's leading provider of physician management
services to NICUs, the Company believes that it is well-positioned to
address the needs of managed care organizations and other third party
payors which seek to contract with cost-effective, quality providers of
medical services.
PHYSICIAN MANAGEMENT SERVICES
The Company provides physician management services to NICUs and PICUs,
providing (i) a medical director to manage the unit, (ii) recruiting, staffing
and scheduling of physicians and certain other medical staff, (iii) neonatology
and pediatric support to other hospital departments, (iv) pediatric subspecialty
services and (v) billing and reimbursement expertise and services. These
physician management services include:
Unit Management. The Company staffs each NICU and PICU it manages
with a medical director who reports to the CMO of the Company. The CMO and
all medical directors at these units are board certified or board eligible
in neonatology, pediatrics, pediatric critical care or pediatric
cardiology. In addition to providing medical care and physician management
in the unit, the medical director is responsible for (i) the overall
management of the unit, including quality of care, professional discipline,
utilization review, physician recruitment, staffing and scheduling, (ii)
serving as a liaison to the hospital administration, (iii) maintaining
professional and public relations in the hospital and the community and
(iv) monitoring the Company's financial success within the unit.
Recruiting, Staffing and Scheduling. The Company is responsible for
recruiting, staffing and scheduling the neonatologists, pediatricians and
advanced registered nurse practitioners ("ARNPs") within the NICU and PICU
of the hospital. The Company's recruiting department maintains an extensive
database of neonatologists and pediatricians nationwide from which to draw
for recruiting purposes. All candidates are pre-screened and their
credentials, licensure and references are checked and verified by the
Company. The CMO and the medical directors play a key role in the
recruiting and interviewing process before candidates are introduced to
hospital administrators. The NICUs and PICUs managed by the Company are
staffed with at least one neonatologist or pediatrician on-site or
available on-call. All of these physicians are board certified or board
eligible in neonatology, pediatrics, pediatric critical care or pediatric
cardiology. The Company also employs or contracts with ARNPs, who assist
medical directors and other physicians in operating the NICUs and PICUs.
All ARNPs have either a certificate as a neonatal nurse practitioner or
pediatric nurse practitioner or a masters degree in nursing, and have
previous neonatal or pediatric experience. With respect to the physicians
that are employed by or under contract with the Company, the Company
assumes responsibility for salaries, benefits, bonuses, group health
insurance and physician malpractice insurance. See "-- Contractual
Relationships."
Support to Other Hospital Departments. As part of the Company's
comprehensive care model, physicians provide pediatric support services to
other areas of hospitals, particularly in the obstetrics, nursery and
pediatrics departments, where immediate accessibility to specialized care
is critical. The Company believes this support (i) improves its relations
with hospital staff and referring physicians, (ii) enhances the hospital's
reputation in the community as a full-service critical care provider, (iii)
increases admissions from referring obstetricians and pediatricians, (iv)
integrates the physicians into a hospital's medical community, (v)
generates incremental revenue which contributes to the Company's overall
profitability and (vi) increases the likelihood of renewing and adding new
hospital contracts.
Pediatric Subspecialties. The Company has developed a pediatric
subspecialty program to complement and enhance its comprehensive care
model. The program consists of (i) a director of Pediatric Subspecialties
to administer the program, (ii) four pediatric cardiologists in Florida and
(iii) one pediatric nephrologist (kidney specialist) in Puerto Rico. These
physicians provide out-patient services in
31
<PAGE> 34
offices outside contracting hospitals. The pediatric cardiologists and the
pediatric nephrologist also assist attending physicians at hospitals in
Florida and Puerto Rico. The Company is exploring the possibility of
expanding the existing program in pediatric cardiology in line with the
Company's other strategic objectives in neonatology and pediatric intensive
care. Expansion of the program will depend in part on the demand for such
critical care services at hospitals and by payor groups.
Billing and Reimbursement. The Company assumes responsibility for all
aspects of the billing, reimbursement and collection process relating to
physician services. Patients treated at the unit receive a bill from the
Company for physician services, and the hospital bills and collects
separately for all other services. To address the increasingly complex and
time-consuming process for obtaining reimbursement for medical services,
the Company has invested in both the technical and human resources
necessary to create an efficient billing and reimbursement process,
including specific claim forms and software systems. The Company begins
this process by providing training to physicians that emphasizes a detailed
review of and proper coding protocol for all procedures performed and
services provided to achieve appropriate collection of revenues for
physician services. Historically, the Company's billing and collection
operations were conducted from its corporate headquarters in Fort
Lauderdale, Florida. In June 1996, the Company opened a business office in
Orange, California to support its operations in California.
MARKETING
Historically, most of the Company's growth was generated internally through
marketing efforts and referrals. The Company significantly increased its
acquisition activities during the fourth quarter of 1995 to capitalize on the
opportunities created by the trend toward consolidation in the health care
industry. The Company's marketing program to neonatal physician groups consists
of (i) market research to identify established physician groups, (ii)
telemarketing to identify and contact acquisition candidates, as well as
hospitals with high demand for NICU services, including certain hospitals
without on-site NICUs, and (iii) a national sales manager and two regional
managers that conduct on-site visits along with senior management. The Company
also advertises its services in hospital and health care trade journals,
participates at hospital and physician trade conferences, and markets its
services directly to hospital administrators and medical staff. In addition, the
Company intends to focus on developing additional regional networks and
state-wide networks to strengthen its position with third party payors, such as
Medicaid and managed care organizations.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains several systems to support day-to-day operations,
business development and ongoing business analysis, including (i) a Company-wide
electronic mail system to assist in intracompany communications and
conferencing, including interaction among physicians regarding clinical matters
on a real-time basis, (ii) electronic interchange with payors utilizing
electronic invoicing and (iii) a database used by the business development and
marketing departments in recruiting individual physicians and identifying
potential neonatal physician group acquisition candidates, which is updated
through telemarketing activities, personal contacts, professional journals and
mail solicitation. The Company is in the process of acquiring and developing an
electronic medical record system. The Company believes that the electronic
medical record system, when implemented, will expedite the reimbursement process
and serve as the source of data for a Company-wide clinical and financing
repository in support of outcomes reporting, financial analysis and clinical
studies.
The Company's management information system is an integral component of the
billing and reimbursement process. The Company's system enables it to track
numerous and diverse third party payor relationships and payment methods and
provides for electronic interchange in support of insurance benefits
verification and claims submission with payors accepting electronic invoicing.
The Company's system was designed to meet its requirements by providing maximum
flexibility as payor groups upgrade their payment and reimbursement systems. See
"Management's Discussion and Analysis and Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
32
<PAGE> 35
CONTRACTUAL RELATIONSHIPS
Hospital Relationships. Most of the Company's contracts with hospitals
grant the Company the exclusive right and responsibility to manage the provision
of physician management services to the NICUs and PICUs. The contracts typically
have terms of three to five years and renew automatically for additional terms
of one to five years unless otherwise terminated by either party. The contracts
typically provide that the hospital may terminate the agreement prior to the
expiration of the initial term upon 30 days written notice in the event any
physician (i) loses medical staff membership privileges, (ii) is convicted of a
felony, (iii) is unable to perform duties due to disability or (iv) commits a
grossly negligent act that jeopardizes the health or safety of a patient.
The Company bills for the physicians' services on a fee-for-service basis
separately from other charges billed by the hospital. Certain contracting
hospitals that do not generate sufficient patient volume agree to pay the
Company administrative fees to assure a minimum revenue level. Administrative
fees include guaranteed payments to the Company, as well as fees paid to the
Company by certain hospitals for administrative services performed by the
Company's medical directors at such hospitals. Administrative fees accounted for
13%, 12% and 10% of the Company's net patient service revenue during 1994, 1995
and the three months ended March 31, 1996, respectively. The hospital contracts
typically require that the Company and the physicians performing services
maintain professional liability insurance and general liability insurance in
minimum amounts of $1.0 million per claim per physician and $3.0 million in the
aggregate per year per physician. The Company contracts for and pays the
premiums for such insurance on behalf of the physicians. See "-- Professional
Liability and Insurance."
In addition to contracts with hospitals, staffing at certain hospitals is
provided through the staff membership of the doctors at the hospital on an open
basis in which no group of doctors at the NICU has an exclusive relationship
with the hospital. At June 15, 1996, of the 58 NICUs to which the Company
provided services, twelve were at open hospitals.
Payor Relationships. While virtually all of the Company's contracts with
third party payors are discounted fee for service contracts, as of June 15,
1996, the Company had six contracts that provide for capitated payments,
including four contracts in California with an independent practice association
("IPA"), one contract in Arizona with an HMO and one contract in Texas with an
IPA. The Company is prepared to enter into capitation arrangements with other
third party payors. In the event the Company enters into relationships with
third party payors with respect to regional and state-wide networks, such
relationships may be on a capitated basis.
PA Contractor Relationships. PMG has entered into management agreements
("PA Management Agreements") with PA Contractors in all states in which it
operates, other than Florida. There is one PA Contractor in each state in which
the Company operates. Each PA Contractor is owned by a physician licensed in the
jurisdiction in which the PA Contractor operates, who is also an officer of the
PA Contractor. Under the PA Management Agreements, the PA Contractors delegate
to PMG the administrative, management and support functions (but not any
functions constituting the practice of medicine) that the PA Contractors have
agreed to provide to the hospital. In consideration of such services, each PA
Contractor pays PMG a percentage of the PA Contractor's gross revenue (but in no
event greater than the net profits of such PA Contractor), or a flat fee. PMG
has the discretion to determine whether the fee shall be paid on a monthly,
quarterly or annual basis. The management fee may be adjusted from time to time
to reflect industry standards and the range of services provided by the PA
Contractor. The agreements provide that the term of the arrangements are
permanent, subject only to termination by PMG, and that the PA Contractor shall
not terminate the agreement without PMG's prior written consent. Also, the
agreements provide that PMG or its assigns has the right, but not the
obligation, to purchase the stock of the PA Contractor. See "Risk Factors --
State Laws Regarding Prohibition of Corporate Practice of Medicine," "Risk
Factors -- Dependence on PA Contractors" and Note 2 to the Consolidated
Financial Statements.
Physician Relationships. The Company contracts with the PA Contractors to
provide the medical services required to fulfill its obligations to hospitals.
The physician employment agreements typically have terms of three years and can
be terminated by either party at any time upon 90 days prior written notice. The
physicians generally receive a base salary plus a productivity bonus. The
physician is required to hold a valid
33
<PAGE> 36
license to practice medicine in the appropriate jurisdiction in which the
physician practices and to become a member of the medical staff, with
appropriate privileges at the hospital. The Company is responsible for billing
patients and third party payors for services rendered by the physician, and the
Company has the exclusive right to establish the schedule of fees to be charged
for such services. Substantially all of the physicians employed by PMG or the PA
Contractors have agreed not to compete with PMG or the PA Contractor within a
five-mile radius of any hospital for which the physician is rendering medical
services for a period of one to two years after termination of employment. The
Company contracts for and pays the premiums for malpractice insurance on behalf
of the physicians. See "-- Professional Liability and Insurance."
Acquisitions. The Company structures acquisitions of physician practice
groups as asset purchases, stock purchases and stock mergers. Generally, these
structures provide for: (i) the assignment to the Company of the contracts
between the physician practice group and the hospital at which the physician
practice group provides medical services; (ii) physician "tail insurance"
coverage under which the Company is an insured party to cover malpractice
liabilities that may arise after the date of the acquisition which relate to
events prior to the acquisition; and (iii) indemnification to the Company by the
previous owners of the acquired entity. Generally, in acquisitions structured as
asset purchases, the Company does not acquire the physician practice group's
receivables or liabilities, including malpractice claims, arising from the
physician practice group's activities prior to the date of the acquisition.
Generally, in acquisitions structured as stock purchases or stock mergers, the
physician practice group's receivables (net of any liabilities accruing prior to
the acquisition and permitted indemnification claims) are distributed as
compensation to and collected by the former owners of the physician practice
group.
GOVERNMENT REGULATION
The Company's operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business. The Company is also subject to laws and regulations which relate to
business corporations in general. The Company believes that it exercises care in
an effort to structure its practices and arrangements with hospitals and
physicians to comply with relevant federal and state law and believes that such
arrangements and practices comply in all material respects with all applicable
statutes and regulations.
Approximately 31% and 30% of the Company's net patient service revenue in
1995 and the three months ended March 31, 1996, respectively, was derived from
payments made by government-sponsored health care programs (principally
Medicaid). These programs are subject to substantial regulation by the federal
and state governments. Any change in reimbursement regulations, policies,
practices, interpretations or statutes that places material limitations on
reimbursement amounts or practices could adversely affect the operations of the
Company. Medicaid and other government reimbursement programs are increasingly
shifting to managed care, which could result in reduced payments to the Company
for Medicaid patients. In addition, funds received under these programs are
subject to audit with respect to the proper billing for physician services and,
accordingly, retroactive adjustments of revenue from these programs may occur.
The Company is also subject to (i) certain provisions of the Social
Security Act, commonly referred to as the "Anti-kickback Statute," which
prohibits entities, such as the Company, from offering, paying, soliciting, or
receiving any form of remuneration in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease, or order of items or services
that are covered by Medicare or state health programs, (ii) prohibitions against
physician referrals, commonly known as "Stark II," which prohibit, subject to
certain exemptions, a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" (which include hospital inpatient and outpatient services) in
which the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement including the physician's
own group practice, and (iii) state and federal civil and criminal statutes
imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers which fraudulently or wrongfully bill
governmental or other third party payors for health care services. Although the
Company believes that it is not in violation of these provisions, there can be
no
34
<PAGE> 37
assurance that the Company's current or future practices will not be found to be
in violation of these provisions, and any such finding could have a material
adverse effect on the Company.
In addition, business corporations such as PMG are generally not permitted
under state law to practice medicine, exercise control over the medical
judgments or decisions of physicians, or engage in certain practices such as
fee-splitting with physicians. In states where PMG is not permitted to practice
medicine, the Company performs only nonmedical administrative services, does not
represent to the public or its clients that it offers medical services and does
not exercise influence or control over the practice of medicine by the PA
Contractors or the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws relating to the
practice of medicine. In most states, PMG contracts with the PA Contractors
(which are owned by a licensed physician employed by the respective PA
Contractor), which in turn employ or contract with physicians to provide
necessary physician services. There can be no assurance that regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee splitting or the corporate practice of
medicine. If such a claim were successfully asserted in any jurisdiction, PMG
could be subject to civil and criminal penalties under such jurisdiction's laws
and could be required to restructure its contractual arrangements, which could
have a material adverse effect on the Company's financial condition and results
of operations.
In addition to current regulation, the public and state and federal
governments have recently focused significant attention on reforming the health
care system in the United States. Although the Company cannot predict whether
these or other reductions in the Medicare or Medicaid programs will be adopted,
the adoption of such proposals could have a material adverse effect on the
Company's business. Concern about such proposals has been reflected in
volatility of the stock prices of companies in health care and related
industries.
PROFESSIONAL LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of physician
professional liability. The Company maintains professional liability insurance
and general liability insurance on a claims-made basis in the amounts of $1.0
million per incident per physician and ARNP ($2.0 million for certain physicians
in California), and $3.0 million in the aggregate per annum for each physician
and ARNP ($4.0 million for certain physicians in California); $2.0 million per
incident and $4.0 million in the aggregate per annum for the Company; and $12.0
million in the aggregate per year for the Company and all physicians employed by
or under contract with the Company. The Company believes that these amounts,
which represent the required amounts of insurance coverage in the states in
which the Company does business, are appropriate based upon claims experience
and the nature and risks of its business. The Credit Facility includes a $2.0
million amount reserved to cover deductibles under the Company's insurance
policies. There can be no assurance that a pending or future claim or claims
will not be successful or if successful will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. See "-- Proceedings" and "Risk
Factors -- Professional Liability and Insurance."
The physicians that are employed by or contract with the Company are
required to obtain professional liability insurance coverage, and the Company
contracts for and pays the premiums with respect to such insurance for the
physicians. This insurance would provide coverage to the Company, subject to
policy limits, in the event the Company were held liable as a co-defendant in a
lawsuit against a physician or a hospital arising out of the provision of
medical services by the physician. The current policy expires April 30, 1997,
and the Company expects to be able to renew such policy upon such expiration.
COMPETITION
The health care industry is highly competitive and has been subject to
continual changes in the method in which health care services are provided and
the manner in which health care providers are selected and compensated. The
Company believes that private and public reforms in the health care industry
emphasizing cost containment and accountability will result in an increasing
shift of NICU and related pediatric care from highly fragmented, individual or
small practice neonatology providers to physician management companies.
Companies in other health care industry segments, such as managers of other
hospital-based specialties or large physician group practices, some of which
have financial and other resources greater than those of the
35
<PAGE> 38
Company, may become competitors in providing management of neonatal and
pediatric intensive care services to hospitals.
The Company provides neonatal and pediatric management services in Arizona,
California, Colorado, Florida, Illinois, Kansas, Michigan, New Jersey, New York,
Ohio, Pennsylvania, Puerto Rico, Texas, Virginia and West Virginia. Competition
in the Company's current markets and other geographic markets where the Company
may expand is generally based upon the Company's reputation and experience, and
the physician's ability to provide cost-effective, quality care.
SERVICE MARKS
The Company has registered the service mark "Pediatrix Medical Group" and
its design with the United States Patent and Trademark Office, and has applied
for registration of a baby design logo.
EMPLOYEES AND PROFESSIONALS UNDER CONTRACT
In addition to the 162 physicians employed or under contract with the
Company as of June 15, 1996, Pediatrix employed or contracted with 31 other
clinical professionals and 195 other full-time and part-time employees. None of
the Company's employees are subject to a collective bargaining agreement.
PROPERTIES
The Company owns its executive offices located in Ft. Lauderdale, Florida
(approximately 10,000 square feet) and currently leases space in other
facilities in various states for its California business office, pediatric
cardiology offices, storage space, and temporary housing of medical staff, with
aggregate annual rents of approximately $360,000. In May 1995, the Company
purchased approximately three acres of land adjacent to its current offices and
is constructing an administrative building on such land. The building will be
approximately 20,000 square feet, and is expected to be completed in the third
quarter of 1996 at a cost of approximately $2.3 million.
To facilitate its acquisition and business integration programs, the
Company entered into a contract in March 1996 to purchase an aircraft for $9.8
million with delivery scheduled for 1996. The Company intends to transfer its
rights under the purchase contract to a third party lessor and enter into a
long-term operating lease for the aircraft. The Company may also enter into a
financial sharing arrangement with respect to the operating lease with one or
more third parties.
PROCEEDINGS
During the ordinary course of business, the Company has become a party to
pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. The
Company intends to vigorously defend these suits. The Company believes, based
upon the investigations conducted by the Company to date, that the outcome of
such legal actions and proceedings, individually or in the aggregate, will not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity, notwithstanding any possible insurance recovery. If
liability results from the medical malpractice claims, there can be no assurance
that the Company's medical malpractice insurance coverage will be adequate to
cover liabilities arising out of such proceedings. See "Risk
Factors -- Professional Liability and Insurance."
On May 14, 1996, the Company received the Internal Revenue Service's (the
"IRS") proposed adjustments to the Company's tax liability in connection with
its examination of the Company's 1992, 1993, and 1994 federal income tax returns
as discussed in Note 9 to the Consolidated Financial Statements. The IRS has
challenged certain deductions that, if disallowed, would result in additional
taxes of approximately $4.5 million, plus interest. The Company and its tax
advisors are in the process of preparing a response to the IRS. The Company and
its tax advisors believe that the tax returns are substantially correct as
filed, and intend to vigorously contest the proposed adjustments. The Company
and its tax advisors also believe that the amounts that have been provided for
income taxes are adequate and that the ultimate resolution of the examination
will not result in a material adverse effect on the Company's consolidated
results of operations, financial position or cash flows.
36
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Roger J. Medel, M.D., M.B.A........... 49 President, Chief Executive Officer and
Director
Richard J. Stull, II.................. 52 Executive Vice President, Chief
Operating Officer and Director
M. Douglas Cunningham, M.D............ 56 Vice President and Chief Medical
Officer
Lawrence M. Mullen.................... 53 Vice President and Chief Financial
Officer
Cathy J. Lerman....................... 40 Vice President, General Counsel and
Corporate Secretary
Brian D. Udell, M.D................... 44 Vice President, Practice Integration
Kristen Bratberg...................... 34 Vice President, Business Development
E. Roe Stamps, IV..................... 50 Director
Bruce R. Evans(1)..................... 37 Director
Frederick V. Miller, M.D.............. 40 Director
Michael B. Fernandez(1)(2)............ 43 Director
Albert H. Nahmad(1)(2)................ 55 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Roger J. Medel, M.D. has held the position of President, Chief Executive
Officer and director of Pediatrix since he founded the Company in 1980 with Dr.
Gregory Melnick. Dr. Medel has been an instructor in pediatrics at the
University of Miami and participates as a member of several medical and
professional organizations. Dr. Medel also holds a Masters Degree in Business
Administration from the University of Miami. Dr. Medel has served on the boards
of directors of Sechrist Industries Inc., ARC Broward Inc. and Physician
Healthcare Plans, Inc.
Richard J. Stull, II joined the Company in November 1994 as Executive Vice
President and was elected as a director in December 1994, and appointed as Chief
Operating Officer in February 1995. From 1988 to November 1994, Mr. Stull served
as the President and Chief Executive Officer of the North Broward Hospital
District, a four hospital multi-facility health care delivery system, and the
third largest public hospital system in the United States with gross revenues in
excess of $1.0 billion and 6,000 employees. Mr. Stull has served on the boards
of directors of the South Florida Hospital Association and the Florida Hospital
Association, and is a member of the American Hospital Association's Regional
Policy Board and Metropolitan Hospital Section. Mr. Stull has over 25 years of
experience in the health care industry.
M. Douglas Cunningham, M.D. joined the Company in June 1996 as Vice
President and Chief Medical Officer. Dr. Cunningham has over 25 years experience
as a practicing neonatologist and professor of pediatrics and neonatology. From
1988 until joining the Company, Dr. Cunningham served as the Senior Vice
President, Medical Operations with Infant Care Management Services, Inc.
("ICMS"). Pediatrix recently acquired certain assets of ICMS' parent company,
Infant Care Specialists Medical Group, Inc. Dr. Cunningham has also served as a
professor at several medical schools, most recently as a Clinical Professor of
Pediatrics at the University of California, Irvine, and has published numerous
medical articles.
37
<PAGE> 40
Lawrence M. Mullen has held the position of Vice President and Chief
Financial Officer of Pediatrix since May 1995. Mr. Mullen has over 30 years of
experience in finance and accounting. Mr. Mullen was Senior Vice President and
Chief Financial Officer of Medical Care America, Inc. from May 1993 until its
acquisition by Columbia/HCA Healthcare Corporation in September 1994. Mr. Mullen
served as a consultant to Columbia/HCA from November 1994 until joining
Pediatrix. Prior to joining Medical Care America, Inc., Mr. Mullen was a partner
of KPMG Peat Marwick LLP, where he was employed from 1964 to 1993.
Cathy J. Lerman joined Pediatrix as Vice President and General Counsel in
October 1994. From May 1990 to October 1994, Ms. Lerman served as corporate
counsel to Post, Buckley, Schuh, and Jernigan, Inc., an international
engineering firm with offices in 38 states and several foreign countries. Prior
to that time, Ms. Lerman was in private practice specializing in commercial,
insurance and malpractice litigation. She has served as officer and director of
numerous local, state, and national bar associations and has published several
legal articles.
Brian D. Udell, M.D. has been employed by the Company since 1983. Dr. Udell
served as a medical director from July 1983 to June 1994 and as the Medical
Administrator from July 1994 to May 1995, at which time he was appointed Vice
President, Business Development. In November 1996, upon the appointment of Mr.
Bratberg as Vice President, Business Development, Dr. Udell was appointed Vice
President, Practice Integration. Dr. Udell has published numerous medical
articles and is a Fellow of the American Academy of Pediatrics and
past-president of the Florida Society of Neonatologist -- Perinatologists.
Kristen Bratberg joined the Company in November 1995 as Vice President,
Business Development. Prior to joining the Company, Mr. Bratberg was employed by
Dean Witter Reynolds Inc. in the Corporate Finance Department from May 1987 to
November 1995, most recently as a Senior Vice President specializing in the
healthcare industry.
E. Roe Stamps, IV was elected a director of the Company in October 1992.
Mr. Stamps co-founded Summit Partners in 1984 and is currently its Managing
General Partner. Mr. Stamps is currently a director of Boca Research, Inc.
Bruce R. Evans was elected a director of the Company in October 1992. Mr.
Evans has been employed by Summit Partners since 1986, and is currently a
General Partner. Mr. Evans is currently a member of the board of directors of A+
Network, Inc.
Frederick V. Miller, M.D. was elected as a director in January 1995, and
has been employed by the Company since 1991, most recently as a medical
director. Prior to joining the Company, Dr. Miller served as a neonatal
consultant and medical director for neonatal services with the US Army Medical
Corps.
Michael B. Fernandez was appointed as a director in October 1995. Mr.
Fernandez has served since 1992 as Chairman of the Board and Chief Executive
officer of Physicians Healthcare Plans, Inc., a Florida based health maintenance
organization. Prior to that time, Mr. Fernandez served from 1990 to 1992 as
Executive Vice President of Product Development and Marketing as well as Chief
Executive Officer of certain indemnity subsidiaries of CAC-United Healthcare
Plans of Florida, Inc.
Albert H. Nahmad was appointed as a director in January 1996. Mr. Nahmad
has served since 1973 as Chairman of the Board and President of Watsco, Inc. Mr.
Nahmad is also a director of American Bankers Insurance Group, Inc.
DIRECTOR COMPENSATION
The Company pays each director who is neither an employee or affiliated
with one of the Company's principal shareholders an annual director's fee of
$7,500 payable quarterly, and a $500 fee for each committee meeting attended. In
addition, each non-employee director that is not affiliated with one of the
Company's principal shareholders (a "Non-Affiliated Director") receives options
to purchase 5,000 shares of Common Stock on such director's initial appointment
to the Board, which options become fully exercisable on the one-year anniversary
date of the grant. The unexercised portion of any option granted to a
Non-Affiliated Director becomes null and void three months after the date on
which such Non-Employee Director ceases to be a director of the Company for any
reason. The Company also reimburses all directors for out-of-pocket expenses
incurred in connection with the rendering of services as a director. Dr. Miller
also serves as a medical director
38
<PAGE> 41
at a contracting hospital with the Company. He has two employment agreements,
one as a medical director and one as a physician, which together provide for an
annual salary of $250,000 plus a performance bonus. During 1993, 1994 and 1995,
Dr. Miller received $259,629, $259,764 and $259,859, respectively, under such
employment agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1992, the Company's Board of Directors established a Compensation
Committee consisting of Messrs. Stamps and Evans and Dr. Medel. In September
1995, Dr. Medel resigned his position with the Compensation Committee. The
Compensation Committee currently consists of Messrs. Nahmad, Fernandez and
Evans. During the period that Dr. Medel served on the Compensation Committee,
all compensation decisions affecting Dr. Medel were approved by the Company's
directors, exclusive of Dr. Medel.
Mr. Fernandez, a member of the Company's Compensation Committee, is also a
director and executive officer of Physicians Healthcare Plans, Inc. Dr. Medel
serves on the Board of Directors of Physicians Healthcare Plans, Inc.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain summary
information concerning compensation paid or accrued by the Company and its
subsidiaries to or on behalf of the Company's Chief Executive Officer and each
of the most highly compensated executive officers of the Company whose total
annual salary and bonus, determined as of the end of the last fiscal year,
exceeded $100,000 (the "Named Executive Officers"), for the fiscal years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ------------------
-------------------------------- NO. OF SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) OPTIONS TION(3)
- -------------------------------------- ------ --------- ----------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Roger J. Medel, M.D., M.B.A. 1995 $ 400,000 $ 175,750 200,000 $6,000
President and Chief Executive 1994 400,000 311,139 320,000 6,000
Officer
Richard J. Stull, II 1995 291,667 45,000 75,000 --
Executive Vice President, Chief 1994 62,498 -- 200,000(5) --
Operating Officer and Director(4)
Lawrence M. Mullen 1995 110,936 25,500 100,000 3,400
Vice President and Chief Financial
Officer(6)
Cathy J. Lerman 1995 123,750 18,750 65,000 2,675
Vice President, General Counsel and 1994 18,808 -- 10,000 --
Corporate Secretary(7)
Brian D. Udell, M.D. 1995 350,000 25,000 50,000 6,000
Vice President, Practice Integration 1994 350,000 50,000 -- 6,000
</TABLE>
- ---------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such columns. The aggregate
amount of perquisites and other personal benefits provided to each officer
listed above is less than 10% of the total annual salary and bonus of such
officer.
(2) Includes bonuses paid in a subsequent year for services performed in the
prior year.
(3) Reflects matching contributions to the Company's 401(k) plan.
(4) Mr. Stull joined the Company in November 1994.
(5) Options to purchase 100,000 shares were canceled in December 1995 pursuant
to the terms of Mr. Stull's employment agreement.
(6) Mr. Mullen joined the Company in May 1995.
(7) Ms. Lerman joined the Company in October 1994.
39
<PAGE> 42
Option Grants Table. The following table sets forth certain information
concerning grants of stock options made during fiscal 1995 to the Named
Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL OPTION GRANTS IN 1995 FISCAL YEAR
---------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR OPTION
NUMBER OF EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
NAME GRANTED 1995 SHARE(2) DATE 5% 10%
- ------------------------------ --------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger J. Medel, M.D........... 200,000 23.8% $ 19.25 10/29/05 $2,421,244 $6,135,908
Richard J. Stull, III......... 75,000 8.9 19.25 10/29/05 907,967 2,300,966
Lawrence M. Mullen............ 50,000 5.9 12.50 05/01/05 393,059 996,089
Lawrence M. Mullen............ 50,000 5.9 19.25 10/29/05 605,311 1,533,977
Cathy J. Lerman............... 40,000 4.8 12.50 01/18/05 314,447 796,871
Cathy J. Lerman............... 25,000 3.0 19.25 10/29/05 302,656 766,989
Brian D. Udell, M.D........... 50,000 5.9 20.00 12/04/05 628,895 1,593,742
</TABLE>
- ---------------
(1) The dollar amounts set forth in these columns are the result of calculations
at the five percent and ten percent rates set by the Securities and
Exchange Commission, and therefore are not intended to forecast possible
future appreciation, if any, of the market price of the Common Stock.
(2) All options were granted at exercise prices equal to the fair market value
of the Common Stock on the date of grant.
Year-End Option Value Table. No Named Executive Officer exercised stock
options during the year ended December 31, 1995. The following table sets forth
certain information concerning the number of stock options held by the Named
Executive Officers as of December 31, 1995, and the value (based on the fair
market value of a share of stock at fiscal year-end) of in-the-money options
outstanding as of such date.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger J. Medel, M.D............................. 139,999 430,001 $ 3,055,312 $ 6,527,688
Richard J. Stull, II............................ 33,333 141,667 749,993 2,118,757
Lawrence M. Mullen.............................. -- 100,000 -- 1,162,500
Cathy J. Lerman................................. 3,333 71,667 74,993 956,257
Brian D. Udell, M.D............................. -- 50,000 -- 375,000
</TABLE>
- ---------------
(1) The closing sale price for the Company's Common Stock as reported on the
Nasdaq National Market System on December 29, 1995 was $27.50. Value is
calculated by multiplying (a) the difference between $27.50 and the option
exercise price by (b) the number of shares of Common Stock underlying the
option.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
Effective February 1, 1995, the Company entered into an employment
agreement with Ms. Lerman, and amended and restated employment agreements with
each of Dr. Medel, Mr. Stull and Dr. Udell. In May 1995, the Company entered
into an employment agreement with Mr. Mullen. In November 1995, the Company
entered into an employment agreement with Mr. Bratberg, and in June 1996, the
Company entered into an employment agreement with Dr. Cunningham (as amended to
date, collectively, the "Employment Agreements"). All Employment Agreements are
for a three-year term, except that Dr. Medel's agreement is for a five-year
term. Dr. Medel's agreement provides for his employment as President and Chief
Executive Officer at a base salary of $400,000 per year, plus (i) an incentive
bonus equal to 5% of the Company's Pre-Tax Consolidated Net Income (as defined)
in excess of specified targets ($9.0 million for 1995 and for each subsequent
year during the employment term, such target is equal to the highest Pre-Tax
Consolidated Net Income achieved during the employment term), and (ii) a
performance bonus of $100,000 if certain performance objectives are achieved by
Dr. Medel during the year. Pursuant to the Employment Agreements,
40
<PAGE> 43
Messrs. Stull and Mullen, Dr. Udell, Ms. Lerman, Mr. Bratberg and Dr. Cunningham
receive base salaries of $300,000, $170,000, $350,000, $125,000, $100,000 and
$275,000, respectively. The Employment Agreements for Messrs. Stull, Mullen and
Bratberg, Dr. Udell, Ms. Lerman and Dr. Cunningham also provide that such
executives are eligible to receive performance bonuses, with Mr. Bratberg's
agreement providing that such performance bonus shall be $100,000 per year
payable in 12 equal installments. Mr. Bratberg's Employment Agreement also
provides for payment of an incentive bonus of 5% of the initial fiscal year's
"gross profits" (as defined) of businesses acquired during the term of his
agreement, half of which is payable in the month immediately succeeding each
such acquisition based upon projected "gross profits" and the remainder of which
is payable at the end of the initial fiscal year of each such acquisition upon
closure of the accounting period. The Employment Agreements also provide for
payments to the executives upon termination after a Change in Control (as
defined) in amount equal to 200% of average compensation for Dr. Medel, and 100%
of the average compensation for each of Dr. Udell, Messrs. Stull, Mullen and
Bratberg, Ms. Lerman and Dr. Cunningham for the five taxable years prior to such
termination. The executive officers each hold options to purchase Common Stock
granted under the Company's Stock Option Plan. The Employment Agreements provide
that, to the extent not already exercisable, such options will become
exercisable if the executive's employment is terminated within a 12-month period
after a Change in Control. The Employment Agreements further provide that each
executive shall not compete with the Company during the employment term and for
a period of one year thereafter following the termination of the agreement for
any reason.
STOCK OPTION PLANS
Stock Option Plan. Under the Company's Stock Option Plan, 2,500,000 shares
of Common Stock were reserved for issuance upon exercise of stock options. The
Stock Option Plan is designed as a means to retain and motivate key employees
and directors. The Compensation Committee of the Board of Directors administers
and interprets the Stock Option Plan and is authorized to grant options
thereunder to all eligible employees and directors of the Company, except that
no incentive stock options (as defined in Section 422 of the Internal Revenue
Code) may be granted to a director who is not also an employee of the Company or
a subsidiary.
The Stock Option Plan provides for the granting of both incentive stock
options and nonqualified stock options. Options are granted under the Stock
Option Plan on such terms and at such prices as determined by the Compensation
Committee, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Options granted to an individual who owns (or is
deemed to own) at least 10% of the total combined voting power of all classes of
stock of the Company must have an exercise price of at least 110% of the fair
market value of the Common Stock on the date of grant and a term of no more than
five years. Options granted under the Stock Option Plan are not transferable
other than by will or by the laws of descent and distribution. The Stock Option
Plan also authorizes the Company to make or guarantee loans to optionees to
enable them to exercise their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at a rate no less than the prime rate of
interest, and (iii) be secured by the shares of Common Stock purchased. The
Board of Directors has the authority to amend or terminate the Stock Option
Plan, provided that no such action may impair the rights of the holder of any
outstanding option without the written consent of such holder, and provided
further that certain amendments of the Stock Option Plan are subject to
shareholder approval. Unless terminated sooner, the Stock Option Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after 10 years from the date
the Board of Directors adopted the Stock Option Plan.
As of June 15, 1996, the Company has outstanding options to purchase an
aggregate of 1,941,029 shares of Common Stock under the Plan at a weighted
average exercise price of $15.70 per share.
41
<PAGE> 44
Employee Stock Purchase Plans.
The Company has adopted two Stock Purchase Plans, one which covers the
employees of the Company and one which covers the employees of the PA
Contractors. The Company has reserved an aggregate of 1,000,000 shares under the
Stock Purchase Plans.
The purpose of the Stock Purchase Plans is to encourage stock ownership in
the Company, thereby enhancing employee interest in the continued success and
progress of the Company. The Stock Purchase Plans permit participants to
purchase stock of the Company at a favorable price and possibly with favorable
tax consequences to the participants. The Stock Purchase Plans are administered
by the Compensation Committee appointed by the Board consisting of persons who
are "disinterested" persons under Rule 16b-3 under the Exchange Act. The Stock
Purchase Plans give broad powers to the Committee to administer and interpret
the Qualified Stock Purchase Plan. Purchase periods for the Stock Purchase Plans
are each of the six-month periods ending on the last day of March and September,
commencing September 30, 1996. Before the commencement date of each purchase
period, each participant must elect to have compensation withheld during the
purchase period of either (i) a minimum of 1% and a maximum of 15% of his or her
compensation, or (ii) a specific dollar amount of not less than $25 or more than
$10,625. The percentage or amount designated may not be increased or decreased
during a purchase period, but a participant can discontinue payroll deductions
for the remainder of a purchase period and withdraw his or her funds entirely.
As of the first day of the purchase period, a participant is granted an option
to purchase that number of shares determined by dividing the total amount to be
withheld by the purchase price described below. Based on the amount of salary
withheld at the end of the purchase period, shares will be purchased for the
account of each participant within five business days of the termination date of
such purchase period (the "Purchase Date"). In no event, however, may a
participant receive an option for shares which would cause the participant to
own 5% or more of the Common Stock of the Company. The purchase price to be paid
by the participants will be the lower of the amount determined under Paragraphs
A and B below:
A. 85% of the average of the high and low sales price of the Company's
Common Stock as reported on Nasdaq National Market as of the commencement
date of the purchase period; or
B. 85% of the average of the high and low sales price of the Company's
Common Stock as reported on Nasdaq National Market as of the Purchase Date.
As required by tax law, no participant may receive an option under the
Stock Purchase Plans for shares which have a fair market value in excess of
$25,000 determined at the time such option is granted. Any funds not used to
purchase shares will remain credited to the participant's bookkeeping account
and applied to the purchase of shares of Common Stock in the next succeeding
purchase period. No interest is paid by the Company on funds withheld, and such
funds are used by the Company for general operating purposes.
As of June 15, 1996, no shares of Common Stock had been issued under the
Stock Purchase Plans.
401(K) PLAN
As of January 1, 1993, the Company instituted a 401(k) plan (the "401(k)
Plan"). All full-time employees of the Company who are at least 21 years old are
eligible to participate in the 401(k) Plan on the first day of the quarter
following the employee's date of hire. The Company contributes an amount equal
to the participant's contribution, up to 4% of the participant's salary. The
401(k) Plan also allows the Company to make other discretionary contributions,
including profit sharing contributions, which will be administered by the
Compensation Committee.
The Company's matching contributions on behalf of an eligible employee
generally become fully vested if such employee reaches normal retirement age,
dies or becomes disabled while an employee. Such matching contributions vest on
a pro rata basis over a three-year period from the date of contribution.
An employee generally will be entitled to payment of such employee's total
account balance under the 401(k) Plan upon such employee's retirement, death or
permanent disability. In the event employment is terminated for any other
reason, an employee will be entitled to payment of such employee's vested
account balance. See Note 11 of Notes to Consolidated Financial Statements.
42
<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of June 15, 1996 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director or executive officer of
the Company who beneficially owns any shares, (iii) each Selling Shareholder,
and (iv) all directors and executive officers of the Company as a group. Except
as otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(2) NUMBER OF OFFERING(2)
------------------------ SHARES ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners(3)....................... 3,079,125 23.6% 1,500,000 1,579,125 10.8%
Roger J. Medel, M.D.(4).................. 1,197,575 9.0 500,000 697,575 4.7
Richard J. Stull, II(5).................. 31,583 * -- 31,583 *
Lawrence M. Mullen(6).................... 19,167 * -- 19,167 *
Cathy J. Lerman(7)....................... 14,167 * -- 14,167 *
Brian D. Udell, M.D.(8).................. 630,455 4.8 300,000 330,455 2.3
E. Roe Stamps, IV(3)..................... 3,079,125 23.6 1,500,000 1,579,125 10.8
Bruce R. Evans(3)........................ 3,079,125 23.6 1,500,000 1,579,125 10.8
Frederick V. Miller, M.D.(9)............. 38,266 * -- 38,266 *
K. Steven Haskins, M.D.(10).............. 630,455 4.8 300,000 330,455 2.3
Stefan R. Maxwell, M.D.(10).............. 630,455 4.8 300,000 330,455 2.3
Carlos A. Perez, M.D.(10)(11)............ 391,413 3.0 300,000 91,413 *
Gregory Melnick, M.D.(10)................ 334,000 2.6 50,000 284,000 2.0
Regina C. Melnick, D.M.D.(12)............ 290,000 2.2 250,000 40,000 *
All directors and executive officers as a
group (12 persons)(13)................. 5,010,338 37.5 2,300,000 2,710,338 18.3
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 1455 Northpark Drive, Ft. Lauderdale, Florida 33326.
(2) Based on 13,076,170 shares of Common Stock outstanding at June 15, 1996 and
14,576,170 as adjusted after the offering. Pursuant to the rules of the
Commission, certain shares of Common Stock which a person has the right to
acquire within 60 days of the date hereof pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the
percentage ownership of such person but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Includes 3,030,223 shares of Common Stock held by Summit Ventures III, L.P.
("Ventures"), 26,549 shares of Common Stock held by Summit Investors II,
L.P. ("Investors"), and 22,353 shares of Common Stock held by HKL
Associates ("HKL", and together with Ventures and Investors, "Summit
Partners"). Mr. Evans and Mr. Stamps are directors of the Company, general
partners of an affiliate of Ventures and are general partners of Investors
and HKL. Messrs. Stamps and Evans may, by virtue of their relationships
with Ventures, Investors and HKL, be deemed to beneficially own the
securities held by Ventures, Investors and HKL, and to share voting and
investment power with respect to such securities. Messrs. Stamps and Evans
both disclaim beneficial ownership of the securities, except to the extent
of their respective investment interests in Ventures, Investors and HKL.
The address of Summit Partners and Messrs. Stamps and Evans is 600 Atlantic
Avenue, Suite 2800, Boston, Massachusetts 02210. Does not reflect the sale
of 500,000 shares pursuant to the exercise of the Underwriters' over-
allotment option. See "Underwriting."
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<PAGE> 46
(4) Includes (i) 50,000 shares beneficially owned by Dr. Medel's wife, as to
which Dr. Medel disclaims beneficial ownership; (ii) 240 shares owned by
Dr. Medel's minor children, as to which Dr. Medel disclaims beneficial
ownership, (iii) 950,908 shares held of record by Medel Family Investments,
Ltd., a Florida limited partnership, and its general partner, which are
controlled by Dr. Medel and his wife, and (iv) 196,667 shares subject to
presently exercisable options. Excludes 573,333 shares subject to
unexercisable options. Does not reflect the sale of 250,000 shares pursuant
to the exercise of the Underwriters' over-allotment option. See
"Underwriting."
(5) Includes (i) 1,250 shares directly owned, and (ii) 30,333 shares subject to
presently exercisable options. Excludes 141,667 shares subject to
unexercisable options.
(6) Includes (i) 2,500 shares directly owned, and (ii) 16,667 shares subject to
presently exercisable options. Excludes 83,333 shares subject to
unexercisable options.
(7) All shares are subject to presently exercisable options. Excludes 58,333
shares subject to unexercisable options.
(8) All shares are held in trusts for the benefit of Dr. Udell and his wife.
Dr. Udell disclaims beneficial ownership with respect to the shares held in
trust for his wife. Excludes 50,000 shares subject to unexercisable
options.
(9) Includes (i) 26,600 shares directly owned, and (ii) 11,666 shares subject
to presently exercisable stock options. Excludes 23,334 shares subject to
unexercisable options.
(10) Each of Drs. Haskins, Maxwell, Melnick, Perez and Turnier (the wife of Dr.
Medel) are employed by the Company as medical directors. Prior to April 1,
1996, Drs. Haskins, Maxwell, Melnick, Perez and Turnier received annual
salaries of $315,000, $300,000, $300,000, $300,000 and $300,000,
respectively, pursuant to employment agreements. Effective April 1, 1996,
commensurate with an anticipated reduction in responsibilities, the annual
compensation to be paid to each such person was reduced to $50,000 per
year.
(11) Includes 46,667 shares subject to presently exercisable stock options.
Excludes 93,333 shares subject to unexercisable options.
(12) Dr. Regina Melnick's address is 2600 Douglas Road, Suite 907, Coral Gables,
Florida 33134.
(13) Includes 269,500 shares subject to presently exercisable stock options.
Excludes 1,065,000 shares subject to unexercisable options.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
authorized Common Stock and 1,000,000 shares of authorized Preferred Stock, $.01
par value. Copies of the Articles of Incorporation and Bylaws have been filed as
exhibits with the Commission and are incorporated by reference herein.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, including the election of directors. Since
the Common Stock does not have cumulative voting rights, the holders of a
majority of the outstanding shares voting for election of directors can elect
all members of the Board of Directors. A majority vote is also sufficient for
other actions that require the vote or concurrence of shareholders. See
"Principal and Selling Shareholders." Dividends may be paid to holders of Common
Stock when and if declared by the Board of Directors out of funds legally
available therefor. See "Price Range of Common Stock and Dividends." Holders of
Common Stock will be entitled to share ratably in the assets of the Company
legally available for distribution to shareholders in the event of liquidation
or dissolution.
The holders of Common Stock have no preemptive or conversion rights. The
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and not liable for further call or assessment.
PREFERRED STOCK
Although the Company has no present plans to issue shares of Preferred
Stock, Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of
Directors. The Board of
44
<PAGE> 47
Directors, without obtaining shareholder approval, could issue the Preferred
Stock with voting and/or conversion rights and thereby dilute the voting power
and equity of the holders of Common Stock and adversely affect the market price
of such stock. See "Risk Factors--Anti-Takeover Provisions; Possible Issuance of
Preferred Stock."
CERTAIN FLORIDA LEGISLATION
The Company is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of the corporation's disinterested shareholders, and
(ii) the Florida Fair Price Act, which generally requires supermajority approval
by disinterested directors or shareholders of certain specified transactions
between a corporation and holders of more than 10% of the outstanding shares of
the corporation (or their affiliates).
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, acquisitions and employee benefit
plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of the Company's
management. See "Risk Factors -- Anti-Takeover Provisions; Possible Issuance of
Preferred Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of the Articles of Incorporation and Bylaws of the
Company summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders.
Special Meeting of Shareholders. The Articles of Incorporation provide
that special meetings of shareholders of the Company may be called only by the
Board of Directors or upon the written demand of the holders of not less than
fifty percent of all votes entitled to be cast on any issue proposed to be
considered at a special meeting. This provision will make it more difficult for
shareholders to take actions opposed by the Board of Directors.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Articles of Incorporation provide that shareholders seeking to
bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at an annual meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the executive offices of the
Company not less than 120 days nor more than 180 days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting. The Articles of Incorporation
also specify certain requirements for a shareholder's notice to be in proper
written form. These provisions may preclude some shareholders from bringing
matters before the shareholders at an annual meeting or from making nominations
for directors at an annual meeting.
TRANSFER AGENT
The transfer agent and registrar of the Common Stock is Boston Equiserve,
Boston, Massachusetts.
45
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 14,576,170 shares
of Common Stock outstanding, based upon the number of shares outstanding as of
June 15, 1996. Of these shares, the 5,000,000 shares sold in this offering
(5,750,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, except for any shares purchased by "affiliates" of the
Company, as that term is defined under the Securities Act ("Affiliates").
SALES OF RESTRICTED SHARES
There are 7,269,270 Restricted Shares which are deemed "restricted
securities" under Rule 144 under the Securities Act and may not be sold unless
they are registered under the Securities Act or unless an exemption, such as the
exemption provided by Rule 144, is available. Of this amount, 6,970,734 shares
are subject to the Lock-up Agreements described below. Of the 298,536 shares
that are not subject to the Lock-up Agreements, all are eligible for sale in the
public market in accordance with Rule 144, including 200,981 shares subject to
immediate resale under the provisions of Rule 144(k). Certain securityholders
have the right to have their Restricted Shares registered by the Company under
the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
145,762 shares after this offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale is filed with the Commission. In addition, under Rule
144(k), a person who is not an Affiliate and has not been an Affiliate for at
least three months prior to the sale and who has beneficially owned the
Restricted Shares for at least three years may resell such shares without
compliance with the foregoing requirements. In meeting the two and three year
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an Affiliate. On July 27, 1995, the
Securities and Exchange Commission proposed to reduce the Rule 144(d) holding
period for resales of restricted securities from two years to one year and to
reduce the Rule 144(k) holding period from three years to two years. If the
proposed changes are adopted, the reduced holding periods are expected to apply
to all securities eligible for resale under Rule 144.
OPTIONS
As of June 15, 1996, options to purchase a total of 1,941,029 shares of
Common Stock were outstanding, of which options for an aggregate of 444,127
shares of Common Stock were exercisable. Of the exercisable options, 299,500
shares are subject to Lock-up Agreements. The Company has filed one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to then outstanding stock options and Common
Stock issuable pursuant to the Company's Stock Option Plan and Stock Purchase
Plans. The shares registered pursuant to these registration statements will,
once exercisable, be eligible for sale in the public markets, subject to the
Lock-up Agreements, to the extent applicable. See "Management."
LOCK-UP AGREEMENTS
Holders of 6,970,734 shares of Common Stock outstanding immediately prior
to this offering and holders of options to purchase an aggregate of 1,447,000
shares of Common Stock have agreed, pursuant to the Lock-up Agreements, that
they will not, without the prior written consent of Dean Witter Reynolds Inc.,
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them or exercise any registration rights in respect of
such Common Stock for a period of 90 days after the date of this Prospectus (the
"Lock-up Period").
46
<PAGE> 49
REGISTRATION RIGHTS
The Selling Shareholders (collectively, the "Rights Holders") will be
entitled, subject to the Lock-up Agreements, to require the Company to register
under the Securities Act a total of approximately 6,919,015 shares of
outstanding Common Stock (the "Registrable Shares") (approximately 3,419,015
shares after giving effect to the sale of shares in this offering). The
Registration Rights Agreement provides that under certain circumstances and
subject to certain limitations the Rights Holders may require the Company to
file a registration statement under the Securities Act with respect to the
Registrable Shares and the Company must use all commercially reasonable efforts
to effect such registration. In addition, in the event the Company proposes to
register any of its securities, either for its own account or for the account of
a security holder, the Rights Holders may be entitled to include the Registrable
Shares in such registration, subject to certain limitations on the number of
shares to be included in the registration by the underwriter of such offering.
47
<PAGE> 50
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc. and Alex.
Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Hambrecht & Quist LLC and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (a copy of which has been filed as an exhibit to
the Registration Statement), to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock set forth opposite their
respective names in the table below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Dean Witter Reynolds Inc. ................................................
Alex. Brown & Sons Incorporated...........................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Hambrecht & Quist LLC.....................................................
Smith Barney Inc. ........................................................
---------
Total........................................................... 5,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such public offering price less a concession not to
exceed $ per share. Such dealers may reallow a concession not to exceed
$ per share to other dealers. After the public offering, the public
offering price may be reduced and concessions and reallowances to dealers may be
changed by the underwriters. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority. The Representatives intend to make a market in
the Common Stock after completion of this offering.
Certain Selling Shareholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an additional 750,000 shares of Common Stock at the public
offering price, less underwriting discounts and commissions to cover
over-allotments, if any. After commencement of this offering, the Underwriters
may confirm sales subject to the over-allotment option.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company, the officers and directors of the Company and the Selling
Shareholders have agreed that they will not, during the period commencing on the
date hereof and ending 90 days after the date of this prospectus (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the undersigned or are hereafter acquired), or
(2) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise.
48
<PAGE> 51
In connection with this offering, the Underwriters and other selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange
Act. Passive market making consists of displaying bids on the Nasdaq National
Market limited by the prices of independent market makers and effecting
purchases limited by such prices and in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and certain of the Selling Shareholders by Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Latham & Watkins, Washington, D.C.
EXPERTS
The consolidated balance sheets of the Company at December 31, 1994 and
1995 and the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995,
the balance sheet of Neonatal and Pediatric Intensive Care Medical Group, Inc.
as of December 31, 1994 and the statements of operations, stockholders' equity
and cash flows for the year ended December 31, 1994, and the balance sheet of
Rocky Mountain Neonatology, P.C. as of December 31, 1995 and the statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1995, which are included in this Prospectus and Registration Statement, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheet of Neonatal Specialists, Ltd. as of December 31, 1995 and
the statements of income and retained earnings, and cash flows for the year then
ended, which are included in this Prospectus and Registration Statement, have
been included herein in reliance on the report of Johnson & Moser, Ltd.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheet of Pediatric and Newborn Consultants, PC as of December
31, 1995 and the statements of earnings and retained earnings, and cash flows
for the year then ended, which are included in this Prospectus and Registration
Statement, have been included herein in reliance on the report of Deon E. Fitch,
C.P.A., independent accountant, given on the authority of that individual as an
expert in accounting and auditing.
The balance sheet of West Texas Neonatal Associates, a Partnership, as of
December 31, 1995 and the related statements of income and partners' equity, and
cash flows for the year then ended, which are included in this Prospectus and
Registration Statement, have been included herein in reliance on the report of
Linda G. Medlock P.C., independent accountant, given on the authority of that
firm as an expert in accounting and auditing.
The consolidated balance sheet of Infant Care Specialists Medical Group,
Inc. and subsidiary as of December 31, 1995 and the consolidated statements of
income and retained earnings and cash flows for the year then ended, which are
included in this Prospectus and Registration Statement, have been included
herein in reliance on the report of Harlan & Boettger, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
49
<PAGE> 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THE REGISTRANT --
PEDIATRIX MEDICAL GROUP, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995, and the Three Months Ended March 31, 1995 and 1996 (unaudited)................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995, and the Three Months Ended March 31, 1996 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and the Three Months Ended March 31, 1995 and 1996 (unaudited)................ F-6
Notes to Consolidated Financial Statements............................................ F-7
BUSINESSES ACQUIRED --
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
Report of Independent Accountants..................................................... F-19
Balance Sheets at December 31, 1994 and June 30, 1995 (unaudited)..................... F-20
Statements of Operations for the Year Ended December 31, 1994 and the Six Months Ended
June 30, 1995 (unaudited)........................................................... F-21
Statements of Stockholders' Equity for the Year Ended December 31, 1994 and the Six
Months Ended June 30, 1995 (unaudited).............................................. F-22
Statements of Cash Flows for the Year Ended December 31, 1994 and the Six Months Ended
June 30, 1995 (unaudited)........................................................... F-23
Notes to Financial Statements......................................................... F-24
NEONATAL SPECIALISTS, LTD.
Independent Auditors' Report.......................................................... F-31
Balance Sheet at December 31, 1995.................................................... F-32
Statement of Income and Retained Earnings for the Year Ended December 31, 1995........ F-33
Statement of Cash Flows for the Year Ended December 31, 1995.......................... F-34
Notes to Financial Statements......................................................... F-35
PEDIATRIC AND NEWBORN CONSULTANTS, PC
Independent Auditor's Report.......................................................... F-38
Balance Sheet at December 31, 1995.................................................... F-39
Statement of Earnings and Retained Earnings for the Year Ended December 31, 1995...... F-40
Statement of Cash Flows for the Year Ended December 31, 1995.......................... F-41
Notes to Financial Statements......................................................... F-42
ROCKY MOUNTAIN NEONATOLOGY, P.C.
Report of Independent Accountants..................................................... F-45
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited).................... F-46
Statements of Operations for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-47
Statements of Stockholders' Equity for the Year Ended December 31, 1995 and the Three
Months Ended March 31, 1996 (unaudited)............................................. F-48
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-49
Notes to Financial Statements......................................................... F-50
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WEST TEXAS NEONATAL ASSOCIATES
Independent Auditors' Report.......................................................... F-55
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited).................... F-56
Statements of Income and Partners' Equity for the Year Ended December 31, 1995 and the
Three Months Ended March 31, 1996 (unaudited)....................................... F-57
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-58
Notes to Financial Statements......................................................... F-59
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. AND SUBSIDIARY
Independent Auditors' Report.......................................................... F-61
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-62
Consolidated Statements of Operations and Retained Earnings for the Years Ended
December 31, 1994 and 1995 and the Three Months Ended March 31, 1996 (unaudited).... F-63
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995
and the Three Months Ended March 31, 1996 (unaudited)............................... F-64
Notes to Consolidated Financial Statements............................................ F-65
</TABLE>
51
<PAGE> 54
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Pediatrix Medical Group, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Pediatrix
Medical Group, Inc. as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pediatrix
Medical Group, Inc. as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
January 29, 1996
F-2
<PAGE> 56
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 7,384 $18,499 $ 7,084
Investments in marketable securities.......................... -- 27,718 26,552
Accounts receivable, net...................................... 8,965 12,096 15,484
Prepaid expenses.............................................. 293 628 692
Other assets.................................................. 339 497 596
Income taxes receivable....................................... 179 330 383
------- ------- -----------
Total current assets.................................. 17,160 59,768 50,791
Property and equipment, net..................................... 3,011 4,549 5,242
Other assets, net............................................... 124 5,564 21,338
------- ------- -----------
Total assets.......................................... $20,295 $69,881 $77,371
======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 2,784 $ 4,347 $ 7,539
Current portion of note payable............................... 64 64 64
Deferred income taxes......................................... 540 1,909 3,471
------- ------- -----------
Total current liabilities............................. 3,388 6,320 11,074
Note payable.................................................... 815 751 735
------- ------- -----------
Total liabilities..................................... 4,203 7,071 11,809
------- ------- -----------
Preferred stock; voting, redeemable, cumulative, convertible,
$.01 par value; 4,575,000 shares authorized, 4,571,063 shares
issued and outstanding at December 31, 1994, and none issued
and outstanding at December 31, 1995 and March 31, 1996;
stated at redemption value of $13,000,103 plus accrued and
unpaid dividends of $2,696,678 at December 31, 1994........... 15,697 -- --
Contingencies (Note 10)
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares authorized,
none issued and outstanding at December 31, 1995 and March
31, 1996................................................... -- -- --
Common stock; $.01 par value, 15,000,000 shares authorized at
December 31, 1994 and 50,000,000 shares authorized at
December 31, 1995 and March 31, 1996, 6,265,983 and
13,051,055 and 13,063,809 shares issued and outstanding at
December 31, 1994 and 1995 and March 31, 1996,
respectively............................................... 63 131 131
Additional paid-in capital.................................... -- 55,620 55,809
Retained earnings............................................. 332 7,045 9,657
Unrealized gain (loss) on investments......................... -- 14 (35)
------- ------- -----------
Total stockholders' equity............................ 395 62,810 65,562
------- ------- -----------
Total liabilities and stockholders' equity............ $20,295 $69,881 $77,371
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 57
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR (UNAUDITED)
PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net patient service revenue...................... $23,570 $32,779 $43,860 $ 8,886 $16,127
------- ------- ------- ------- -------
Operating expenses:
Salaries and benefits.......................... 14,852 20,723 29,545 6,270 10,796
Supplies and other operating expenses.......... 2,230 2,774 3,451 607 1,213
Depreciation and amortization.................. 95 244 363 74 233
------- ------- ------- ------- -------
Total operating expenses............... 17,177 23,741 33,359 6,951 12,242
------- ------- ------- ------- -------
Income from operations........................... 6,393 9,038 10,501 1,935 3,885
Investment income................................ 45 208 804 107 499
Interest expense................................. (105) (90) (117) (28) (35)
Other expense, net............................... (17) -- -- -- --
------- ------- ------- ------- -------
Income before income taxes..................... 6,316 9,156 11,188 2,014 4,349
Income tax provision............................. 2,166 3,749 4,475 805 1,737
------- ------- ------- ------- -------
Net income............................. $ 4,150 $ 5,407 $ 6,713 $ 1,209 $ 2,612
======= ======= ======= ======= =======
Per share data (1995 pro forma unaudited):
Net income per common and common equivalent
share.......................................... $ .55 $ .10 $ .19
======= ======= =======
Weighed average shares used in computing net
income per common and common equivalent
share.......................................... 12,216 11,614 13,726
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 58
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ ADDITIONAL EARNINGS
NUMBER OF PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT)
--------- ------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1992.......................... 6,857 $ 69 $ -- $ (4,662)
Net income............................................ -- -- -- 4,150
Common stock issued................................... 204 2 291 --
Common stock retired.................................. (837) (8) (24) (2,553)
Accrued and unpaid preferred stock dividends for the
year ended December 31, 1993........................ -- -- (267) (921)
--------- ------ ---------- ------------
Balance at December 31, 1993.......................... 6,224 63 -- (3,986)
Net income............................................ -- -- -- 5,407
Common stock issued................................... 118 1 588 --
Common stock retired.................................. (76) (1) (154) (227)
Accrued and unpaid preferred stock dividends for the
year ended December 31, 1994........................ -- -- (434) (862)
--------- ------ ---------- ------------
Balance at December 31, 1994.......................... 6,266 63 -- 332
Net income............................................ -- -- -- 6,713
Accrued and unpaid preferred stock dividends through
conversion date, September 25, 1995................. -- -- (1,040) --
Common stock issued................................... 2,240 22 39,848 --
Conversion of preferred stock......................... 4,571 46 16,691 --
Tax benefit related to employee stock options......... -- -- 252 --
Common stock retired.................................. (26) -- (131) --
--------- ------ ---------- ------------
Balance at December 31, 1995.......................... 13,051 131 55,620 7,045
Net income (unaudited)................................ -- -- -- 2,612
Common stock issued (unaudited)....................... 14 2 72 --
Common stock retired (unaudited)...................... (2) (2) (44) --
Tax benefit related to employee stock options
(unaudited)......................................... -- -- 161 --
--------- ------ ---------- ------------
Balance at March 31, 1996 (unaudited)................. 13,063 $131 $ 55,809 $ 9,657
======== ====== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 59
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------ --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income................................... $ 4,150 $ 5,407 $ 6,713 $1,209 $ 2,612
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 95 244 363 74 233
Deferred income taxes..................... 1,339 517 1,456 (121) 1,562
Other..................................... 17 -- (2) -- --
Changes in assets and liabilities:
Accounts receivable..................... (2,692) (1,290) (3,131) 607 (3,388)
Prepaid expenses and other assets....... (66) (449) (493) 194 (162)
Income taxes receivable................. 1,362 428 101 -- 108
Other assets............................ (3) (7) 62 (103) (1,882)
Accounts payable and accrued expenses... 479 521 871 412 752
------- ------- -------- ------ --------
Net cash provided (used) by operating
activities......................... 4,681 5,371 5,940 2,272 (165)
------- ------- -------- ------ --------
Cash flows used in investing activities:
Physician group acquisition payments......... -- -- (4,938) -- (11,584)
Purchase of investments...................... -- -- (34,382) -- (6,621)
Proceeds from sale of investments............ -- -- 6,681 -- 7,738
Purchase of property and equipment........... (1,897) (578) (1,861) (161) (794)
------- ------- -------- ------ --------
Net cash used by investing activities..... (1,897) (578) (34,500) (161) (11,261)
------- ------- -------- ------ --------
Cash flows (used in) from financing activities:
Borrowings on notes payable.................. 2,359 -- -- -- --
Payments on notes payable.................... (2,997) (87) (64) (16) (16)
Proceeds from issuance of common stock....... 579 590 39,871 -- 72
Payments made to retire common stock......... (2,585) (381) (132) (13) (45)
------- ------- -------- ------ --------
Net cash (used in) provided by
financing activities............... (2,644) 122 39,675 (29) 11
------- ------- -------- ------ --------
Net increase (decrease) in cash and cash
equivalents.................................. 140 4,915 11,115 2,082 (11,415)
Cash and cash equivalents at beginning of
year/period.................................. 2,329 2,469 7,384 7,384 18,499
------- ------- -------- ------ --------
Cash and cash equivalents at end of
year/period.................................. $ 2,469 $ 7,384 $ 18,499 $9,466 $ 7,084
======= ======= ======== ====== ========
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest.................................. $ 125 $ 130 $ 117 $ 28 $ 35
Income taxes.............................. $ 85 $ 2,354 $ 2,943 $ -- $ 66
Non-cash investing and financing activities:
Accrued and unpaid preferred stock
dividends............................... $ 1,189 $ 1,269 $ 1,040 $ 353 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 60
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The principal business activity of Pediatrix Medical Group, Inc.
("Pediatrix" or the "Company") is to provide physician management services to
hospital-based neonatal and pediatric intensive care units in twelve states and
Puerto Rico. Contractual arrangements with hospitals are a) fee-for-service
contracts whereby hospitals agree, in exchange for the Company's services, to
authorize the Company and its healthcare professionals to bill and collect the
professional component of the charges for medical services rendered by the
Company's healthcare professionals; and b) administrative fees whereby the
Company is assured a minimum revenue level.
In September 1995, the Company completed its initial public offering
whereby it issued 2,200,000 shares of common stock, resulting in cash proceeds
to the Company of approximately $39.7 million. In addition, in connection with
the initial public offering, the Company authorized 50,000,000 shares of common
stock and 1,000,000 shares of preferred stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Presentation
The financial statements (the "consolidated financial statements") include
the accounts of Pediatrix consolidated with the accounts of the Pediatrix
Medical Group of Florida, Inc. (the "Subsidiary") and combined with the accounts
of the professional associations (the "PA Contractors") with which the Company
currently has specific management billing arrangements. All significant
intercompany and interaffiliate accounts and transactions have been eliminated.
The financial statements of the PA Contractors are consolidated with Pediatrix
because Pediatrix, as opposed to affiliates of Pediatrix, has unilateral control
over the assets and operations of the PA Contractors. Notwithstanding the lack
of technical majority ownership, consolidation of the PA Contractors is
necessary to present fairly the financial position and results of operations of
Pediatrix because of the existence of a parent-subsidiary relationship by means
other than record ownership of the PA Contractors' voting common stock. Control
of the assets and operations of the PA Contractors by Pediatrix is permanent and
other than temporary because the PA Contractors' agreements with Pediatrix
provide that the term of the arrangements are permanent, subject only to
termination by Pediatrix and that the PA Contractors shall not terminate the
agreements without the prior written consent of Pediatrix. Also, the agreements
provide that Pediatrix or its assigns has the right, but not the obligation, to
purchase the stock of the PA Contractors.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Accounts Receivable and Revenues
Accounts receivable are primarily amounts due under fee-for-service
contracts from third party payors, such as insurance companies, self-insured
employers and patients and government-sponsored health care programs
geographically dispersed throughout the United States and its territories. These
receivables are presented net of an estimated allowance for contractual
adjustments and uncollectibles which is charged to operations based on the
Company's evaluation of expected collections resulting from an analysis of
current and past due accounts, past collection experience in relation to amounts
billed and other relevant information. Contractual adjustments result from the
difference between the physician rates for services performed and
F-7
<PAGE> 61
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reimbursements by government-sponsored healthcare programs and insurance
companies for such services. Bad debts are included in contractual allowances
and uncollectibles because they are not considered material.
Concentration of credit risk relating to accounts receivable is limited by
number, diversity and geographic dispersion of the neonatology units managed by
the Company, as well as by the large number of patients and payors, including
the various governmental agencies in the states in which the Company provides
services. Receivables from government agencies made up approximately 35% and 41%
of accounts receivable at December 31, 1994 and 1995, respectively.
Cash Equivalents
Cash equivalents are defined as all highly liquid financial instruments
with maturities of 90 days or less from the date of purchase. The Company
maintains its cash and cash equivalents which consist principally of demand
deposits, short-term government securities and amounts on deposit in money
market accounts with principally four financial institutions.
Investments
The Company determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. Investments are classified as available for sale and
are carried at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of shareholders' equity. Fair value is
determined by the most recently traded price of the security at the balance
sheet date.
The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and interest income and
declines in value judged to be other than temporary are included in investment
income. Realized gains and losses are included in earnings using the specific
identification method for determining the cost of securities sold.
Investments are stated at fair market value which approximates amortized
cost and consist principally of tax exempt municipal obligations (fair value of
$19.4 million at December 31, 1995) as well as U.S. government and government
agency securities (fair value of $8.3 million at December 31, 1995). The
Company's investments in marketable securities represent cash available for
current operations and are accordingly classified as current assets.
Property and Equipment
Property and equipment is recorded at cost. Depreciation of property and
equipment is computed on the straight-line method over the estimated useful
lives which range from five to forty years. Upon sale or retirement of property
and equipment, the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in earnings.
Other Assets
Other assets include the excess of cost over the fair value of net assets
acquired which is being amortized on a straight-line basis over twenty-five
years. In addition, other assets include payments to physicians for non-
competition and other agreements which are being amortized over their terms
which range from one to five years.
At each balance sheet date following the acquisition of a business, the
Company reviews the carrying value of the goodwill to determine if facts and
circumstances suggest that it may be impaired or that the amortization period
may need to be changed. The Company considers external factors relating to each
acquired business, including hospital and physician contract changes, local
market developments, changes in
F-8
<PAGE> 62
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
third party payments, national health care trends, and other publicly available
information. If these external factors indicate the goodwill will not be
recoverable, as determined based upon undiscounted cash flows before interest
charges of the business acquired over the remaining amortization period, the
carrying value of the goodwill will be reduced. The Company does not believe
there currently are any indicators that would require an adjustment to the
carrying value of the goodwill or its estimated periods of recovery at December
31, 1995.
Professional Liability Coverage
The Company maintains professional liability coverage which indemnifies the
Company and its employee physicians and independent contractor physicians on a
claims made basis with a portion of self insurance retention. The Company
records an estimate of its liabilities for claims incurred but not reported
based on an actuarial valuation. Such liabilities are not discounted.
Income Taxes
The Company utilizes the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Stock Options
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional paid-in capital. No
charge has been reflected in the consolidated statements of operations as a
result of the grant or exercise of stock options, as the fair market value of
the Company's stock equals the exercise price on the date the options are
granted. To the extent that the Company realizes an income tax benefit from the
exercise or early disposition of certain stock options, this benefit results in
a decrease in current income taxes payable and an increase in additional paid-in
capital.
Change in Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" must be implemented by the Company in 1996. This statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" must also be
implemented by the Company in 1996. This pronouncement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
It encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees
based on new fair value accounting rules. Companies that choose not to adopt the
new fair value accounting rules will be required to disclose proforma net income
and earnings per share under the new method. The Company anticipates adopting
the disclosure provisions of SFAS No. 123, although the impact of such
disclosure has not been determined.
Interim Financial Statements
The financial statements at March 31, 1996, and for the three months ended
March 31, 1996 and 1995 are unaudited and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results of interim periods. The results of operations for
the
F-9
<PAGE> 63
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
three months ended March 31, 1996 are not necessarily indicative of the results
to be expected for the full year or any other interim period.
Net Income Per Common and Common Equivalent Share (Unaudited)
As a result of the conversion of the preferred stock, which was not
determined to be a common stock equivalent, into common stock in connection with
the initial public offering, the Company has presented pro forma net income per
common and common equivalent share for the years ended December 31, 1994 and
1995 and for the three months ended March 31, 1995. The calculation of the
proforma shares is comparable to primary and fully dilutive common and common
equivalent shares subsequent to the initial public offering. Pro forma net
income per common and common equivalent share is computed based upon the
weighted average number of shares of common stock and common stock equivalents,
including the number of shares of common stock issuable upon conversion of
preferred stock, outstanding during the period. Pursuant to the requirements of
the Securities and Exchange Commission (SEC), common stock issued by the Company
during the 12 months immediately preceding the initial filing of the
registration statement with the SEC, plus common stock equivalents relating to
the grant of common stock options during the same period, have been included in
the calculation of pro forma weighted average number of common and common stock
equivalents outstanding for the years ended December 31, 1994 and 1995, and for
the three months ended March 31, 1995, using the treasury stock method and the
initial public offering price of $20 per share.
3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross accounts receivable...................................... $ 22,211 $ 25,184
Less allowance for contractual adjustments and
uncollectibles............................................... (13,246) (13,088)
-------- --------
$ 8,965 $ 12,096
======== ========
</TABLE>
Net patient service revenue consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross patient service revenue...................... $ 45,829 $ 59,405 $ 79,360
Less contractual adjustments and uncollectibles.... (25,475) (30,885) (40,843)
Hospital contract administrative fees.............. 3,216 4,259 5,343
-------- -------- --------
$ 23,570 $ 32,779 $ 43,860
======== ======== ========
</TABLE>
F-10
<PAGE> 64
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 389 $1,308
Building......................................................... 1,608 1,644
Equipment and furniture.......................................... 1,445 2,104
------ ------
3,442 5,056
Less accumulated depreciation.................................... (431) (748)
Construction in progress......................................... -- 241
------ ------
$3,011 $4,549
====== ======
</TABLE>
5. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
---- ------
(IN THOUSANDS)
<S> <C> <C>
Excess of cost over net assets acquired........................... $ -- $3,870
Physician agreements.............................................. -- 1,692
Other............................................................. 124 106
---- ------
124 5,668
Less accumulated amortization..................................... -- (104)
---- ------
$124 $5,564
==== ======
</TABLE>
On July 27, 1995, the Company completed the acquisition of the stock of
Neonatal and Pediatric Intensive Care Medical Group, Inc. ("NAPIC"), a
California professional corporation, in exchange for approximately $3.2 million
in cash. In connection with the transaction, the Company has recorded assets of
$4.6 million including $3.8 million of goodwill and liabilities of $1.4 million.
The Company has accounted for the transaction using the purchase method of
accounting for financial reporting purposes and the excess of the cost over fair
value of net assets acquired is being amortized on a straight-line basis over 25
years. NAPIC's results of operations have been included in the consolidated
financial statements from the date of acquisition.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and NAPIC as if the acquisition had
occurred on January 1, 1994:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net patient service revenue.................................... $36,527 $45,999
Net income..................................................... 5,381 6,639
Net income per share........................................... 0.47 .54
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the acquisition had taken place at the beginning of the period, nor
are they indicative of the results of future combined operations.
F-11
<PAGE> 65
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................... $ 918 $ 786
Accrued salaries and bonuses....................................... 599 779
Accrued payroll taxes and benefits................................. 461 726
Accrued professional liability coverage............................ 500 1,268
Other accrued expenses............................................. 306 788
------ ------
$2,784 $4,347
====== ======
</TABLE>
7. NOTE PAYABLE:
Note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
---- (IN ----
THOUSANDS)
<S> <C> <C>
Mortgage payable to bank, interest at prime plus .5% (9.5% at December
31, 1995) quarterly payments of principal of $16,032 plus interest
through maturity date of October 4, 1998 at which time the unpaid
principal balance of $638,488 is due................................ $879 $815
Less current portion................................................ 64 64
---- ----
$815 $751
==== ====
</TABLE>
The Company is required to maintain minimum levels of net income and net
worth under the terms of the mortgage agreement. The mortgage is collateralized
by the Company's headquarters carried at $1,545,000 at December 31, 1995.
The Company has a revolving line of credit in the amount of $7,000,000 and
another $2,000,000 line of credit to cover deductibles under its professional
liability insurance policies. Both facilities bear interest at prime plus .5%.
The Company did not have an outstanding balance under either line of credit at
December 31, 1994 or 1995. The revolving line of credit is collateralized by all
tangible personal and intangible property of the Company. The agreement provides
for the Company to maintain certain covenants including a requirement that the
Company maintain minimum levels of net income and net worth, as defined.
8. PREFERRED STOCK:
On October 26, 1992, the Company issued 4,571,063 shares of 9% voting,
redeemable, cumulative convertible Preferred Stock for $13,000,103. Pursuant to
the terms of the Preferred Stock Purchase Agreement (the "Agreement"), each
share of Preferred Stock was convertible into one share of common stock, subject
to adjustments in certain events. The Agreement indicated that upon conversion
of the Preferred Stock, all accumulated and unpaid dividends, whether or not
declared, since the date of issue up to and including the date of conversion
would be forgiven.
On September 25, 1995, in connection with the initial public offering, the
Company's Preferred Stock was converted into common stock of the Company and the
unpaid dividends of $3,736,589 were forgiven and the redemption value of the
Preferred Stock was credited to common stock and additional paid-in capital
accounts.
F-12
<PAGE> 66
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current.................................................... $ 527 $2,460 $2,573
Deferred................................................... 1,269 722 1,184
------ ------ ------
1,796 3,182 3,757
------ ------ ------
State:
Current.................................................... -- 322 454
Deferred................................................... 370 245 264
------ ------ ------
370 567 718
------ ------ ------
Total.............................................. $2,166 $3,749 $4,475
====== ====== ======
</TABLE>
The Company files its tax return on a consolidated basis with the
Subsidiary. The remaining PA Contractors file tax returns on an individual
basis.
The effective tax rate on income was 34%, 41% and 40% for the years ended
December 31, 1993, 1994 and 1995, respectively. The differences between the
effective rate and the U.S. federal income tax statutory rate of 35% are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate........................................ $2,211 $3,205 $3,916
Statutory federal surtax exemption........................... (63) (91) (112)
State income tax, net of federal benefit..................... 60 333 451
Change in valuation allowance................................ (300) (450) --
Other, net................................................... 258 752 220
------ ------ ------
Income tax provision......................................... $2,166 $3,749 $4,475
====== ====== ======
</TABLE>
The significant components of deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1994 1995
---------------------- ----------------------
DEFERRED INCOME TAX DEFERRED INCOME TAX
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowances for uncollectible accounts receivable
and other expenses recognized on a cash basis
by certain PA Contractors...................... $738 $(1,314) $389 $(2,711)
Property and equipment........................... 1 (47) -- (139)
Net operating loss carryforward.................. 151 -- 552 --
------ ----------- ------ -----------
Total.................................. 890 (1,361) 941 (2,850)
Current deferred income taxes.................... -- (540) -- (1,909)
------ ----------- ------ -----------
Total noncurrent deferred income
taxes................................ $890 $ (821) $941 $ (941)
===== ======= ===== =======
Net noncurrent deferred income taxes............. $ 69
=====
</TABLE>
F-13
<PAGE> 67
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net noncurrent deferred income tax asset for the year ended December
31, 1994, is included in other assets.
The income tax benefits related to the exercise of stock options reduces
taxes currently payable and is credited to additional paid-in capital. Such
amounts totaled $252,180 for the year ended December 31, 1995.
The Company has net operating loss carryforwards for federal and state tax
purposes of approximately $369,000 and $1,377,000 at December 31, 1994 and
December 31, 1995, respectively, expiring at various times commencing in 1997.
As of December 31, 1995, U.S. Federal Income Tax Returns for 1992 and 1993
were in the process of examination by the Internal Revenue Service, which the
Company believes will propose certain adjustments for additional taxes and
interest. The Company believes that the tax returns are substantially correct as
filed and intends to vigorously contest any proposed adjustments. The Company
believes that the amounts that have been provided are adequate and that the
ultimate resolution of the examination will result in no material impact on the
Company's consolidated results of operations, financial position or cash flows.
10. CONTINGENCIES:
During the ordinary course of business, the Company has become a party to
pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. These
lawsuits are not expected to result in judgments which would exceed professional
liability insurance coverage, and therefore, will not have a material impact on
the Company's consolidated results of operations, financial position or
liquidity, notwithstanding any possible insurance recovery.
11. RETIREMENT PLAN:
The Company has a qualified contributory savings plan (the "Plan") as
allowed under Section 401(k) of the Internal Revenue Code. The Plan permits
participant contributions and allows elective company contributions based on
each participant's contribution. Participants may elect to defer up to 15% of
their annual compensation by contributing amounts to the Plan. The Company
approved contributions of $375,339, $473,249 and $559,125 to the Plan during the
years ended December 31, 1993, 1994 and 1995, respectively.
F-14
<PAGE> 68
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. HISTORICAL NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent share on a historical basis,
both primary and fully diluted, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Income applicable to common stock:
Net income................................................ $4,150 $5,407 $6,713
Less: preferred stock dividends........................... 1,189 1,296 1,040
------ ------ ------
Income applicable to common stock........................... $2,961 $4,111 $5,673
------ ------ ------
Net income per share:
Primary................................................... $ 0.43 $ 0.60 $ 0.65
------ ------ ------
Fully diluted............................................. $ 0.36 $ 0.47 $ 0.55
------ ------ ------
Weighted average number of common and common equivalent
shares outstanding:
Primary................................................... 6,833 6,853 8,773
------ ------ ------
Fully diluted............................................. 11,415 11,430 12,216
------ ------ ------
</TABLE>
Primary net income per common and common equivalent share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common equivalent shares outstanding during the period. The
voting, redeemable, cumulative convertible preferred stock issued in October
1992 was determined not to be a common stock equivalent. In computing primary
net income per share, preferred stock dividends reduce income available to
common shareholders. Fully diluted net income per share is computed by dividing
net income by the weighted average number of common and common equivalent shares
outstanding during the period and includes 4,571,063 shares of common stock
assumed to be issued upon conversion of all shares of the preferred stock
described in Note 8 for December 31, 1993 and 1994.
Pursuant to the requirements of the SEC, common stock issued by the Company
plus common stock equivalents relating to the grant of common stock options,
during the twelve months immediately preceding the initial filing of the
registration statement with the SEC, have been included in the calculation of
the weighted average number of common and common equivalent shares outstanding
on a primary and fully diluted basis for the years ended December 31, 1993, 1994
and 1995, using the treasury stock method and the initial public offering price
of $20 per share.
13. STOCK OPTION PLAN:
In 1993, the Company's Board of Directors authorized a stock option plan.
Under the plan, options to purchase shares of common stock may be granted to
certain employees at a price not less than the fair market value of the shares
on the date of grant. The options must be exercised within ten years from the
date of grant. The stock options become exercisable on a prorata basis over a
three year period from the date of grant. As of January 18, 1995, 1,500,000
options were authorized by the Company's Board of Directors and the previously
issued options were confirmed. The additional authorization of options resulted
in 268,300 options available for grant as of that date.
F-15
<PAGE> 69
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pertinent information covering the stock option plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE EXPIRATION
SHARES PER SHARE DATE
--------- ------------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1993................. 200,000 $ 2.84-$ 3.12 2003
Granted........................................ 1,035,450 $ 5.00-$10.00
Canceled....................................... (3,750) $ 5.00
--------- -------------
Outstanding at December 31, 1994................. 1,231,700 $ 2.84-$10.00 2003-2004
Granted........................................ 841,500 $10.00-$21.50
Canceled....................................... (324,583) $ 3.12-$12.50
Exercised...................................... (39,709) $ 3.12-$10.00
--------- -------------
Outstanding at December 31, 1995................. 1,708,908 $ 2.84-$21.50 2003-2005
======== ============
Exercisable at December 31, 1995................. 306,872 $ 2.84-$10.00
======== ============
</TABLE>
14. SUBSEQUENT EVENTS:
Subsequent to year end, the Company completed acquisitions of three
neonatology and pediatric physician group practices for a total of approximately
$11 million cash. The agreements provide for additional payments of up to $2
million in 1997 based upon achievement of certain operating targets. The
acquisitions will be accounted for using the purchase method of accounting.
15. SUBSEQUENT EVENTS (UNAUDITED):
During the second quarter of 1996, the Company completed acquisitions of
three neonatology and pediatric physician group practices:
- On May 1, 1996, the Company, through its PA Contractors, acquired the
stock of Rocky Mountain Neonatology, P.C., a Colorado professional
corporation, in exchange for approximately $7.2 million in cash.
- On May 30, 1996, the Company, through its PA Contractors, acquired
certain assets of West Texas Neonatal Associates, a Texas general
partnership, in exchange for approximately $5.25 million in cash.
- On June 6, 1996, the Company, through its PA Contractors, acquired
certain assets of Infant Care Specialists Medical Group, Inc., a
California professional corporation, in exchange for approximately $6
million in cash.
The Company has accounted for the transactions using the purchase method of
accounting and the excess of cost over fair value of net assets acquired is
being amortized on a straight-line basis over 25 years. The results of
operations of the acquired companies have been included in the consolidated
financial statements from the dates of acquisition.
The following unaudited pro forma consolidated results of operations give
effect to the acquisitions completed in 1996 as if they had occurred as of
January 1, 1995 and do not purport to be indicative of what would have occurred
had the acquisitions actually been made as of such date or of results which may
occur in the future. Adjustments made in arriving at these results include the
reduction of certain amounts of compensation, bonuses and other benefits paid
principally to shareholders and other physicians, the reduction
F-16
<PAGE> 70
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the cost of malpractice insurance, the amortization of goodwill, the
elimination of investment income assumed to be used for the acquisitions and the
application of the Company's effective tax rate on the combined earnings.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net patient service revenue................. $69,423 $ 21,342
Net income.................................. 7,097 2,802
Net income per share........................ .58 .20
</TABLE>
On May 14, 1996, the Company received the Internal Revenue Service's (IRS)
proposed adjustments to the Company's tax liability in connection with its
examination of the Company's 1992, 1993, and 1994 federal income tax returns as
discussed in Note 9 to the Consolidated Financial Statements. The IRS has
challenged certain deductions that, if disallowed, would result in additional
taxes of approximately $4.5 million, plus interest. The Company and its tax
advisors are in the process of preparing a response to the IRS. The Company and
its tax advisors believe that the tax returns are substantially correct as filed
and intend to vigorously contest the proposed adjustments. The Company and its
tax advisors also believe that the amounts that have been provided for income
taxes are adequate and that the ultimate resolution of the examination will not
result in a material adverse effect on the Company's consolidated results of
operations, financial position or cash flows.
F-17
<PAGE> 71
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
FINANCIAL STATEMENTS
F-18
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Neonatal and Pediatric Intensive Care Medical Group, Inc.
We have audited the accompanying balance sheet of Neonatal and Pediatric
Intensive Care Medical Group, Inc. as of December 31, 1994 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neonatal and Pediatric
Intensive Care Medical Group, Inc. as of December 31, 1994, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
July 21, 1995
F-19
<PAGE> 73
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................................... $ 194,916 $ 194,831
Accounts receivable, net of allowance for uncollectibles of
$129,046 at December 31, 1994 and $153,435 at June 30,
1995...................................................... 788,809 698,275
Income tax receivable........................................ 10,982 10,982
Equity securities available for sale......................... 22,582 83,607
Prepaid expenses and other assets............................ 33,230 37,059
----------------- -------------
Total current assets................................. 1,050,519 1,024,754
Equipment, net of accumulated depreciation of $14,093 at
December 31, 1994 and $14,263 at June 30, 1995............... 1,555 1,385
Deferred tax asset............................................. 63,487 81,207
Other assets................................................... 58,804 72,808
----------------- -------------
Total assets......................................... $ 1,174,365 $ 1,180,154
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses........................ $ 246,886 $ 319,835
Deferred revenue............................................. 122,500 17,500
Deferred tax liability....................................... 222,324 236,829
----------------- -------------
Total current liabilities............................ 591,710 574,164
Professional claims liability.................................. 234,456 320,098
----------------- -------------
Total liabilities.................................... 826,166 894,262
----------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock; no par value, 100,000 shares authorized, 60,000
shares issued and outstanding............................. 135,000 135,000
Unrealized valuation adjustment, net of tax effect........... 835 12,041
Retained earnings............................................ 212,364 138,851
----------------- -------------
Total stockholders' equity........................... 348,199 285,892
----------------- -------------
Total liabilities and stockholders' equity........... $ 1,174,365 $ 1,180,154
============= ==========
</TABLE>
See accompanying notes.
F-20
<PAGE> 74
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Operating revenues:
Net patient service revenue.................................. $ 3,748,454 $ 2,139,730
----------------- -------------
Operating expenses:
Stockholders' compensation and benefits...................... 1,935,454 1,011,851
Salaries and benefits........................................ 1,280,441 860,133
Supplies and other operating expenses........................ 568,523 356,334
Depreciation................................................. 2,651 170
----------------- -------------
Total operating expenses............................. 3,787,069 2,228,488
----------------- -------------
Loss from operations................................. (38,615) (88,758)
Other income................................................... 15,462 4,376
----------------- -------------
Loss before income taxes............................. (23,153) (84,382)
Income tax provision (benefit)................................. 3,572 (10,869)
----------------- -------------
Net loss............................................. $ (26,725) $ (73,513)
============= ==========
</TABLE>
See accompanying notes.
F-21
<PAGE> 75
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- UNREALIZED
NUMBER OF RETAINED VALUATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
--------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.............. 60,000 $135,000 $ 239,089 $ 6,820 $ 380,909
Unrealized valuation adjustment, net of
tax effect of ($4,168).................. -- -- -- (5,985) (5,985)
Net loss.................................. -- -- (26,725) -- (26,725)
--------- -------- --------- ---------- ---------
Balance at December 31, 1994.............. 60,000 135,000 212,364 835 348,199
Unrealized valuation adjustment, net of
tax effect of $11,206 (unaudited)....... -- -- -- 11,206 11,206
Net loss (unaudited)...................... -- -- (73,513) -- (73,513)
--------- -------- --------- ---------- ---------
Balance at June 30, 1995 (unaudited)...... 60,000 $135,000 $ 138,851 $ 12,041 $ 285,892
======== ======== ========= ======== =========
</TABLE>
See accompanying notes.
F-22
<PAGE> 76
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (26,725) $ (73,513)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation.............................................. 2,651 170
Provision for uncollectible accounts...................... 129,046 24,389
Provision for deferred taxes.............................. 3,767 7,992
Changes in assets and liabilities:
Accounts receivable..................................... (306,184) 66,145
Prepaid expenses and other assets....................... (29,347) (17,835)
Accounts payable and accrued expenses................... 25,268 72,950
Deferred revenues....................................... 40,833 (105,000)
Professional claims liability........................... 37,550 85,642
----------------- -------------
Net cash provided by (used in) operating
activities......................................... (123,141) 60,940
Cash flows from investing activities:
Purchase of equity securities................................ (183,079) (149,399)
Sale of equity securities.................................... 212,822 88,374
Purchase of property and equipment........................... (4,856) --
----------------- -------------
Net cash provided by (used in) investing
activities......................................... 24,887 (61,025)
----------------- -------------
Net decrease in cash and cash equivalents............ (98,254) (85)
Cash and cash equivalents at beginning of year................. 293,170 194,916
----------------- -------------
Cash and cash equivalents at end of year....................... $ 194,916 194,831
================= =============
Supplemental disclosure of cash flow information:
Cash paid for taxes.......................................... $ 10,641 $ 800
================= =============
</TABLE>
See accompanying notes.
F-23
<PAGE> 77
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
The principal business activity of Neonatal and Pediatric Intensive Medical
Care Group, Inc. ("the Company") is to provide physician services to
hospital-based neonatal and pediatric intensive care units. Contractual
arrangements with hospitals are: (a) fee-for-service contracts whereby hospitals
agree, in exchange for the Company's services, to authorize the Company and its
healthcare professionals to bill and collect the professional component of the
charges for medical services rendered by the Company's healthcare professionals;
and (b) administrative fees whereby the Company is assured a minimum revenue
level for the services provided. In addition, the Company has a revenue sharing
agreement with another medical group which also provides services at certain
hospitals where the Company provides services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounts Receivable and Revenues
Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with hospitals, medical groups and third-party payors,
such as insurance companies, self-insured employers, patients and
government-sponsored health care programs in the State of California. These
receivables are presented net of contractual adjustments and an estimated
allowance for uncollectibles which is charged to operations based on an
evaluation of expected collections resulting from an analysis of current and
past due accounts, past collection experience in relation to amounts billed and
other relevant information. Contractual adjustments result from the difference
between the physician rates for services performed, including withholding
provisions, and reimbursement by government-sponsored healthcare programs and
insurance companies for such services. Bad debts are included in contractual
allowances and uncollectibles because they are not considered material.
Concentration of credit risk relating to accounts receivable is limited by
the number and diversity of the neonatology units managed by the Company, as
well as by the large number of patients and payors. Approximately one-third of
the Company's net patient service revenue is derived from Medi-Cal, the
California Medicaid program. Receivables from Medi-Cal made up approximately 13%
of accounts receivable at December 31, 1994.
Deferred Revenues
The Company receives certain fees from hospitals for its services which are
paid in advance. The payments are recognized as earned on a straight-line basis
over the remaining contract period.
Cash and Cash Equivalents
Cash and cash equivalents are defined as all highly liquid financial
instruments with maturities of 90 days or less from the date of purchase. The
Company maintains its cash and cash equivalents which consist primarily of
demand deposits, amounts on deposit in a money market account with principally
one financial institution and short-term government securities which subjects it
to concentrations of credit risk. At times such balances may exceed the Federal
Deposit Insurance Corporation limits.
Property and Equipment
Property and equipment is recorded at cost. Depreciation of property and
equipment is computed on the double-declining-balance method over the estimated
useful lives of five years. Upon sale or retirement of property and equipment,
the cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is reflected in operations.
F-24
<PAGE> 78
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Professional Liability Coverage
The Company maintains professional liability coverage which indemnifies the
Company and its stockholder and employee physicians and independent contractor
physicians on a claims-made basis. The Company records an estimate of its
liabilities for claims incurred but not reported. Such liabilities are not
discounted.
Income Taxes
The Company computes its income taxes utilizing Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted rates in effect for the year in which
the differences are expected to reverse.
Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities ("SFAS NO. 115").
This Statement classifies investments into one of three categories:
held-to-maturity, available-for-sale, or trading. Debt securities that an
enterprise has the positive intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair value
with unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity.
The Company classifies its investments as available-for-sale. The basis on
which cost is determined is the specific identification method which the Company
uses when computing realized gains and losses. Gains of $10,623 and losses of
$5,861 were realized on the sale of investments in securities for the year ended
December 31, 1994. Gains and losses for the six months ended June 30, 1995 were
$841 and $395, respectively. Gross unrealized gains and losses were $1,996 and
$580, at December 31, 1994 and $20,310 and $650 at June 30, 1995, respectively.
Charity Care
The Company provides care to patients who meet certain criteria under its
charity care policy without charge. Because the Company does not pursue
collection of amounts determined to qualify as charity care, they are not
reported as revenue.
F-25
<PAGE> 79
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES:
The following table presents the current and deferred income tax provision
(benefit) for federal and state income taxes:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Current:
Federal.............................................. $ (10,982) $ --
State................................................ 800 800
----------------- -------------
(10,182) 800
----------------- -------------
Deferred:
Federal.............................................. 11,920 (10,390)
State................................................ 1,834 (1,279)
----------------- -------------
13,754 (11,669)
----------------- -------------
$ 3,572 $ (10,869)
================ =============
</TABLE>
The provision for income taxes differs from the amount obtained by applying
the federal statutory income tax rate to income before provision for income
taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
----------------- SIX MONTHS
ENDED
JUNE 30, 1995
-------------
(UNAUDITED)
<S> <C> <C>
Federal statutory rate................................ 35.0% 35.0%
State income tax, net of federal benefit.............. (7.4) .4
Change in valuation allowance......................... (21.9) (20.3)
Officer's life insurance.............................. (16.3) (2.2)
Meals and entertainment............................... (6.0) (.2)
Other, net............................................ 1.2 .2
------ ------
(15.4)% 12.9%
============== ==========
</TABLE>
F-26
<PAGE> 80
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax asset/(liability) is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
<S> <C> <C>
Deferred tax asset (long-term):
Professional claims liability..................... $ 103,864 $ 141,803
Other............................................. (14,518) (13,571)
----------------- -------------
89,346 128,232
Less: valuation adjustment........................ (25,859) (47,025)
----------------- -------------
$ 63,487 $ 81,207
================== =============
Deferred tax liability (short-term):
Allowance for uncollectibles...................... $ 57,167 $ 67,972
Deferred revenue.................................. 54,268 7,753
Accrual to cash adjustments....................... (333,458) (303,798)
Other............................................. (301) (8,756)
----------------- -------------
$(222,324) $(236,829)
================== =============
</TABLE>
The change in the valuation allowance increased by $5,070 in the year ended
December 31, 1994 and $21,166 for the six months ended June 30, 1995.
At December 31, 1994 the Company had a state net operating loss
carryforward (NOL) of approximately $6,000 which will expire in 1999. At June
30, 1995 the Company had federal and state net operating losses of approximately
$47,000 and $40,000, respectively, which will expire in 2010 and 2000,
respectively.
The acquisition of the Company referred to in Note 8 will constitute a
change in control under both Section 382 of the Internal Revenue Code and
related state law. As a result, the amount of NOL carryovers that may be
utilized in a tax year subsequent to the acquisition is limited to the
"long-term tax exempt rate" (presently 5.88% for ownership changes during August
1995) times the value of the Company. The value of the Company is subject to
specific rules under section 382 of the Internal Revenue Code and related state
tax law.
The sources of deferred taxes and the tax effect of each are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Allowance for uncollectibles...................... $ 57,167 $ 10,804
Accrual to cash adjustments....................... (71,659) 29,660
Deferred revenue.................................. 18,089 (46,515)
Professional claims liability..................... 16,634 37,939
Other............................................. (29,243) (17,714)
Net operating loss................................ 1,507 18,661
----------------- -------------
(7,505) 32,835
Valuation allowance............................... (6,249) (21,166)
----------------- -------------
(13,754) 11,669
----------------- -------------
Unrealized valuation adjustment (reflected in the
statement of stockholders' equity).............. 4,168 (11,206)
----------------- -------------
$ (9,586) $ 463
================== =============
</TABLE>
F-27
<PAGE> 81
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JUNE 30, 1995
----------------- --------------
<S> <C> <C>
(UNAUDITED)
Accrued retirement..................................... $ 229,000 $229,000
Accrued vacation....................................... 14,141 15,386
Accounts payable....................................... 3,745 75,449
----------------- --------------
$ 246,886 $319,835
============== ===========
</TABLE>
5. RELATED-PARTY TRANSACTIONS:
For the year ended December 31, 1994, the Company paid approximately
$84,000 ($52,000 for the six months ended June 30, 1995) in billing fees to a
company for the billing and collection of revenue (the "Billing Company") in
which certain shareholders of the Company have a controlling ownership. In
addition, the Company rents certain employees to the Billing Company at its
cost. The reimbursement for these services is presented net in the accompanying
statement of operations and amounted to approximately $81,000 in 1994 and
$48,000 for the six months ended June 30, 1995.
6. RETIREMENT PLANS:
The Company has two qualified defined contribution employee benefit plans
(the "Plans") as allowed under Section 401 of the Internal Revenue Code, which
include a 401(k)/profit-sharing plan ("401(k) Plan") and a money purchase plan
("Money Purchase Plan") which covers substantially all employees. Employees who
have completed 12 months of service and are at least 21 years old are eligible
to participate and will become participants in the Plans following eligibility
effective on certain dates which are based on each of the Plans' years.
The 401(k) Plan permits participant contributions and a discretionary
amount determined by the Company which are fully vested upon contribution. In
addition, the Company may elect to contribute from the profits of the Company up
to 15% of its annual compensation expense (as defined in the Plan) which is
allocated to each participant based on a relationship of his/her compensation to
total compensation, with graduated vesting over 6 years of service.
Under the provisions of the Money Purchase Plan, the Company shall
contribute to the Plan on behalf of each eligible participant an amount equal to
approximately 6.13% of the participant's compensation (as defined in the Plan)
for such Plan year which is subject to certain limitations. These amounts are
allocated to each participant based on a relationship of his/her compensation to
total compensation with graduated vesting over 7 years of service.
The Company approved contributions of $229,000 to the Plans which were
expensed for the year ended December 31, 1994.
7. COMMITMENTS:
The Company has employment agreements with certain employee physicians that
expire in various months ranging from June to September 1995. As of December 31,
1994 the terms of the agreements commit the Company to pay approximately
$374,000 ($43,000 at June 30, 1995) in compensation for the remainder of the
agreements' terms. In addition, the agreements provide the Company with the
right to automatically extend the agreements, unless the employee gives
appropriate notice as defined in each agreement.
F-28
<PAGE> 82
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENT:
On June 13, 1995, the Company announced it had reached an agreement in
principle to be acquired by Pediatrix Medical Group of California, P.C., a
separate legal entity that contracts with Pediatrix Medical Group, Inc., in a
stock transaction in exchange for cash.
Consummation of the sale is conditioned upon satisfactory resolution of the
following items: the satisfactory completion of due diligence by Pediatrix, the
successful negotiation of arrangements with the hospitals now serviced by the
Company and the successful negotiation of any other professional relationships
necessary to effectuate a continuum of the Company's professional services
presently rendered.
F-29
<PAGE> 83
NEONATAL SPECIALISTS, LTD.
FINANCIAL STATEMENTS
F-30
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Neonatal Specialists, Ltd.
Phoenix, Arizona
We have audited the accompanying balance sheet of Neonatal Specialists,
Ltd. as of December 31, 1995, and the related statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of Neonatal Specialists, Ltd.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Neonatal Specialists, Ltd. as of December
31, 1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Johnson & Moser, Ltd.
Scottsdale, Arizona
February 22, 1996
F-31
<PAGE> 85
NEONATAL SPECIALISTS, LTD.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS:
<TABLE>
<S> <C>
Current assets:
Cash.......................................................................... $ 3,456
Accounts Receivable -- Net (Note 1)........................................... 851,180
Stockholder's Advances (Note 2)............................................... 2,646
Other Receivables (Note 2).................................................... 88,169
Deposits...................................................................... 1,090
--------
Total current assets.................................................. $946,541
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts Payable.............................................................. $ 22,313
Other Payables (Note 2)....................................................... 146,835
Interest Payable.............................................................. 1,086
Payroll Taxes Payable......................................................... 2,199
Profit Sharing Plan Payable (Note 4).......................................... 53,236
Treasury Stock Payable (Note 3)............................................... 20,947
Deferred Compensation (Note 3)................................................ 133,365
--------
Total current liabilities............................................. 379,981
Stockholders' equity:
Common Stock, $10 Par Value, 255 Shares Issued................................ 2,550
Retained Earnings............................................................. 604,010
--------
606,560
Treasury Stock, 102 Shares, at Cost (Note 3).................................. (40,000)
--------
Total stockholders' equity............................................ 566,560
--------
Total liabilities and stockholders' equity............................ $946,541
========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 86
NEONATAL SPECIALISTS, LTD.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Medical revenues, net of patient refunds....................................... $4,086,713
Operating expenses............................................................. 3,716,612
----------
Total operating income............................................... 370,101
----------
Other income (expenses):
Other Income................................................................. 36,777
Interest Income.............................................................. 5,438
Interest Expense............................................................. (7,521)
----------
Net Income -- Other.......................................................... 34,694
----------
Net income..................................................................... 404,795
Retained earnings at beginning of year......................................... 199,215
----------
Retained earnings at end of year............................................... $ 604,010
=========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 87
NEONATAL SPECIALISTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
<TABLE>
<S> <C>
Net Income................................................................... $ 404,795
Adjustments to reconcile net income to net cash used by operating activities:
(Increase) Decrease in Assets:
Accounts Receivable -- Net.............................................. 54,503
Other Receivables....................................................... (88,169)
Stockholder's Advances.................................................. (2,646)
Deposits................................................................ 1,070
Increase (Decrease) in Liabilities:
Accounts Payable........................................................ 1,676
Other Payables.......................................................... 146,836
Interest Payable........................................................ (204)
Payroll Taxes Payable................................................... (167,216)
Income Taxes Payable.................................................... (2,155)
Profit Sharing Plan Payable............................................. 22,690
Treasury Stock Payable.................................................. (17,403)
Deferred Compensation................................................... (40,535)
---------
Net cash provided by operating activities............................ 313,242
Cash flows from financing activities:
Distributions to Stockholders............................................. (430,452)
---------
Net decrease in cash and equivalents........................................... (117,210)
Cash and equivalents at beginning of year...................................... 120,666
---------
Cash and equivalents at end of year............................................ $ 3,456
=========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 88
NEONATAL SPECIALISTS, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the Neonatal Specialists, Ltd.'s ("Company") financial statements.
The financial statements and notes are representations of the Company's
management, who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Business Activities
The Company is a professional corporation. The stockholders are physicians
specializing in the field of neonatology. The area of service is mainly in
Phoenix, Arizona. The Company receives patients from a wider geographical area
serviced by transport/air ambulance services. Services are provided within
hospital settings, based on contracts between the Company and the various
hospitals. The Company has fee agreements with the State of Arizona and
insurance providers.
Accounts Receivable
Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with hospitals and third-party payors, such as
insurance companies and government-sponsored health care programs in the State
of Arizona. These receivables are presented net of contractual adjustments and
an estimated allowance for uncollectibles of $244,000 which is charged to
operations based on an evaluation of expected collections resulting from an
analysis of current and past due accounts, past collection experience in
relation to amounts billed and other relevant information. Contractual
adjustments result from the difference between the physician rates for services
performed, including withholding provisions, and reimbursement by government-
sponsored healthcare programs and insurance companies for such services.
S Corporation -- Income Tax Status
The Company elected the C Corporation status in 1991. In 1995, this
election was changed to an S Corporation.
In lieu of corporation income taxes, the shareholders of an S corporation
are taxed on their proportionate share of the Company's taxable income. As a
result, provision or liability for federal and state income taxes has not been
included in the financial statements.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
NOTE 2 -- RELATED PARTY TRANSACTIONS
The Company has entered into contractual agreements with two related
parties. CMJ Leasing, L.P. leases fixed assets to the Company. Med-Support, L.P.
leases employees to the Company.
For the year ended December 31, 1995, total expenses charged to the Company
by CMJ Leasing, L.P. and Med-Support, L.P. were $36,000 and $1,613,160,
respectively. At year-end, the Company was owed $87,169 by CMJ Leasing, L.P.,
but owed Med-Support, L.P. $145,835.
As of December 31, 1995, one stockholder had been advanced $2,646 on a
non-interest bearing basis.
F-35
<PAGE> 89
NEONATAL SPECIALISTS, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- TREASURY STOCK AND DEFERRED COMPENSATION PAYABLES
Deferred compensation and payments for the Company's treasury stock are
paid to former stockholders. In 1994, the Company entered into a contract to buy
back stock from former stockholders. Part of the agreement included deferred
compensation to the former stockholders.
NOTE 4 -- RETIREMENT PLANS
The Company covers substantially all of its employees under two qualified
defined contribution employee benefit plans (the "Plans") as allowed under
Section 401 of the Internal Revenue Code. The Plans include a profit sharing
plan ("Profit Sharing Plan") and a money purchase plan ("Money Purchase Plan").
Employees who have completed 12 months of service and are at least 21 years old
are eligible to participate and will become participants in the Plans following
eligibility effective on certain dates which are based on each of the Plan's
years. The participants of the Plans with less than five years of service are
subject to a vesting schedule, with less than one year of service having 0%
vested and for 1-5 years, 20% vested per year beginning with the completion of
the first year. Vesting of 100% occurs when the participants reach normal
retirement age or upon death or disability prior to the completion of the 5
years of service. The Plans cover all "Leased Employees" as determined in
accordance with Section 414(n)(6) of the Internal Revenue Code.
Under the provisions of the Profit Sharing Plan, the Company may elect to
contribute from the profits of the Company a percentage of annual compensation
expense, as defined. The amount allocated to each participant is based on the
percentage of his/her compensation to the total compensation of the Company.
The Money Purchase Plan directs the Company to contribute to the Plan on
behalf of each eligible participant an amount equal to 5% of the participant's
annual compensation, as defined, subject to certain limitations. The amount
allocated to each participant is based on the percentage of his/her compensation
to the total compensation of the Company.
NOTE 5 -- CONTINGENT LIABILITY
The Company has an automobile lease for an employee of Med-Support, L.P.
The balance due as of December 31, 1995, was $5,338, and is due to be paid off
by December 31, 1996. The Company's stockholders are liable for the remainder of
the payments.
NOTE 6 -- CASH FLOW INFORMATION
Supplemental cash flow information relative to cash payments for the year
ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Interest.................................... $6,435
Income Taxes................................ $2,155
</TABLE>
NOTE 7 -- SUBSEQUENT EVENTS
Sale of Business
On January 16, 1996, the Company's stockholders sold all outstanding shares
of the Company to an affiliate of Florida-based Pediatrix Medical Group, Inc. a
publicly held company traded on NASDAQ, for an amount in excess of book value.
As part of the sales agreement, the treasury stock and deferred compensation
debts were paid in full by the Company's stockholders.
F-36
<PAGE> 90
PEDIATRIC AND NEWBORN CONSULTANTS, PC
FINANCIAL STATEMENTS
F-37
<PAGE> 91
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Pediatric and Newborn Consultants, PC
I have audited the accompanying balance sheet of Pediatric and Newborn
Consultants, PC as of December 31, 1995 and the related statements of earnings
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Pediatric and Newborn Consultants, PC's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pediatric and Newborn
Consultants, PC as of December 31, 1995 and the results of its activities and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
DEON E. FITCH, CPA
Englewood, Colorado
March 15, 1996
F-38
<PAGE> 92
PEDIATRIC AND NEWBORN CONSULTANTS, PC
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
ASSETS
Current assets
Cash....................................................................... $ 10,596
Accounts receivable, net................................................... 426,402
Stockholder loans.......................................................... 8,289
-----------------
445,287
-----------------
Property and equipment
Equipment and furnishings.................................................. 18,893
Less accumulated depreciation.............................................. (18,795)
-----------------
98
-----------------
Other assets
Deferred sales commissions................................................. 20,175
Unamortized organization costs............................................. 800
Security deposit........................................................... 400
-----------------
21,375
-----------------
Total assets....................................................... $ 466,760
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and withheld taxes........................................ $ 9,958
Accrued retirement plan contributions...................................... 35,875
Deferred compensation...................................................... 12,490
-----------------
58,323
-----------------
Stockholders' equity
Common stock, no par value, 10,000 shares authorized, 5,000 shares issued
and outstanding......................................................... 5,098
Retained earnings.......................................................... 403,339
-----------------
408,437
-----------------
Total liabilities and stockholders' equity......................... $ 466,760
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 93
PEDIATRIC AND NEWBORN CONSULTANTS, PC
STATEMENT OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Revenue
Hospital contracts......................................................... $ 676,412
Patient fees, net.......................................................... 1,646,635
-----------------
Total revenue...................................................... 2,323,047
-----------------
Expense
Salaries and wages
Physicians.............................................................. 1,463,005
Staff physicians........................................................ 230,221
Physician assistants and administrative................................. 95,560
Payroll taxes and employee benefits........................................ 79,998
Retirement benefits........................................................ 131,989
Contract office services................................................... 17,576
Amortization............................................................... 200
Professional development................................................... 3,375
Practice development....................................................... 30,902
Contract medical coverage.................................................. 16,500
Office..................................................................... 15,708
Hospital dues and licenses................................................. 5,050
Malpractice insurance...................................................... 39,596
Billing services........................................................... 80,084
Professional fees.......................................................... 11,838
Vehicle.................................................................... 19,663
Charitable contributions................................................... 1,875
-----------------
Total expense...................................................... 2,243,140
-----------------
Net earnings................................................................. 79,907
Retained earnings, beginning................................................. --
Transfer of accounts receivable and accounts payable on incorporation,
accrual basis.............................................................. 323,432
-----------------
Retained earnings, ending.................................................... $ 403,339
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 94
PEDIATRIC AND NEWBORN CONSULTANTS, PC
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Cash flows from operating activities......................................... $ 2,237,294
Cash received from fees and services....................................... (2,201,834)
-----------------
Cash paid to employees and other
Net cash provided from operating activities........................ 35,460
-----------------
Cash flows from (used in) investing activities
Stockholder loans.......................................................... (8,289)
Deferred sales commissions................................................. (20,175)
Organization costs......................................................... (1,000)
Security deposit........................................................... (400)
-----------------
Net cash used in investing activities.............................. (29,864)
-----------------
Cash flows from financing activities
Proceeds from issuance of common stock..................................... 5,000
-----------------
Net cash from financing activities................................. 5,000
-----------------
Net increase in cash......................................................... 10,596
Cash, beginning of year...................................................... --
-----------------
Cash, end of year............................................................ $ 10,596
=============
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings............................................................... $ 79,907
Adjustments
Amortization............................................................ 200
Increase in receivables................................................. (85,753)
Increase in payables.................................................... 41,106
-----------------
Net cash provided from operating activities............................. $ 35,460
=============
Supplemental schedule of non-cash transactions
Non-cash transfers of assets and liabilities on incorporation:
Net property transfer in exchange for common stock......................... $ 98
=============
Transfer of accounts receivable, retained earnings, beginning.............. $ 340,649
Transfer of accounts payable, retained earnings, beginning................. (17,217)
-----------------
Net transfer of accounts receivable and payables on incorporation.......... $ 323,432
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 95
PEDIATRIC AND NEWBORN CONSULTANTS, PC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
Pediatric and Newborn Consultants, PC, a Colorado professional service
corporation and hereafter referred to as PNC, was formed to provide neonatal and
pediatric services through the practice of medicine in Colorado. PNC commenced
operations in January, 1995 as a continuation of Pediatric and Newborn
Consultants, a general partnership.
PNC uses the modified-cash method of accounting for reporting the results
of its activities for financial statement and income tax purposes. Under this
method, revenues are reported when received, expenses when paid and retirement
plan contributions when incurred.
The accompanying special purpose financial statements have been prepared on
the accrual basis.
Accounts Receivable, Contractual Adjustments
Accounts receivable is composed of outstanding patient fees and services,
net of estimated uncollectible accounts and contractual adjustments based on
collection experience.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Accounts receivable.......................................... $ 802,538 $ 720,379
Estimated uncollectible accounts............................. (146,535) (196,304)
Contractual adjustments...................................... (229,601) (183,426)
----------------- -----------------
Accounts receivable, net..................................... $ 426,402 $ 340,649
============= =============
</TABLE>
Property
Fully depreciated property of $18,893 is still in use as of December 31,
1995.
Statement of Cash Flows
For the purposes of the statement of cash flows, PNC considers all highly
liquid debt instruments purchased with a maturity of three months or less and
certificates of deposits to be cash.
Income Taxes
PNC and its shareholders have elected to be classified as an S corporation
for federal and state income tax purposes and accordingly all items subject to
taxation generally pass-through the corporation and are taxed in conjunction
with the shareholder's individual income tax returns.
Deferred Compensation
In April, 1995, in accordance with the terms and conditions of an
employment agreement, PNC agreed to pay a terminating physician/shareholder a
portion of the outstanding accounts receivable as of April 30, 1995 as
collected. In February, 1996, PNC negotiated a final settlement for the
compensation obligation.
Retirement Plans
PNC maintains a money-purchase pension plan and a profit-sharing plan for
some of its eligible employees with one year of full-time service. Contributions
to the money purchase pension plan are based on compensation, integrated with
social security and subject to a vesting schedule on termination of employment.
Contributions to the profit-sharing plan are at the discretion of the board of
directors, based on compensation and subject to a vesting schedule on
termination of employment.
F-42
<PAGE> 96
PEDIATRIC AND NEWBORN CONSULTANTS, PC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, PNC allocated the following amounts to its retirement plans.
<TABLE>
<CAPTION>
MONEY PURCHASE
PARTICIPANTS PENSION PROFIT-SHARING TOTAL
- --------------------------------------------------------- -------------- -------------- --------
<S> <C> <C> <C>
Physician/shareholders................................... $ 40,835 $ 49,165 $ 90,000
Staff.................................................... 16,455 25,534 41,989
-------------- -------------- --------
Totals......................................... $ 57,290 $ 74,699 $131,989
============ ========== ========
</TABLE>
In conjunction with the sale of its professional practice, PNC has agreed
to terminate its retirement plans on or before December 31, 1996 and provide
full vesting for all plan participants.
Incorporation and Issuance of Common Stock
On January 3, 1995, the partners of Pediatric and Newborn Consultants, a
general partnership, transferred their interests in the partnership's assets
including outstanding accounts receivable, accounts payable, work in progress
and cash in the amount of $5,000 to Pediatric and Newborn Consultants, PC in
exchange for 5,000 shares of no par value, common stock of Pediatric and Newborn
Consultants, PC.
2. COMMITMENTS AND CONTINGENCIES
Revenue and Support
PNC derives substantially all of its revenue including interrelated patient
fees, use of office and clinic facilities and administrative services from
various short-term, renewable contracts with some of the hospitals in the
metro-Denver area. Should a significant reduction in the level of this revenue
and support occur, PNC programs and activities may be affected.
The value of the use of the office and clinic facilities and administrative
services applicable to these contracts has not been reflected in the
accompanying financial statements.
Office Facility
In December, 1995, PNC secured an office facility for a one year term
beginning January 1, 1996. Under the lease, rent in the amount of $400 per month
plus a prorata share of the monthly maintenance is payable during the term.
3. SUBSEQUENT EVENTS
Sale of Professional Practice
In December, 1995, PNC and its shareholders negotiated a letter of intent
to sell, assign and transfer all of its assets, hospital contracts, business
rights/goodwill and restrictive covenants, excluding cash and outstanding
accounts receivable and payable to Pediatrix Medical Group of Colorado, P.C., a
separate legal entity that contracts with Pediatrix Medical Group, Inc.
Final negotiations for the sale and assignment, which includes contingent,
additional sales consideration based on productivity and activities during the
one-year, post-closing period, were completed on January 29, 1996. Subsequent to
the sale, PNC became a nonprofessional service corporation.
Deferred Sales Commissions Agreement
In conjunction with the sale of the professional practice, PNC contracted
with Nord Capital Group, Inc. to assist in the negotiations. In addition to the
sales commissions applicable to the completed portions of the sales agreement,
PNC agreed to assign an undivided six percent interest in its contingent,
additional sales consideration arrangement applicable to the one-year,
post-closing period.
F-43
<PAGE> 97
ROCKY MOUNTAIN NEONATOLOGY, P.C.
FINANCIAL STATEMENTS
F-44
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Rocky Mountain Neonatology, P.C.
We have audited the accompanying balance sheet of Rocky Mountain
Neonatology, P.C. as of December 31, 1995 and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rocky Mountain Neonatology,
P.C. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
June 17, 1996
F-45
<PAGE> 99
ROCKY MOUNTAIN NEONATOLOGY, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $157,095 $ 477,879
Accounts receivable, net........................................... 634,267 675,926
Prepaid expenses................................................... 77,607 62,566
---------- ----------
Total current assets....................................... 868,969 1,216,371
Furniture and equipment, net of accumulated depreciation of $2,737
at December 31, 1995 and $2,949 at March 31, 1996............... 1,878 1,666
---------- ----------
Total assets............................................... $870,847 $1,218,037
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................. $ 18,679 $ 20,188
Salaries payable................................................... -- 371,640
Patient overpayments............................................... 83,276 89,521
Hospital salary reimbursement payable.............................. 83,329 25,000
Professional claims liability...................................... 72,842 72,842
Deferred tax liability............................................. 233,131 243,059
---------- ----------
Total current liabilities.................................. 491,257 822,250
---------- ----------
Commitments (Note 6)
Stockholders' equity:
Common stock; $1 par value, 50,000 shares authorized, 6,000 shares
issued and outstanding.......................................... 6,000 6,000
Retained earnings.................................................. 373,590 389,787
---------- ----------
Total stockholders' equity...................................... 379,590 395,787
---------- ----------
Total liabilities and stockholders' equity...................... $870,847 $1,218,037
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 100
ROCKY MOUNTAIN NEONATOLOGY, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Net patient service revenue......................................... $3,105,845 $ 954,900
---------- -----------
Operating expenses:
Stockholders' compensation and benefits........................... 1,973,395 671,640
Salaries and benefits............................................. 344,494 111,193
Supplies and other operating expenses............................. 428,779 106,175
Insurance expense................................................. 70,411 18,641
Hospital salary reimbursement..................................... 83,329 25,000
Depreciation...................................................... 1,236 212
---------- -----------
Total operating expenses.................................. 2,901,644 932,861
---------- -----------
Income from operations.............................................. 204,201 22,039
Other income........................................................ 7,721 4,086
---------- -----------
Income before income taxes................................ 211,922 26,125
Income tax provision................................................ 80,530 9,928
---------- -----------
Net income................................................ $ 131,392 $ 16,197
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 101
ROCKY MOUNTAIN NEONATOLOGY, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- ------ -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994............................... 6,000 $6,000 $242,198 $248,198
Net income............................................... -- -- 131,392 131,392
--------- ------ -------- --------
Balance, December 31, 1995............................... 6,000 6,000 373,590 379,590
Net income (unaudited)................................... -- -- 16,197 16,197
--------- ------ -------- --------
Balance, March 31, 1996 (unaudited)...................... 6,000 $6,000 $389,787 $395,787
======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 102
ROCKY MOUNTAIN NEONATOLOGY, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 131,392 $ 16,197
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities:
Provision for deferred taxes.................................... 80,530 9,928
Depreciation.................................................... 1,236 212
Changes in assets and liabilities:
Accounts receivable........................................... (102,337) (41,659)
Prepaid expenses and other assets............................. (37,463) 15,041
Accounts payable and accrued expenses......................... 1,722 1,509
Salaries payable.............................................. -- 371,640
Patient overpayments.......................................... 12,592 6,245
Hospital salary reimbursement payable......................... 68,536 (58,329)
---------- --------
Net cash provided by operating activities.................. 156,208 320,784
---------- --------
Net increase in cash and cash equivalents............................ 156,208 320,784
Cash and cash equivalents, beginning of year/period.................. 887 157,095
---------- --------
Cash and cash equivalents, end of year/period........................ $ 157,095 $477,879
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 103
ROCKY MOUNTAIN NEONATOLOGY, P.C.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
The principal business activity of Rocky Mountain Neonatology, P.C. (the
"Company") is to provide physician services to hospital-based neonatal and
pediatric intensive care units to two hospitals in the Denver, Colorado area.
Contractual arrangements with hospitals are: (a) fee-for-service contracts
whereby hospitals agree, in exchange for the Company's services, to authorize
the Company and its healthcare professionals to bill and collect the
professional component of the charges for medical services rendered by the
Company's healthcare professionals; and (b) administrative fees for providing
medical director services for neonatal and/or pediatric departments in the
hospitals where the Company provides physician services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Accounts Receivable and Revenues:
Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with medical groups and third-party payors, such as
insurance companies, self-insured employers, patients and government-sponsored
health care programs in the State of Colorado. These receivables are presented
net of contractual adjustments and an estimated allowance for uncollectibles
which is charged to operations based on an evaluation of expected collections
resulting from an analysis of current and past due accounts, past collection
experience in relation to amounts billed and other relevant information.
Contractual adjustments result from the difference between the physician rates
for services performed, including withholding provisions, and reimbursement by
government-sponsored healthcare programs and insurance companies for such
services. Bad debts are included in contractual allowances and uncollectibles
because they are not considered material.
Concentration of credit risk relating to accounts receivable is limited by
the large number of patients and payors that the Company manages. Approximately
29% of the Company's net patient service revenue is derived from Medicaid.
Cash and Cash Equivalents:
Cash and cash equivalents are defined as all highly liquid financial
instruments with maturities of 90 days or less from the date of purchase. The
Company maintains its cash and cash equivalents which consist primarily of
demand deposits and amounts on deposit in a money market account with
principally one financial institution.
Furniture and Equipment:
Furniture and equipment is recorded at cost. Depreciation of furniture and
equipment is computed on the straight line method over the estimated useful
lives of five years. Upon sale or retirement of furniture and equipment, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is reflected in operations.
F-50
<PAGE> 104
ROCKY MOUNTAIN NEONATOLOGY, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Professional Liability Coverage:
The Company maintains professional liability coverage which indemnifies the
Company and its stockholders and employee physicians on a claims made basis. The
Company records an estimate of its liabilities for claims incurred but not
reported. Such liabilities are not discounted.
Income Taxes:
The Company computes its income taxes utilizing Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted rates in effect for the year in which
the differences are expected to reverse.
Charity Care:
The Company provides care to patients who meet certain criteria under its
charity care policy without charge. Because the Company does not pursue
collection of amounts determined to qualify as charity care, they are not
reported as revenue.
Interim Financial Statements:
The financial statements at March 31, 1996 and for the three months ended
March 31, 1996, are unaudited and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments necessary for a fair
statement of the results of interim periods. The results of the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Gross accounts receivable.................................. $ 973,779
Less: allowance for contractual adjustments and
uncollectibles........................................... (389,512 )
Administrative fees........................................ 50,000
------------
$ 634,267
============
</TABLE>
Net patient service revenue consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Gross patient service revenue.............................. $ 4,190,338
Less contractual adjustments and uncollectibles............ (1,467,160 )
Administrative fees........................................ 382,667
------------
$ 3,105,845
============
</TABLE>
Administrative fees are received by the Company for providing medical
director services under annual agreements with the hospitals where the Company
provides physician services. These agreements are automatically renewable,
unless otherwise terminated.
F-51
<PAGE> 105
ROCKY MOUNTAIN NEONATOLOGY, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RETIREMENT PLANS:
The Company has two qualified defined contribution employee benefit plans
(the "Plans") as allowed under Section 401 of the Internal Revenue Code, which
include a 401(k)/profit sharing plan ("401(k) Plan") and a money purchase plan
("Money Purchase Plan") which covers substantially all employees. Employees who
have completed 24 months of service and are at least 21 years old are eligible
to participate and will become participants in the Plans following eligibility
effective on certain dates which are based on each of the Plan's years.
The 401(k) Plan permits participant contributions and a discretionary
amount determined by the Company which are fully vested upon contribution. In
addition, the Company may elect to contribute from the profits of the Company a
percentage of annual compensation expense, as defined, which is allocated to
each participant based on a relationship of his/her compensation to total
compensation, with immediate vesting upon contribution.
Under the provisions of the Money Purchase Plan, the Company shall
contribute to the Plan on behalf of each eligible participant an amount equal to
5% of the participant's annual compensation, as defined, subject to certain
limitations. These amounts are allocated to each participant based on a
relationship of his/her compensation to total compensation, with immediate
vesting upon contribution.
The Company approved contributions of $180,000 to the Plans which were
expensed for the year ended December 31, 1995.
5. INCOME TAXES:
The components of the income tax provision is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred:
Federal.................................................... $ 74,173
State...................................................... 6,357
--------
$ 80,530
========
</TABLE>
The provision for income taxes differs from the amount obtained by applying
the federal statutory income tax rate to income before provision for income
taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Federal statutory rate....................................... 35.0%
State income tax, net of federal benefit..................... 3.0
----
Effective rate............................................... 38.0%
====
</TABLE>
F-52
<PAGE> 106
ROCKY MOUNTAIN NEONATOLOGY, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the deferred income tax assets and
liabilities at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Accounts receivable........................................... $(241,022)
Prepaid expenses.............................................. (29,491)
Patient overpayments.......................................... 31,644
Hospital salary reimbursement payable......................... 31,665
Professional claims liability................................. 27,680
Accrual to cash adjustments................................... (59,418)
Other......................................................... 5,811
---------
Net current deferred tax liability.................. $(233,131)
=========
</TABLE>
6. COMMITMENTS:
The Company has an employment agreement with an employee physician that
expires on June 30, 1997. As of December 31, 1995, the terms of the agreement
commit the Company to pay approximately $293,000 to the employee physician in
compensation for the remainder of the agreement's term.
The Company is a lessee of office space under an operating lease that
expires on April 24, 1997. Future minimum payments under the lease are $29,550
and $10,047 for fiscal years 1996 and 1997, respectively. Total rent expense
under this lease was $30,230 for the year ended December 31, 1995.
7. SUBSEQUENT EVENT:
Effective May 1, 1996, the capital stock of the Company was acquired by
Pediatrix Acquisition Corp., a separate legal entity which contracts with
Pediatrix Medical Group, Inc., in exchange for an aggregate cash purchase price
of $7.2 million.
F-53
<PAGE> 107
WEST TEXAS NEONATAL ASSOCIATES
FINANCIAL STATEMENTS
F-54
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Partners
West Texas Neonatal Associates
We have audited the accompanying balance sheet of West Texas Neonatal
Associates (a Partnership) as of December 31, 1995 and the related statements of
income and partners' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Texas Neonatal
Associates as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
LINDA G. MEDLOCK P.C.
June 10, 1996
El Paso, Texas
F-55
<PAGE> 109
WEST TEXAS NEONATAL ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Checking -- Texas commerce.......................................... $ -- $ 156,596
Accounts receivable -- trade........................................ 558,343 496,604
Accounts receivable -- Internal Revenue Service..................... 2,200 --
-------- ---------
Total current assets........................................ 560,543 653,200
-------- ---------
Property and equipment:
Furniture and fixtures.............................................. 3,550 3,550
Less: accumulated depreciation................................... (3,550) (3,550)
-------- ---------
Net property and equipment....................................... -- --
-------- ---------
Total assets................................................ $560,543 $ 653,200
======== =========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Bank overdraft...................................................... $ 24,541 $ --
Accounts payable -- CMBS............................................ 13,757 22,110
Payroll taxes payable............................................... 374 357
Accounts payable -- Jose Arellano, M.D. P.A......................... -- 6,339
-------- ---------
Total current liabilities................................... 38,672 28,806
-------- ---------
Partners' equity:
Capital -- Ayo...................................................... 255,286 305,179
Capital -- Caviglia................................................. 266,585 319,215
-------- ---------
Total partners' equity...................................... 521,871 624,394
-------- ---------
Total liabilities and partners' equity...................... $560,543 $ 653,200
======== =========
</TABLE>
Notes to financial statements are an integral part of these financial
statements.
F-56
<PAGE> 110
WEST TEXAS NEONATAL ASSOCIATES
STATEMENTS OF INCOME AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Medical fee income............................................... $ 2,269,543 $ 561,088
------------ ---------
Operating expenses:
Billing service................................................ 160,519 46,878
Patient refunds................................................ 4,924 354
Business promotion............................................. -- 236
Contract labor................................................. 5,050 825
Insurance -- malpractice....................................... 21,549 --
Insurance -- employee health................................... 17,955 5,032
Insurance -- general........................................... -- 1,326
Legal and accounting........................................... 2,600 1,100
Medical books.................................................. -- 700
Miscellaneous.................................................. 2,505 --
Office supplies................................................ 188 --
Office maintenance............................................. 2,566 --
Penalties...................................................... 4 --
Professional fees -- other..................................... 99,349 57,258
Salaries and wages............................................. 306,761 94,250
Seminars....................................................... 450 --
Taxes -- payroll............................................... 21,433 7,567
Telephone...................................................... 1,316 320
Travel......................................................... 529 --
------------ ---------
Total operating expenses............................... 647,698 215,846
------------ ---------
Operating income....................................... 1,621,845 345,242
Other income (expense):
Interest income................................................ 7 18
------------ ---------
Net income............................................. 1,621,852 345,260
Partners' equity at beginning of year/period..................... 419,787 521,871
Partners draw.................................................... (1,519,768) (242,737)
------------ ---------
Partners' equity at end of year/period........................... $ 521,871 $ 624,394
============ =========
</TABLE>
Notes to financial statements are an integral part of these statements.
F-57
<PAGE> 111
WEST TEXAS NEONATAL ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Cash received from patients...................................... $2,155,044 $ 622,828
Cash collected from other sources................................ 7 18
Cash paid to billing service, patients and employees............. (467,129) (133,129)
Cash paid for general and administrative expenses................ (176,075) (65,843)
---------- ----------
Net cash provided by operating activities................ 1,511,847 423,874
---------- ----------
Cash flows from financing activities:
Cash paid to partner -- Ayo...................................... (764,769) (122,737)
Cash paid to partner -- Caviglia................................. (755,000) (120,000)
---------- ----------
Net cash used by financing activities.............................. (1,519,769) (242,737)
---------- ----------
Net (decrease) increase in cash and cash equivalents............... (7,922) 181,137
Cash and cash equivalents at beginning of year/period.............. (16,619) (24,541)
---------- ----------
Cash and cash equivalents at end of year/period.................... $ (24,541) $ 156,596
========== ==========
Reconciliation of net income to net cash provided by operating
activities:
Net income....................................................... $1,621,852 $ 345,260
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
(Increase) decrease in accounts receivable -- trade........... (114,499) 61,740
(Increase) decrease accounts receivable -- IRS................ (1,508) --
(Increase) decrease accounts payable.......................... 6,002 16,874
---------- ----------
Total adjustments............................................. (110,005) 78,614
---------- ----------
Net cash provided by operating activities..................... $1,511,847 $ 423,874
========== ==========
</TABLE>
Notes to financial statements are an integral part of these financial
statements.
F-58
<PAGE> 112
WEST TEXAS NEONATAL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies conform to generally accepted accounting
principles based on the accrual method of accounting.
Nature of Operations
The Company, a partnership, is engaged in the business of providing medical
services at its location in El Paso, Texas.
Property and Equipment
Property and equipment are carried at cost. Management has elected to
calculate depreciation using the accelerated cost recovery system (ACRS) and the
modified accelerated cost recovery system (MACRS). These are not acceptable
methods for financial statements under generally accepted accounting principles.
Generally accepted accounting principles require depreciating cost over an
asset's estimated useful life using an acceptable method. The effect of this
departure from generally accepted accounting principles on financial position,
results of operations, and cash flows has not been determined.
Bad Debts
Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of using this method approximate those of the allowance method.
2. INCOME TAXES:
The Partnership is not a taxpaying entity for federal or state income tax
purposes, and thus no income tax expense has been recorded in the statements.
Income from the Partnership is taxed to the partners in their individual
returns.
3. ECONOMIC DEPENDENCY:
The Company operates in El Paso, Texas, and has contracts with Sierra
Medical Center and Providence Hospital (which are owned by the Tenet
Corporation). All services are provided through these two hospitals.
4. CONCENTRATION OF CREDIT RISK:
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
major source of income consists of fees from medicaid and private insurance.
5. SUBSEQUENT EVENT:
The Company has signed a contract to sell its assets to Pediatrix Medical
Group of Texas, P.A. effective May 30, 1996. The two partners will remain as
employees and continue to provide neonatal services.
F-59
<PAGE> 113
INFANT CARE SPECIALISTS
MEDICAL GROUP, INC. & SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
F-60
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Infant Care Specialists Medical Group, Inc. & Subsidiary:
We have audited the accompanying consolidated balance sheet of Infant Care
Specialists Medical Group, Inc. (a California corporation) and Subsidiary as of
December 31, 1995, and the related consolidated statements of operations and
retained earnings and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of Infant Care Specialists
Medical Group, Inc. and Subsidiary as of December 31, 1994 were audited by other
auditors, whose report dated September 20, 1995 expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Infant Care
Specialists Medical Group, Inc. and Subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The general and administrative expense
detail for the year ended December 31, 1995 presented in Exhibit I is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole. The general and administrative expense
detail for the year ended December 31, 1994 presented in Exhibit I was subjected
to the auditing procedures applied in the December 31, 1994 audit of the basic
financial statements by other auditors, whose report on such information stated
that it was fairly stated in all material respects in relation to the December
31, 1994 basic financial statements taken as a whole.
HARLAN & BOETTGER
San Diego, California
May 7, 1996
F-61
<PAGE> 115
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
----------------------- ----------
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash..................................................... $ 364,121 $ 128,085 $ 114,164
Accounts receivable, net of allowance for mandatory
adjustments of $5,247,098, $3,358,706 and $4,765,882
for 1994, 1995 and March 31, 1996 (Note A)............ 5,150,777 3,542,341 3,496,407
Prepaid expenses and other current assets................ 106,790 15,239 --
---------- ---------- ----------
Total current assets............................. 5,621,688 3,685,665 3,610,571
Property and equipment, net (Note B)....................... 338,695 305,867 282,845
Investment in partnership (Note C)......................... 302,570 327,804 327,804
Deferred income tax assets................................. 70,050 73,655 37,979
Deposits................................................... 8,584 8,583 8,583
---------- ---------- ----------
$6,341,587 $4,401,574 $4,267,782
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit -- current (Note H)....................... $ 9,350 $ 10,200 $ 10,200
Capital lease obligations -- current portion............. 11,268 12,960 12,964
Accounts payable and accrued expenses.................... 174,244 190,982 158,259
Accrued pension contribution payable (Note D)............ 748,653 370,186 370,186
Note payable -- other (Note G)........................... 433,185 377,846 200,656
Note payable -- affiliate (Note E)....................... 267,050 245,000 245,000
Income taxes payable..................................... 11,265 109,823 41,423
Deferred income taxes (Notes A and F).................... 2,027,875 1,371,169 1,424,809
---------- ---------- ----------
Total Current Liabilities........................ 3,682,890 2,688,166 2,463,497
Commitments (Note I)
Line of credit, less current portion (Note H)............ 41,650 31,450 28,900
Capital lease obligations, less current portion.......... 55,051 42,340 39,252
Minority interest in subsidiary.......................... 8,785 (7,211) (532)
---------- ---------- ----------
Total Liabilities 3,788,376 2,754,745 2,531,117
Stockholders' Equity
Common stock, $1 par value; 200,000 shares authorized;
900 shares issued and outstanding..................... 900 900 900
Preferred stock, $1 par value; 200,000 shares authorized;
1,300, 1,800 and 1,900 shares issued and outstanding,
respectively.......................................... 1,300 1,800 1,900
Additional paid-in-capital............................... 1,310 1,310 1,310
Retained earnings........................................ 2,549,701 1,642,819 1,732,555
---------- ---------- ----------
Total Stockholders' Equity....................... 2,553,211 1,646,829 1,736,665
---------- ---------- ----------
$6,341,587 $4,401,574 $4,267,782
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 116
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE
YEARS ENDED DECEMBER 31, MONTHS
----------------------------- ENDED
1994 1995 MARCH 31,
----------- ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Income
Professional fees............................... $ 9,933,406 $10,363,733 $ 2,939,229
Management fees................................. 692,216 -- 238,231
Interest income (expense)....................... 15,560 50,699 (2,957)
Other income (expense).......................... 8,128 (3,181) --
Minority interest in net income of subsidiary... (7,021) 15,996 (6,679)
----------- ----------- -----------
Total income............................ 10,642,289 10,427,247 3,167,824
Operating expenses
Payroll and payroll taxes....................... 4,977,124 7,373,320 2,115,199
Liability insurance............................. 260,552 353,074 137,533
Disability insurance............................ 256,411 165,827 68,450
General and administrative...................... 1,221,433 1,203,395 302,826
Management fees................................. -- 194,056 --
Billing service fee............................. 460,684 124,482 7,222
Depreciation and amortization................... 45,423 93,116 23,022
Profit sharing plan contributions (Note D)...... 748,653 483,411 94,407
Physician moonlighting.......................... 427,257 417,922 54,599
Independent contracting......................... 88,746 33,070 18,275
Transcription fees.............................. 133,808 134,962 51,829
University expenses............................. 3,163,062 1,303,005 113,810
----------- ----------- -----------
Total operating expenses................ 11,783,153 11,879,640 2,987,172
----------- ----------- -----------
(Loss) income before income taxes................. (1,140,864) (1,452,393) 180,652
(Benefit) provision for income taxes (Notes A and
F).............................................. (384,055) (545,511) 90,916
----------- ----------- -----------
Net (loss) income................................. (756,809) (906,882) 89,736
Retained earnings, beginning of year.............. 3,306,510 2,549,701 1,642,819
----------- ----------- -----------
Retained earnings, end of year.................... $ 2,549,701 $ 1,642,819 $ 1,732,555
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 117
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED DECEMER - ENDED
31, MARCH 31,
----------------------- ----------
1994 1995 1996
---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................ $ (756,809) $ (906,882) $ 89,736
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 45,423 93,113 23,022
Expenses accrued under notes payable.................. 491,859 -- --
Loss (gain) on investment in partnership.............. 1,230 (25,234) --
Minority interest in net income of subsidiary......... 7,021 (15,994) 6,679
Change in assets and liabilities:
Accounts receivable................................. 122,671 1,608,436 45,934
Employee receivable................................. (300) 2,064 --
Management fees receivable.......................... 489,166 -- --
Prepaid expenses.................................... 102,235 81,987 15,239
Deposits............................................ (8,584) -- --
Income taxes receivable............................. (2,500) 7,500 --
Tax benefit......................................... -- (3,605) 35,676
Accounts payable and accrued expenses............... 99,331 16,737 (32,721)
Accrued pension plans............................... 123,516 (378,467) --
Income taxes payable................................ 11,265 98,558 (68,400)
Note payable, other................................. -- -- (177,192)
Deferred income taxes............................... (396,920) (656,706) 53,640
---------- ---------- ----------
Net cash provided by (used in) operating activities........ 328,604 (78,493) (8,387)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of fixed assets................................ (197,295) (60,285) --
Payments on related party debt........................... -- (22,050) --
---------- ---------- ----------
Net cash used in investing activities...................... (197,295) (82,335) --
---------- ---------- ----------
Cash flows from financing activities:
Proceeds (payments) on line of credit.................... 51,000 (9,350) (2,550)
Principal payments on capital leases..................... (4,855) (11,019) (3,084)
Decrease in notes payable................................ -- (55,339) --
Principal payments in notes payable -- other............. (36,625) -- --
Proceeds from issuance of preferred stock................ 200 500 100
---------- ---------- ----------
Net cash provided by (used in) financing activities........ 9,720 (75,208) (5,534)
---------- ---------- ----------
Net increase (decrease) in cash............................ 141,029 (236,036) (13,921)
Cash, beginning of year.................................... 223,092 364,121 128,085
Cash, end of year.......................................... $ 364,121 $ 128,085 $ 114,164
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 118
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Infant Care Specialists Medical Group, Inc. (the Company) was incorporated
under the laws of the State of California on November 15, 1988. The Company
provides neonatal medical services through its affiliation agreements with the
UC Irvine Medical Center, Division of Neonatal Medicine and with fourteen other
Southern California hospitals.
Basis of Accounting
The Company's policy is to prepare its financial statements on an accrual
basis of accounting. Accordingly, the accompanying financial statements are
intended to present the financial position, results of operations and cash flows
in conformity with generally accepted accounting principles.
These financial statements include the accounts of the Company and its
82.36% owned subsidiary, Infant Care Management Services, Inc. (ICMS), a company
established to provide management and administrative services to medical
practice groups in Southern California.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
University Affiliation
All of the physician shareholders and employees of the Company were also
employees of the Division of Neonatal/Perinatal Medicine in the Department of
Pediatrics of the University of California, Irvine. It has been the practice of
the Company to fund the salaries and benefits of the physicians and staff who
have paid positions with the University as well as research and teaching
expenses. In order to cover these expenses, the Company deposits professional
fees with the Regents of the University of California. These funds are used only
to support physician salaries, administration salaries, research salaries and
miscellaneous research supplies.
Cash
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
and money market funds to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at net realizable value. An allowance for
mandatory adjustments has been reflected in the financial statements to reduce
accounts receivable for managed care contracts and Medical charges which the
Company has agreed to accept at a discounted fee. The total mandatory
adjustments at 1995 and 1994 are $3,358,706 and $5,247,098, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Leasehold improvements............. 5 years (term of lease)
Furniture and fixtures............. 7 years
Equipment.......................... 5 - 7 years
Software........................... 3 years
</TABLE>
F-65
<PAGE> 119
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon retirement or disposal of depreciated assets, the cost and related
depreciation are removed and the resulting gain or loss is reflected in income.
Major renewals and betterments are capitalized while maintenance costs and
repairs are expensed in the year incurred.
Income Taxes
Deferred tax liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be settled.
The effect on deferred tax liabilities of a change in tax rates is recognized in
income in the period in which the change is enacted. Temporary differences
related principally to differences between the accrual method of accounting used
for financial statement purposes and the cash method of accounting used for tax
purposes.
Management Fees
The Company maintains a management agreement with Infant Care Management
Services, Inc. (ICMS). ICMS manages the operations of the Company and receives
its net income from the Company in the form of a management fee.
Concentration of Credit Risk
Substantially all of the Company's accounts receivables are concentrated
within the medical industry, primarily health insurance companies and government
insurance providers.
Reclassifications
Certain amounts included in the financial statements for 1994 have been
reclassified to conform to the current year presentation.
B. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1994 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Furniture and fixtures......................................... $ 76,250 $ 83,274
Equipment...................................................... 281,433 319,782
Software....................................................... 39,738 53,211
Leasehold improvements......................................... 44,860 46,298
--------- ---------
422,281 502,565
Less: accumulated depreciation................................. (103,586) (196,698)
--------- ---------
$ 338,695 $ 305,867
========= =========
</TABLE>
C. INVESTMENT IN PARTNERSHIP:
During 1993, the Company acquired a 98% interest in LBW Medical Group,
Limited Partnership ("LBW") in exchange for cash of $58,800 and a note payable
of $245,000. The Partnership, together with other joint venture partners, plans
to invest in and assist in the development and operation of transitional care
facilities for infants who are presently being treated in hospital neonatal
intensive care units. The Partnership is currently in the development stage of
operations and did not generate any revenues during 1995 or 1994
F-66
<PAGE> 120
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to operations. However, the investment earned interest income in 1995 in
the amount of $29,392 and incurred expenses of $4,158 (see Note E).
D. ACCRUED PENSION AND PROFIT SHARING EXPENSE:
The Company maintains both a defined contribution profit sharing plan and a
money purchase pension plan covering substantially all employees subject to
minimum age and service requirements. Contributions to the profit sharing plan
are at the discretion of the Board of Directors. Contributions to the money
purchase plan are based upon 5% of eligible compensation. Total pension and
profit sharing expense was $483,411 and $748,653 for the years ended December
31, 1995 and 1994, respectively.
It is the policy of the Company to fund accrued pension and profit sharing
contributions prior to the filing of the corporate income tax returns.
E. NOTE PAYABLE TO AFFILIATE:
The Company has a note payable of $245,000 to LBW, in which the Company has
a 98% interest. The note bears interest at 6% per annum and is due on demand.
F. INCOME TAXES:
As discussed in Note A, the Company adopted SFAS 109, "Accounting for
Income Taxes" in 1993 and applied the provisions of this statement retroactively
to January 1, 1992. SFAS 109 requires the use of the balance sheet method of
accounting for income taxes. Under this method, a deferred tax asset or
liability represents the tax effect of temporary differences between financial
statement and tax bases of assets and liabilities and is measured using the
latest enacted tax rates.
The provision for income taxes (benefit) for the years ended December 31,
1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current provision............................................ $ 12,865 $ 114,800
Deferred benefit............................................. (396,920) (660,311)
--------- ---------
Net benefit............................................. $(384,055) $(545,511)
========= =========
</TABLE>
G. NOTES PAYABLE:
Notes payable at December 31, 1994 and 1995 is comprised of the following:
<TABLE>
<S> <C> <C>
Non-interest bearing note due to the University of
California, Irvine as reimbursement for expenses of
Division of Neonatal Medicine paid by the University
(see Note A).......................................... $ 433,185 $ 377,847
========= =========
</TABLE>
F-67
<PAGE> 121
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. LINE OF CREDIT:
The Company maintains a line of credit facility with City National Bank
(the "Bank") which is secured by various fixed assets, with interest at the
"prime rate" as announced by the Bank plus 1.25% (8.75% at December 31, 1995).
Principal is currently payable at $850 per month plus interest through December
1, 2000.
The following is a schedule of future maturities of the line of credit as
of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996............................................................ $ 10,200
1997............................................................ 10,200
1998............................................................ 10,200
1999............................................................ 10,200
2000............................................................ 850
--------
41,650
Less: current portion............................................. (10,200)
--------
$ 31,450
========
</TABLE>
I. COMMITMENTS:
On July 15, 1994, the Company entered into a noncancelable building lease
for its operating facility which runs through July 30, 1999. The agreement calls
for an annual base rent of $88,402 with an increase of 6% in the fourth and
fifth year.
Net future minimum rental payments required under this lease as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996............................................................ $ 88,402
1997............................................................ 88,402
1998............................................................ 93,707
1999............................................................ 99,329
--------
$369,840
========
</TABLE>
Total rent expense charged to operations for the year ended December 31,
1995 and 1994 was $73,669 and $50,183, respectively.
J. SUBSEQUENT EVENT:
In June of 1996, Pediatrix Medical Group of California, P.C., which is a
separate legal entity that contracts with Pediatrix Medical Group, Inc.,
acquired the operating assets of the Company including its existing contracts
with various hospitals and tendered employment contracts to most of its
employees. With the funds received, the Company has paid severance fees to all
of its employees based upon a formula established by its Board of Directors for
years of service with the Company. The Company's future operations include the
collection of its remaining accounts receivables, paying its outstanding
expenses and liquidation.
F-68
<PAGE> 122
ADDITIONAL INFORMATION
F-69
<PAGE> 123
EXHIBIT I
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY
DETAIL OF GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, MARCH 31,
----------------------- ---------
1994 1995 1996
---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
General and Administrative Expenses
Auto expense............................................. $ 87,086 $ 76,708 $ 10,822
Practice development..................................... 135,972 9,997 964
Dues and subscriptions................................... 98,074 87,520 23,401
Outside services......................................... 33,382 72,918 25,774
Legal and accounting..................................... 174,152 174,052 96,336
Education and conferences................................ 156,956 84,701 15,293
Computer maintenance..................................... 24,855 22,921 3,764
Telephone................................................ 59,521 86,571 25,970
Housing and relocation................................... 15,111 11,787 --
Supplies................................................. 54,567 91,355 9,200
Miscellaneous............................................ 2,453 20,114 6,888
Drugs.................................................... 35,458 27,578 9,260
Printing................................................. 12,100 60,438 --
Meals and entertainment.................................. 37,007 43,913 15,333
Postage.................................................. 14,672 70,622 6,063
Interest................................................. 28,004 19,642 --
Other insurance.......................................... 113,110 50,834 17,624
Repairs and maintenance.................................. 837 1,294 --
Recruiting............................................... 6,325 10,162 --
Pension administration................................... 10,650 4,878 --
Gifts.................................................... 6,875 5,849 --
Rent -- building......................................... 50,183 73,669 34,184
Rent -- equipment........................................ -- 65,987 --
Licenses and fees........................................ 2,745 9,572 932
Managed care fees........................................ 47,535 -- --
Bank service charges..................................... 14,163 20,313 1,018
---------- ---------- ---------
Total General and Administrative Expenses........ $1,221,433 $1,203,395 $302,826
========= ========= =========
</TABLE>
F-70
<PAGE> 124
[Pediatrix Logo]
5,000,000 SHARES
COMMON STOCK
PROSPECTUS
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
, 1996
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................... $ 96,163
NASD filing fee......................................................... 29,100
Nasdaq National Market listing fee...................................... 17,500
Printing expenses....................................................... 50,000
Accounting fees and expenses............................................ 100,000
Legal fees and expenses................................................. 200,000
Fees and expenses (including legal fees) for qualifications under state
securities laws....................................................... 25,000
Registrar and Transfer Agent's fees and expenses........................ 7,000
Miscellaneous........................................................... 75,237
---------
Total......................................................... $600,000
========
</TABLE>
- ---------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the Selling Shareholders hereunder, with the exception of
underwriting discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Florida law to indemnify its directors and
officers to the extent provided in such statute. The Articles provide that the
Company shall indemnify its directors to the fullest extent permitted by law
either now or hereafter. The Company has also entered into an agreement with
each of its directors and certain of its officers wherein it has agreed to
indemnify each of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Company against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1992, the Company issued 200,000 shares of Common Stock for
$2.84 per share, pursuant to the Company's 1992 Employee Stock Purchase Plan.
Such shares were issued pursuant to the exemption set forth in Section 4(2) of
the Securities Act.
In January 1994, the Company issued 200,000 shares of Common Stock for
$5.00 per share, pursuant to the Company's 1994 Employee Stock Purchase Plan.
Such shares were issued pursuant to the exemption set forth in Section 4(2) of
the Securities Act.
In September 1995, immediately prior to the consummation of the Company's
initial public offering, the Company issued an aggregate of 4,571,063 shares of
Common Stock upon conversion of 4,571,063 shares of Series A Convertible
Preferred Stock (the "Convertible Preferred Stock"). The Convertible Preferred
Stock
II-1
<PAGE> 126
had originally been issued pursuant to the terms of a Series A Preferred Stock
Purchase Agreement, dated October 26, 1992 (the "Purchase Agreement") for an
aggregate purchase price of $13 million. Pursuant to the Purchase Agreement,
unpaid dividends of approximately $3.7 million were forgiven upon such
conversion. The shares of Common Stock were issued pursuant to the exemption set
forth in Section 3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Proposed form of Underwriting Agreement(6)
3.1 -- PMG's Amended and Restated Articles of Incorporation(3.1)(1)
3.2 -- PMG's Amended and Restated Bylaws(3.2)(1)
4.1 -- Registration Rights Agreement, dated as of September 13, 1995 between PMG and
certain shareholders(4.1)(1)
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the
validity of the Common Stock being registered(6)
10.1 -- PMG's Amended and Restated Stock Option Plan(5)
10.2 -- Form of Indemnification Agreement between PMG and each of its directors and certain
executive officers(10.2)(1)
10.3 -- Employment Agreement, dated as of January 1, 1995, as amended, between PMG and
Roger J. Medel, M.D.(10.3)(1)
10.4 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Richard J. Stull, II(10.4)(1)
10.5 -- Employment Agreement, dated as of May 1, 1995, as amended, between PMG and Larry M.
Mullen(10.5)(1)
10.6 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Cathy J. Lerman, as amended(10.6)(1)
10.7 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Brian D. Udell, M.D., as amended(10.7)(1)
10.8 -- Employment Agreement, dated as of July 27, 1993, between PMG and Frederick V.
Miller, M.D.(10.8)(1)
10.9 -- Employment Agreement, dated as of November 6, 1995, between Kristen Bratberg and
Pediatrix(4)
10.10 -- Mortgage, Security Agreement and Assignment of Leases and Rents, dated as of
September 30, 1993, made by PMG in favor of The First National Bank of
Boston(10.22)(1)
10.11 -- The Company's Profit Sharing Plan(10.23)(1)
10.12 -- Form of Non-Competition and Nondisclosure Agreement(10.24)(1)
10.13 -- Form of Exclusive Management and Administrative Services Agreement between PMG and
each of the PA Contractors(10.25)(1)
10.14 -- Agreement for Purchase and Sale of Stock, dated July 27, 1995, between Pediatrix
Medical Group of California and Neonatal and Pediatric Intensive Care Medical
Group, Inc. and the individual physicians set forth in Exhibit A therein(10.26)(1)
10.15 -- NICU Medical Director Appointment, dated as of July 27, 1993, between PMG and
Frederick V. Miller, M.D.(10.28)(1)
10.16 -- Stock Purchase Agreement, effective January 16, 1996, between Jack C. Christensen,
M.D., Cristina Carballo-Perelman, M.D., Michael C. McQueen, M.D., Neonatal
Specialists, Ltd. and Brian Udell, M.D.(2.1)(2)
10.17 -- Asset Purchase Agreement, effective January 16, 1996, between Med-Support, L.P. and
Neonatal Specialists, Ltd.(2.2)(2)
10.18 -- Asset Purchase Agreement, effective January 16, 1996, between CMJ Leasing, L.P. and
Neonatal Specialists, Ltd.(2.3)(2)
</TABLE>
II-2
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S> <C>
10.19 -- Asset Purchase Agreement, dated January 29, 1996, among Pediatrix Medical Group of
Colorado, P.C., Pediatric and Newborn Consultants, P.C., and the shareholders of
PNC(2.1)(3)
10.20 -- Agreement and Plan of Merger, dated January 29, 1996, among Pediatrix Medical Group
of Colorado, P.C., Colorado Neonatal Associates, P.C. and the shareholders of
CNA(2.1)(3)
10.21 -- Employment Agreement, dated June 1, 1996, between PMG and M. Douglas Cunningham,
M.D.(7)
10.22 -- Airplane Purchase Agreement, dated March 22, 1996, between PMG and Learjet Inc.(7)
10.23 -- PMG's 1996 Qualified Employee Stock Purchase Plan (10.25)(5)
10.24 -- PMG's 1996 Non-Qualified Employee Stock Purchase Plan (10.26)(5)
10.25 -- First Amended and Restated Credit Agreement, dated as of June 27, 1996, between
PMG, certain PA Contractors, The First National Bank of Boston and SunTrust Bank(6)
10.26 -- Modification of Mortgage, dated as of June 27, 1996, between PMG and The First
National Bank of Boston(6)
11.1 -- Statement re computation of per share earnings(7)
21.1 -- Subsidiaries of Pediatrix(21.1)(1)
23.1 -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be
included in its opinion to be filed as Exhibit 5.1)(6)
23.2 -- Consent of Coopers & Lybrand L.L.P.(6)
23.3 -- Consent of Johnson & Moser, Ltd.(6)
23.4 -- Consent of Deon E. Fitch, CPA(6)
23.5 -- Consent of Linda G. Medlock P.C.(6)
23.6 -- Consent of Harlan & Boettger(6)
24.1 -- Reference is made to the Signatures section of this Registration Statement for the
Power of Attorney contained therein(7)
24.2 -- Secretary's Certificate of resolution of Board of Directors(6)
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibit shown in parentheses and filed with
the Pediatrix Form S-1 (File No. 33-95086).
(2) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 8-K, dated January 31, 1996.
(3) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 8-K, dated February 8, 1996.
(4) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 10-K, dated March 26, 1996.
(5) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 10-Q, dated May 10, 1996.
(6) Filed herewith.
(7) Previously filed.
(b) Financial Statement Schedules:
The following supplemental schedules can be found on the indicated pages of
this Registration Statement.
<TABLE>
<CAPTION>
ITEM PAGE
------------------------------------------------------------------------------ ----
<S> <C>
Report of Independent Auditors on Supplemental Financial Statement
Schedules................................................................... S-1
Schedule II: Valuation and Qualifying Accounts................................ S-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
II-3
<PAGE> 128
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on July 22, 1996.
PEDIATRIX MEDICAL GROUP, INC.
By: /s/ ROGER J. MEDEL, M.D.*
----------------------------------
Roger J. Medel, M.D.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ ROGER J. MEDEL, M.D.* President, Chief Executive July 22, 1996
- --------------------------------------------- Officer and Director
Roger J. Medel, M.D. (principal executive officer)
/s/ RICHARD J. STULL, II* Executive Vice President, Chief July 22, 1996
- --------------------------------------------- Operating Officer and Director
Richard J. Stull, II
/s/ LAWRENCE M. MULLEN* Vice President and Chief July 22, 1996
- --------------------------------------------- Financial Officer (principal
Lawrence M. Mullen financial officer and
principal accounting officer)
/s/ E. ROE STAMPS, IV* Director July 22, 1996
- ---------------------------------------------
E. Roe Stamps, IV
/s/ BRUCE R. EVANS* Director July 22, 1996
- ---------------------------------------------
Bruce R. Evans
/s/ FREDERICK V. MILLER, M.D.* Director July 22, 1996
- ---------------------------------------------
Frederick V. Miller, M.D.
/s/ MICHAEL FERNANDEZ* Director July 22, 1996
- ---------------------------------------------
Michael Fernandez
/s/ ALBERT H. NAHMAD* Director July 22, 1996
- ---------------------------------------------
Albert H. Nahmad
*By: /s/ CATHY J. LERMAN
- ---------------------------------------------
Cathy J. Lerman
Attorney-in-fact
</TABLE>
II-5
<PAGE> 130
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Pediatrix Medical Group, Inc.
Fort Lauderdale, Florida
In connection with our audits of the consolidated financial statements of
Pediatrix Medical Group, Inc. as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, which financial
statements are included in this Prospectus, we have also audited the financial
statements listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
January 29, 1996
S-1
<PAGE> 131
PEDIATRIX MEDICAL GROUP, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994, AND DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Allowance for contractual adjustments and uncollectibles:
Balance at beginning of year............................... $ 7,188 $ 9,770 $ 13,246
Portion charged against operating revenue................ 25,475 30,885 40,843
Accounts receivable written-off (net of recoveries)...... (22,893) (27,409) (41,001)
-------- -------- --------
Balance at end of year..................................... $ 9,770 $ 13,246 $ 13,088
======== ======== ========
</TABLE>
S-2
<PAGE> 1
EXHIBIT 1.1
5,000,000 SHARES
PEDIATRIX MEDICAL GROUP, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1996
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
1. Introductory. Pediatrix Medical Group, Inc., a Florida corporation
(the "Company"), and the selling shareholders named in Schedule B hereto (the
"Selling Shareholders") propose to sell, pursuant to the terms of this
Agreement, to the several Underwriters named in Schedule A hereto (the
"Underwriters"), an aggregate of 5,000,000 shares of common stock, par value
$.01 per share (the "Common Stock") of the Company. The aggregate of 5,000,000
shares so to be sold by the Company and the Selling Shareholders is herein
called the "Firm Stock". The selling shareholders named in Schedule C hereto
(the "Option Selling Shareholders") also propose to sell severally to the
Underwriters, on a pro rata basis, at the option of the Underwriters, an
aggregate of not more than 750,000 additional shares of Common Stock as
provided in Section 3 of this Agreement. The aggregate of 750,000 shares so
proposed to be sold is herein called the "Optional Stock". The Firm Stock and
the Optional Stock are collectively referred to herein as the "Stock". The
Selling Shareholders and the Option Selling Shareholders are sometimes
collectively referred to herein as the "Selling Securityholders". Dean Witter
Reynolds Inc. and the other Representatives are acting as representatives of
the several Underwriters and in such capacity are hereinafter referred to as
the "Representatives".
Before the purchase and public offering of the Stock by the several
Underwriters, the Company and the Representatives, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form
of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take
the form of an exchange of any standard form of written telecommunication
between the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Stock
will be governed by this
1
<PAGE> 2
Agreement, as supplemented by the Pricing Agreement. From and after the date of
the execution and delivery of the Pricing Agreement,this Agreement shall be
deemed to incorporate the Pricing Agreement.
2. (a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters as of the
date hereof and as of the date of the Pricing Agreement (such latter date being
hereinafter referred to as the "Representation Date"), that:
(i) A registration statement on Form S-1 (File No. 333-____)
with respect to the Stock, a copy of which has heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the published rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") under the Act; and the Company has so prepared
and proposes so to file prior to the effective date of such
registration statement an amendment to such registration statement
including the final form of prospectus (which may omit such
information as permitted by Rule 430A of the Rules and
Regulations). Such registration statement as amended and the
prospectus constituting a part thereof (including in each case the
information, if any, deemed to be a part thereof pursuant to Rule
430A(b) or Rule 434 of the Rules and Regulations) are hereinafter
referred to as the "Registration Statement" and the "Prospectus",
respectively, except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection
with the offering of the Stock which differs from the prospectus on
file at the Commission at the time the Registration Statement
becomes effective (whether or not such prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the
Underwriters for such use. If the Company elects to rely on Rule
434 under the Rules and Regulations, all references to the
Prospectus shall be deemed to include, without limitation, the form
of prospectus and the term sheet, taken together, provided to the
Underwriters by the Company in reliance on Rule 434 under Rules and
Regulations (the "Rule 434 Prospectus"). If the Company files a
registration statement to register a portion of the Securities and
relies on Rule 462(b) for such registration statement to become
effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to "Registration
Statement" herein shall be deemed to be to both the registration
statement referred to above (No. 333-____) and the Rule 462
Registration Statement, as each such registration statement may be
amended pursuant to the Act.
(ii) When the Registration Statement becomes effective and as
of the Representation Date, the Registration Statement and the
Prospectus will conform in all material respects to the
requirements of the Act and the Rules and Regulations. At the time
the Registration Statement becomes effective and at the
Representation Date, the Registration Statement will not include
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading. The Prospectus, at the time
the Registration Statement becomes effective and as of the
Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Stock which
differs from the prospectus on file at the Commission at the time
the Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriters for such use) and at
the Closing Date (as hereinafter defined), will not include an
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing representations,
warranties and agreements shall not apply to information contained
in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any
2
<PAGE> 3
Underwriter, directly or through the Representatives, or by any
Selling Securityholder, specifically for use in the preparation
thereof.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus
and except as set forth or contemplated in the Prospectus, (A)
neither the Company nor any of its subsidiaries or the professional
associations and partnerships which are separate legal entities
that contract with the Company to provide physician services in
certain states and Puerto Rico (the "PA Contractors") has incurred
any liabilities or obligations (indirect, direct or contingent) or
entered into any oral or written agreements or other transactions
not in the ordinary course of business that, singly or in the
aggregate, are material to the Company and its subsidiaries and PA
Contractors considered as a whole or that result in a material
reduction in the earnings of the Company and its subsidiaries and
PA Contractors considered as a whole, (B) neither the Company nor
any of its subsidiaries or PA Contractors has sustained any loss or
interference with its business or properties from strike, fire,
flood, windstorm, accident or other calamity (whether or not
covered by insurance) that, singly or in the aggregate, is material
to the Company and its subsidiaries and PA Contractors considered
as a whole, (C) there has been no material change in the
indebtedness of the Company, no change in the capital stock of the
Company and no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock, and (D)
there has not been any material adverse change in the condition
(financial or other), business, prospects or results of operations
of the Company and its subsidiaries and PA Contractors considered
as a whole, whether or not arising in the ordinary course of
business.
(iv) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the (i) Company and
its consolidated subsidiaries and PA Contractors, (ii) Neonatal and
Pediatric Intensive Care Medical Group, Inc., (iii) Neonatal
Specialists, Ltd., (iv) Pediatric and Newborn Consultants, PC, (v)
Rocky Mountain Neonatology, P.C. and (vi) West Texas Neonatal
Associates at the respective dates or for the respective periods
therein specified. Such statements and related notes and schedules
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis except as may be set forth
in the Prospectus except for the omission of certain footnote
disclosures from the unaudited financial statements. The selected
financial data set forth in the Prospectus under the caption
"Selected Consolidated Financial Data" fairly presents, on the
basis stated in the Registration Statement, the information set
forth therein. The pro forma financial statements of the Company
and its consolidated subsidiaries and PA Contractors and the
related notes thereto included in the Registration Statement and
the Prospectus have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances
referred to therein.
(v) Coopers & Lybrand L.L.P., who have expressed their
opinions on the audited financial statements and related schedules
included in the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(vi) The Company and each of its subsidiaries and PA
Contractors have been duly organized and are validly existing and
in good standing as a corporations, partnerships or professional
corporations under the laws of their respective jurisdictions of
organization, with corporate power and authority to own, lease and
operate their properties and to conduct their businesses as
described in the Registration Statement and Prospectus; and the
Company is and
3
<PAGE> 4
each of such subsidiaries and PA Contractors are duly qualified to
do business and in good standing as a foreign corporations,
partnerships or professional corporations in all other
jurisdictions where their ownership or leasing of properties or
the conduct of their businesses requires such qualification,
except where the failure to be so qualified would not singly or
in the aggregate have a material adverse effect on the condition
(financial or other), business, prospects or results of operations
of the Company and its subsidiaries and PA Contractors considered
as a whole (a "Material Adverse Effect")
(vii) The Company has authorized, issued and outstanding
capital stock as set forth under the "Capitalization" section of
the Prospectus; the issued and outstanding shares of Common Stock
(including the outstanding shares of the Stock) of the Company
conform to the description thereof in the Prospectus and have been
duly authorized and validly issued and are fully paid and
nonassessable and are listed on the Nasdaq National Market System;
the stockholders of the Company have no preemptive rights with
respect to any shares of capital stock of the Company and all
outstanding shares of capital stock of each corporate subsidiary
and PA Contractor have been duly authorized and validly issued, and
are fully paid and nonassessable; and the outstanding shares of
capital stock of each corporate subsidiary are owned directly by
the Company or by another subsidiary of the Company free and clear
of any liens, encumbrances, equities or claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and,
when issued and delivered against payment therefor as provided
herein and in the Pricing Agreement, will be duly and validly
issued and fully paid and nonassessable and will conform to the
description thereof in the Prospectus.
(ix) Except as disclosed in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of
its subsidiaries or PA Contractors is a party or of which any
property of the Company or any subsidiary or PA Contractor is the
subject, that are required to be disclosed in the Registration
Statement (other than as described therein), or which, if
determined adversely to the Company or any subsidiary or PA
Contractor, would individually or in the aggregate result in a
Material Adverse Effect or which might materially and adversely
affect the consummation of this Agreement; and to the best of the
Company's knowledge no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(x) The contractual relationships between (a) the Company and
its PA Contractors ("Management Services Contracts") and (b) the
Company and certain hospitals and the PA Contractors and certain
hospitals (collectively, "Hospital Contracts") do not , to the best
of the Company's knowledge, violate any federal or state health
care laws and regulations in such jurisdictions in which the
Company or the PA Contractors are doing business that are
applicable to such relationships, including but not limited to
those laws governing the corporate practice of medicine, medical
practices, professional corporations, fee splitting, fraud and
abuse and self-referral where such violation, singly or in the
aggregate would have a Material Adverse Effect.
(xi) Neither the Company nor any of its subsidiaries or PA
Contractors is, or with the giving of notice or passage of time or
both would be, in breach or violation of any of the terms or
provisions of or in default under (A) any statute, rule or
regulation applicable to the Company or any of its subsidiaries or
PA Contractors, (B) any indenture, lease, mortgage, deed of trust,
note or other material contract, agreement or instrument to which
the Company or such subsidiary or PA Contractor is a party or by
which it may be bound, (C) its certificate of incorporation,
by-laws or other organizational documents, and (D) any order,
decree or judgment of any court of governmental agency or body
having jurisdiction over the Company or any of its
4
<PAGE> 5
subsidiaries or PA Contractors, in each case (other than clause (C)
of this Section 2(a)(xi)), where such breach, violation or default
would result in a Material Adverse Effect. The performance of this
Agreement and the consummation of the transactions herein
contemplated will not, with the giving of notice or passage of time
or both, result in a breach or violation of any of the terms or
provisions of or constitute a default under (W) any statute, rule or
regulation, to the knowledge of the Company, that is applicable to
the Company or any of its subsidiaries or PA Contractors, (X) any
indenture, mortgage, lease, deed of trust, note or other material
contract, agreement or instrument to which the Company or any of its
subsidiaries or PA Contractors is a party or by which it is bound,
(Y) the Company's or any such subsidiary's or PA Contractor's
certificate of incorporation, by-laws or other organizational
documents, or (Z) any order, decree judgment of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or PA Contractors or any of their respective
properties.
(xii) No labor dispute with the employees of the Company or
any of its subsidiaries or PA Contractors exists or, to the
Company's knowledge, is imminent.
(xiii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the issuance
and sale of the Stock by the Company or for the consummation by the
Company of the transactions contemplated by this Agreement,
including, without limitation, the use of proceeds from the sale of
Stock to be sold by the Company in the manner contemplated in the
Prospectus under caption "Use of Proceeds," except such as may be
required by the National Association of Securities Dealers, Inc.
("NASD") or under the Act or the securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of
the Stock by the Underwriters.
(xiv) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company.
(xv) The Company and its subsidiaries and PA Contractors own
or have obtained valid licenses for all trademarks, trademark
registrations, service marks, service mark registrations, trade
names and copyrights described in the Prospectus as being owned,
licensed or used by the Company or any of its subsidiaries or PA
Contractors or that are necessary for the conduct of their
respective business as described in the Prospectus (collectively,
"Intellectual Property") and neither the Company nor any of its
subsidiaries or PA Contractors is aware of any claim (or of any
facts that would form a reasonable basis for any claim) to the
contrary or any challenge by any third party to the rights of the
Company or any of its subsidiaries or PA Contractors with respect
to any such Intellectual Property or to the validity or scope of
any such Intellectual Property and neither the Company nor any of
its subsidiaries or PA Contractors has any claim against a third
party with respect to the infringement by such third party of any
such Intellectual Property, which claims or challenges, if
adversely determined, would, singly or in the aggregate, have a
Material Adverse Effect.
(xvi) The Company and its subsidiaries and PA Contractors have
such certificates, permits, licenses, franchises, consents,
approvals, authorizations and clearances as are necessary to own,
lease or operate their respective properties and to conduct their
respective businesses in the manner described in the Prospectus
("Licenses") and all such Licenses are valid and in full force and
effect, except where the failure to possess such Licenses would not
have a Material Adverse Effect. The Company and each of its
subsidiaries and PA Contractors are in compliance in all material
respects with their respective obligations under such Licenses and
no event has occurred that allows, or after notice or lapse of time
or both would allow, revocation, suspension or termination of any
such License, except where such revocation, suspension or
termination would not have a Material Adverse Effect. No such
License contains a burdensome restriction on the Company or any of
its subsidiaries or PA Contractors that is not adequately
disclosed in the Registration Statement and the Prospectus.
5
<PAGE> 6
(xvii) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(xviii) The Company and its subsidiaries and PA Contractors
have good and marketable title to all real properties, and good
title to all personal property owned by the Company and its
subsidiaries and PA Contractors, free and clear of any mortgage,
pledge, lien, security interest, claim or encumbrance of any kind,
except as disclosed in the Prospectus, that materially interferes
with the use of such properties or the conduct of the business of
the Company and its subsidiaries or PA Contractors considered as a
whole; and all properties held under lease or sublease by the
Company or its subsidiaries or PA Contractors are held under valid,
subsisting and enforceable leases or subleases, with such exceptions
as are not material and do not interfere with the use made or
proposed to be made of such properties by the Company or its
subsidiaries or PA Contractors.
(xix) The Company and its subsidiaries and PA Contractors
maintain accurate books and records reflecting their respective
assets and maintain internal accounting controls which provide
reasonable assurance that (A) transactions are executed with
management's authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements and to
maintain accountability for assets, (C) access to assets is
permitted only in accordance with management's authorization and
(D) the reported accountability of assets is compared with existing
assets at reasonable intervals.
(xx) The Company has complied, and will continue to comply, in
all material respects, with all provisions of Section 517.075 of
the Florida Statutes (Chapter 92-198, Laws of Florida) and the
rules thereunder.
(b) Any certificate signed by an officer of the Company and
delivered to the Representatives or counsel for the Underwriters pursuant
to this Agreement shall be deemed a representation and warranty of the
Company to each Underwriter as to the matters covered thereby.
(c) Representations, Warranties and Agreements of the Selling
Securityholders. Each Selling Securityholder represents and warrants to,
and agrees with, the several Underwriters that:
(i) Such Selling Securityholder has full right, power and
authority to enter into this Agreement, the Pricing Agreement, the
custody agreement (the "Custody Agreement") and the power of
attorney ("Power of Attorney"). Such Selling Securityholder has
duly executed and delivered this Agreement and the Pricing
Agreement. The Custody Agreement and the Power of Attorney have
been duly executed and delivered on behalf of each Selling
Securityholder and the Custody Agreement and the Power of Attorney
constitute the valid and binding agreements of such Selling
Securityholder enforceable against such Seller Securityholder in
accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principals of equity.
(ii) Such Selling Securityholder has full right, power and
authority to sell, transfer, assign and deliver the Stock being
sold by such Selling Securityholder hereunder. Immediately prior
to the delivery of the shares of Stock being sold by such Selling
Securityholder, such Selling Securityholder was the sole registered
owner of such shares of Stock and had good and valid title
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<PAGE> 7
to such shares of Stock, free and clear of all adverse claims as
defined in Section 8-302 of the Uniform Commercial Code and, upon
registration of such shares of Stock in the names of the
Underwriters or their nominees, assuming that such purchasers
purchased such shares of Stock in good faith without notice of any
adverse claims as defined in Section 8-302 of the Uniform Commercial
Code, such purchasers will have acquired all the rights of such
Selling Securityholder in such shares of Stock free of any adverse
claim, any lien in favor of the Company or restrictions on transfer
imposed by the Company.
(iii) The performance of this Agreement, the Custody Agreement
and the Power of Attorney and the consummation of the transactions
Securityholder, or any indenture, mortgage, deed of trust, note or
herein and therein contemplated will not, with the giving of notice
other material contract, agreement or instrument to which such
or the passage of time or both, result in a breach or violation of
Selling Securityholder is a party or by which it is bound, or any
any of the terms or provisions of or constitute a default under any
judgment, order or decree of any court or governmental agency or
statute, rule or regulation applicable to such Selling body having
jurisdiction over such Selling Securityholder or any of its
properties, or, if such Selling Securityholder is a corporation,
the certificate or articles of incorporation or by-laws of such
Selling Securityholder.
(iv) Without the prior written consent of Dean Witter Reynolds
Inc. on behalf of the Underwriters, such Selling Securityholder
will not, during the period commencing on the date hereof and
ending 90 days after the date of the final prospectus relating to
the offering (the Prospectus"), (1) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer of dispose of, directly or
indirectly, any shares of Common Stock or any securities
convertible into or exercisable or directly or indirectly, any
shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares
or any such securities are now owned by the undersigned or are
hereafter acquired), or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in
cash or otherwise, except for (a) the exercise of outstanding
options granted by the Company pursuant to any options granted or
to be granted pursuant to any employee or non-employee director
stock option plans (but not the sale, distribution, pledge,
hypothecation or other disposition of shares of Common Stock
received upon exercise of such option), (ii) the transfer of shares
of Common Stock by a Selling Shareholder that is a partnership or
any affiliated partner or to any partner of such Selling
Shareholder and (iii) the transfer of shares of Common Stock
disposed of as bona fide gifts.
(v) Such Selling Securityholder has duly executed and
delivered (A) the Power of Attorney appointing Roger J. Medel and
Cathy J. Lerman, and each of them, as attorney-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Securityholder, to authorize
the delivery of the shares of Stock to be sold by such Selling
Securityholder hereunder and otherwise to act on behalf of such
Selling Securityholder in connection with the transactions
contemplated by this Agreement, and (B) the Custody Agreement
appointing the Company, as Custodian, to hold in custody for
delivery under this Agreement certificates for the shares of Stock
to be sold by such Selling Securityholder hereunder.
(vi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by
such Selling Securityholder of the transactions contemplated by
this Agreement, except such as may be required by the NASD or
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<PAGE> 8
under the Act or the securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of
the Stock by the Underwriters.
(vii) Such Selling Securityholder has not (A) taken, directly
or indirectly, any action designed to cause or result in, or that
has constituted or could reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Stock or (B) since
the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases
of, the Stock or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.
(viii) All information furnished or to be furnished to the
Company by or on behalf of such Selling Securityholder for use in
connection with the preparation of the Registration Statement and
the Prospectus, insofar as it relates to such Selling
Securityholder, is or will be true and correct in all respects and,
with respect to the Registration Statement, does not and will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and, with respect to the
Prospectus, does not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(ix) Nothing has come to such Selling Securityholder's
attention that has caused such Selling Securityholder to believe
that (A) at the time the Registration Statement becomes effective
and at the Representation Date, it will include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and (B) the Prospectus, at the time the
Registration Statement becomes effective and as of the
Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Stock which
differs from the prospectus on file at the Commission at the time
the Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriters for such use) and at
the Closing Date, the Prospectus will include any untrue statement
of material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing representations, warranties and agreements in this
subsection (ix) shall not apply to information contained in or
omitted from the Registration Statement or the Prospectus in
reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, specifically for use in
the preparation thereof.
Each Selling Securityholder agrees that the shares of Stock represented by
the certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the Underwriters,
the other Selling Securityholders and the Company hereunder, and that the
arrangement for such custody and the appointment of the Attorneys-in-fact
(under the Power of Attorney) are irrevocable; that the obligations of such
Selling Securityholder hereunder shall not be terminated by operation of law,
whether by the death or incapacity of such Selling Securityholder, or any other
event, that if such Selling Securityholder should die or become incapacitated
or any other event occur, before the delivery of the Stock hereunder,
certificates for the Stock to be sold by such Selling Securityholder shall be
delivered on behalf of such Selling Securityholder in accordance with the terms
and conditions of this Agreement, the Custody Agreement and the Power of
Attorney, and action taken by the Attorneys-in-fact or any of them under the
Power of Attorney shall be as valid as if such death, incapacity or other event
had not occurred, whether or not the Custodian, the Attorneys-in-fact or any of
them shall have notice of such death, incapacity or other event.
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<PAGE> 9
Each Selling Securityholder further agrees that neither such Selling
Securityholder nor any of its officers, directors, or affiliates will (a) take,
directly or indirectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to cause or to result in,
or that could reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company to facilitate the
sale or resale of any of the shares of the Stock, (b) sell, bid for, purchase
or pay anyone any compensation for soliciting purchases of, the Stock or (c)
pay to or agree to pay any person any compensation for soliciting another to
purchase any other securities of the Company.
3. Purchase by, and Sale and Delivery to, Underwriters; Closing Date. On
the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth: (i) the
Company and the Selling Shareholders agree, severally and not jointly, to sell
to the Underwriters the Firm Stock, with the number of shares to be sold by
each Selling Shareholder being set opposite his name in Schedule B and (ii) the
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Shareholders at the price per share set forth in the Pricing
Agreement, the number of shares of Firm Stock set forth opposite their names in
Schedule A (except as otherwise provided in the Pricing Agreement), subject to
adjustment in accordance with Section 11 hereof. The number of shares of Firm
Stock to be purchased by each Underwriter from each Selling Shareholder
hereunder shall bear the same proportion to the total number of shares of Firm
Stock to be purchased by such Underwriter hereunder as the number of shares of
Firm Stock being sold by each Selling Shareholder bears to the total number of
shares of Firm Stock, subject to adjustment by the Representatives to eliminate
fractions.
If the Company has elected not to rely upon Rule 430A under the Rules and
Regulations, the initial public offering price and the purchase price per share
to be paid by the several Underwriters for the Firm Stock each have been
determined and set forth in the Pricing Agreement, dated the date hereof, and an
amendment to the Registration Statement and the Prospectus will be filed before
the Registration Statement becomes effective.
If the Company has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the several
Underwriters for the Firm Stock shall be an amount equal to the initial public
offering price, less an amount per share to be determined by agreement between
the Representatives and the Company. The initial public offering price per
share of the Firm Stock sahll be a fixed price to be determined by agreement
between the Representatives, the Company and the Selling Shareholders. The
initial public offering price and the purchase price, when so determined, shall
be set forth in the Pricing Agreement. In the event that such prices have not
been agreed upon and the Pricing Agreement has not been executed and delivered
by all parties thereto by the close of business on the fourteenth business day
following the date of this Agreement, this Agreement shall terminate forthwith,
without liability of any party to any other party, unless otherwise agreed to by
the Company and the Representatives.
The Company and the Selling Securityholders will deliver the Firm Stock to
the Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Securityholders given at or prior to 12:00 Noon, New
York Time, on the business day preceding the Closing Date or, if no such
direction is received, in the names of the respective Underwriters in the
amount set forth opposite each Underwriter's name on Schedule A hereto),
against payment of the purchase price therefor by certified or official bank
check or checks in New York Clearing House or similar next day funds, payable
to the order of the Company, and the Company as custodian for the Selling
Securityholders, all at the offices of Latham & Watkins, 855 Third Avenue,
Suite 1000, New York, New York 10022. The time and date of delivery and
closing shall be at 10:00 a.m., New York Time, the fourth full business day
after the Registration Statement becomes effective (or, if the Company has
elected to rely upon Rule 430A, the third full business day after execution of
the Pricing Agreement); provided, however, that such date and time may be
accelerated or extended by agreement among the Company, the Selling
Securityholders and the Representatives or postponed pursuant to the provisions
of Section 12 hereof. The time and date of such payment and delivery are
herein referred to as the "First Closing Date." The Company and the Selling
Securityholders shall make the certificates for the Stock available to the
Representatives
9
<PAGE> 10
for examination on behalf of the Underwriters not later than 3:00 p.m., New York
Time, on the business day preceding the Closing Date.
In addition, for the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Option Selling Shareholders hereby grant the Underwriters an
option to purchase, severally and not jointly, up to 750,000 shares in the
aggregate of the Optional Stock. The purchase price per share to be paid for
the Optional Stock shall be the same price per share as the price per share for
the Firm Stock. The option granted hereby may be exercised as to all or any
part of the Optional Stock at any time not more than 30 days subsequent to the
effective date of this Agreement. No Optional Stock shall be sold and
delivered unless the Firm Stock previously has been, or simultaneously is, sold
and delivered. The right to purchase the Optional Stock or any portion thereof
may be surrendered and terminated at any time upon notice by the
Representatives to the Option Selling Shareholders.
The option granted hereby may be exercised by the Representatives on
behalf of the Underwriters by giving written notice to the Option Selling
Shareholders setting forth the number of shares of the Optional Stock to be
purchased by them and the date and time for delivery of and payment for the
Optional Stock. Such date and time for delivery of and payment for the
Optional Stock (which may be the First Closing Date) is herein called the
"Option Closing Date" and shall be not later than 10 days after written notice
is given. All purchases of Optional Stock from the Option Selling Shareholders
shall be made on a pro rata basis. Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriters name in Schedule A hereto bears
to the total number of shares of Firm Stock, subject to adjustment by the
Representatives to eliminate odd lots. Upon exercise of the option by the
Representatives, the Option Selling Shareholders agree to sell to the
Underwriters the number of shares of Optional Stock set forth in the written
notice of exercise and the Underwriters agree, severally and not jointly,
subject to the terms and conditions herein set forth, to purchase such shares of
Optional Stock.
The Option Selling Shareholders will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Option Selling
Shareholders given at or prior to 12:00 Noon, New York Time, on the business
day preceding the Option Closing Date or, if no such direction is received, in
the names of the respective Underwriters), against payment of the purchase
price therefor by certified or official bank check or checks in New York
Clearing House or similar next day funds, payable to the order of the Company,
and the Company as custodian for the Option Selling Shareholders, all at the
offices of Latham & Watkins, 855 Third Avenue, Suite 1000, New York, New York
10022. The Option Selling Shareholders shall make the certificates for the
Optional Stock available to the Representatives for examination on behalf of
the Underwriters, not later than 3:00 p.m., New York Time, on the business day
preceding, the Option Closing Date.
It is understood that Dean Witter Reynolds Inc. or other Representatives,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company or to the Selling
Securityholders on behalf of any Underwriter or Underwriters, for the Stock to
be purchased by such Underwriter or Underwriters. Any such payment by Dean
Witter Reynolds Inc. or other Representatives shall not relieve such
Underwriter or Underwriters from any of their other obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to make an initial public offering of the Firm Stock at
the initial public offering price. The Representatives shall promptly advise
the Company and the Selling Securityholders of the making of the initial public
offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with the several Underwriters that:
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<PAGE> 11
(a) The Company will use its best efforts to cause the Registration
Statement to become effective under the Act, will advise the
Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible the
lifting thereof, if issued. If the Company elects to rely on Rule 434
under the Rules and Regulations, the Company will prepare a "term sheet"
that complies with the requirements of Rule 434 under the Rules and
Regulations. If the Company elects not to rely on Rule 434, the Company
will provide the Underwriters with copies of the form of Prospectus, in
such number as the Underwriters may reasonably request, and file or
transmit for filing with the Commission such Prospectus in accordance
with Rule 424(b) of the Rules and Regulations by the close of business in
New York in the business day immediately succeeding the date of the
Pricing Agreement. If the Company elects to rely on Rule 434, the
Company will provide the Underwriters with the copies of the form of Rule
434 Prospectus, in such number as the Underwriters may reasonably
request, and file or transmit for filing with the Commission the 434
Prospectus in accordance with Rule 424(b) of the Rules and Regulations by
the close of business in New York on the business day immediately
succeeding the date of the Pricing Agreement.
(b) The Company will advise the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information,
and will not at any time file any amendment to the Registration Statement
or supplement to the Prospectus which shall not previously have been
submitted to the Representatives a reasonable time prior to the proposed
filings thereof or to which the Representatives shall reasonably object in
writing or which is not in compliance with the Act and the Rules and
Regulations.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424 of the Rules and Regulations or
any term sheet prepared in reliance on Rule 434 of the Rules and
Regulations) which in the opinion of the Representatives may be necessary
to enable the several Underwriters to continue the distribution of the
Stock and will use its best efforts to cause the same to become effective
as promptly as possible.
(d) If any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Act any event relating to or affecting the Company or
any of its subsidiaries or PA Contractors occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material fact
to make the statements therein in light of the circumstances under which
they were made not misleading, or if it is necessary at any time to amend
the Prospectus to comply with the Act, the Company will promptly notify
the Representatives thereof and will prepare an amended or supplemented
prospectus (in form and substance satisfactory to counsel to the
Underwriters) which will correct such statement or omission; and, in case
any Underwriter is required to deliver a prospectus relating to the Stock
nine months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may he necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.
(e) The Company will deliver to the Representatives, at or before
the Closing Date, signed copies of the Registration Statement and all
amendments thereto including all financial statements and exhibits
thereto and will deliver to the Representatives such number of copies of
the Registration Statement, including such financial statements but
without exhibits, and of all amendments thereto, as the
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<PAGE> 12
Representatives may reasonably request. The Company will deliver or mail
to or upon the order of the Representatives, from time to time until the
effective date of the Registration Statement, as many copies of the
Prospectus as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the
date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock is
required under the Act, as many copies of the Prospectus, in final form or
as thereafter amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of the preparation
and delivery of any prospectus required for use nine months or more after
the effective date of the Registration Statement shall be borne by the
Underwriters required to deliver such prospectus.
(f) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 60 days
after the close of the period covered thereby, an earnings statement (in
form complying with the provisions of Rule 158 under the Act) which will
be in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Act, covering a period of at least
twelve months beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in Rule
158) of the Registration Statement.
(g) The Company will cooperate with the Representatives to enable
the Stock to be qualified for sale under the securities laws of such
jurisdictions as the Representatives may designate and at the request of
the Representatives will make such applications and furnish such
information as may be required of it as the issuer of the Stock for that
purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service of process
in any such jurisdiction. The Company will, from time to time, prepare
and file such statements and reports as are or may be required of it as
the issuer of the Stock to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for the
distribution of the Stock.
(h) For so long as the Company is subject to the informational
requirements of the Exchange Act, the Company will furnish to its
shareholders annual reports containing financial statements certified by
independent public accountants and with quarterly summary financial
information in reasonable detail which may be unaudited. During the
period of five years from the date hereof, the Company will deliver to
the Representatives copies of each annual report of the Company and each
other report furnished by the Company to its shareholders; and will
deliver to the Representatives, as soon as they are available, copies of
any other reports (financial or other) which the Company shall publish or
otherwise make available to any of its security holders as such, and as
soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange or the NASD.
(i) The Company will file with the Nasdaq National Market all
documents and notices required by the Nasdaq National Market of companies
that have issued securities that are traded in the over-the-counter
market and quotations for which are reported by the Nasdaq National
Market.
(j) The Company will use the net proceeds received by it from the
sale of the Stock in the manner specified in the Prospectus under "Use of
Proceeds."
(k) The Company will file with the Commission such reports on Form
SR as may be required pursuant to Rule 463 under the Act.
(l) During a period of 90 days from the date of the Pricing
Agreement, the Company will not, without the Representatives' prior
written consent, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock or any
security convertible into Common Stock except for options granted or
Common Stock issued pursuant to reservations, agreements or employee
benefit or stock plans disclosed in the Registration Statement.
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<PAGE> 13
(m) At the time this Agreement is executed, the Company shall have
furnished to the Representatives a letter from each officer, director and
shareholder of the Company listed on Schedule D attached hereto addressed
to the Representatives, in which each such person agrees not to offer,
sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock
beneficially owned by such person at the time this Agreement is signed or
hereafter acquired or any securities convertible into, or exchangeable
for, shares of Common Stock for a period of 90 days following the date of
the Pricing Agreement without the prior written consent of the
Representatives, other than shares of Common Stock disposed of as bona
fide gifts.
5. Payment of Expenses. The Company will pay (directly or by
reimbursement) all expenses incident to the performance of the obligations of
the Company and of the Selling Securityholders under this Agreement, including
but not limited to all expenses and taxes incident to delivery of the Stock to
the Representatives, the underwriting commission, all expenses incident to the
registration of the Stock under the Act and the printing of copies of the
Registration Statement, each preliminary Prospectus, the Prospectus, any
amendments or supplements thereto including any term sheet delivered by the
Company pursuant to Rule 434 of the Rules and Regulations, the "Blue Sky"
memorandum, the Selling Securityholders' Powers of Attorney, the Custody
Agreement, the Agreement Among Underwriters and this Agreement and furnishing
the same to the Underwriters and dealers except as otherwise provided in
Sections 4(d) and 4(e) the fees and disbursements of the Company's counsel and
accountants, all filing and printing fees and expenses (including reasonable
legal fees and disbursements of counsel for the Underwriters) incurred in
connection with qualification of the Stock for sale under the laws of such
jurisdictions as the Representatives may designate, all fees and expenses
(including reasonable legal fees and disbursements of counsel for the
Underwriters) paid or incurred in connection with filings made with the NASD,
the fees and expenses incurred in connection with listing to the Stock on the
Nasdaq National Market System, the costs of preparing stock certificates, the
costs and fees of any registrar or transfer agent and all other costs and
expenses incident to the performance of its their obligations hereunder which
are not otherwise specifically provided for in this Section, provided, however,
that each of the Selling Securityholders will pay the underwriting commissions
incident to the performance of their obligations under this Agreement.
6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each employee, officer, partner, director and agent of the
Underwriter, and each person, if any, who controls such Underwriter
within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses (including, except as otherwise provided below,
the reasonable cost of investigating and defending against any claims
therefor and reasonable counsel fees incurred in connection therewith),
joint or several, which may be based upon the Act, or any other federal
or state statute or at common law, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to
be a part of the Registration Statement pursuant to Rule 430A(b) or Rule
434 of the Rules and Regulations, if applicable, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, written information furnished to the
Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided that the
Company shall not be liable with respect to any claims made against any
Underwriter or any such employee, officer, partner, director or agent or
any such controlling person under this subsection unless such
Underwriter, employee, officer, partner, director or agent or controlling
person shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of
the nature of the claim shall have been served upon such
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<PAGE> 14
Underwriter, employee, officer, partner, director or agent or controlling
person (such notification by an Underwriter shall suffice as notification
on behalf of its officers, partners, directors, employees, agents and
controlling persons), but failure to notify the Company of any such claim
shall not relieve it from any liability which it may have to such
Underwriter or controlling person otherwise than on account of the
indemnity agreement contained in this Section 6(a).
The Company shall be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense for misstatements
or omissions in a Preliminary Prospectus of any suit brought to enforce
any such liability, but, if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to such Underwriter or indemnified person, as the case may
be. In the event the Company elects to assume the defense of any such
suit and retain such counsel, the Underwriter or Underwriters or other
indemnified person or persons, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include such
Underwriter or Underwriters or other indemnified person or persons, and
the Company and such Underwriter or Underwriters or other indemnified
person or persons have been advised by counsel that one or more legal
defenses may be available to them which may not be available to the
Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel, provided that the Company shall not be
responsible for the fees and expenses of more than one counsel for the
Underwriters. The Company shall not be liable to indemnify any person
for any settlement of such claim effected without the Company's consent,
which shall not be unreasonably withheld. The Company will not, without
the prior written consent, which shall not be unreasonably withheld, of
each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not
such Underwriter or other indemnified party is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
(i) includes an unconditional release of such Underwriter and each such
other indemnified person or persons from all liability arising out of such
claim, action, suit or proceeding, and (ii) does not include a statement
as to or as admission of fault, culpability or a failure to act by or on
behalf of any indemnified party. The Company agrees that a breach of the
preceding sentence shall cause irreparable harm to the Underwriters and
that the Underwriters shall be entitled to injunctive relief from any
appropriate court ordering specific performance of said provision. This
indemnity agreement will be in addition to any liability which the Company
might otherwise have.
(b) Each Selling Securityholder, severally and not jointly, agrees
to indemnify and hold harmless each Underwriter, each employee, officer,
partner, director and agent of the Underwriter and each person, if any,
who controls such Underwriter with the meaning of the Act, against any
losses, claims, damages, liabilities or expenses (including, except as
otherwise provided below, the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, as incurred, which may be based
upon the Act, or any other statute or at common law, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant to
Rule 430A(b) of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company by such Underwriter,
directly or through the Representatives, specifically for use in the
preparation thereof; provided, however, that such Selling Securityholder
shall not be liable with respect to any claims made against any
Underwriter or any such employee, officer, partner, director or agent or
any
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<PAGE> 15
such controlling person under this subsection unless such
Underwriter, or employee, officer, partner, director or agent or
controlling person shall have notified such Selling Securityholder in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Underwriter or employee or agent or controlling person
(such notification by an Underwriter shall suffice as notification on
behalf of its officers, partners, directors, employees, agents or
controlling persons), but failure to notify such Selling Securityholder
of such claims shall not relieve such Selling Securityholder from any
liability which such Selling Securityholder may have to such Underwriter
or employee or agent or controlling person otherwise than on account of
its indemnity agreement contained in this Section 6(b); and provided,
further, that each Selling Securityholder shall only be liable under this
paragraph for that proportion of any such losses, claims, damages,
liabilities or expenses which the number of shares of the Stock set forth
opposite such selling Securityholder's name in Schedule B and Schedule C
hereto bears to the total number of shares of Stock sold hereunder and in
no event shall such liability exceed the net proceeds received by such
Selling Securityholder from the sale of the Stock hereunder.
Such Selling Securityholder shall be entitled to participate at his
own expense in the defense, or, if he so elects, to assume the defense of
any suit brought to enforce any such liability, but, if such Selling
Securityholder elects to assume the defense, such defense shall be
conducted by counsel chosen by such Selling Securityholder and reasonably
satisfactory to such Underwriter or indemnified person, as the case may
be. In the event that any Selling Securityholder elects to assume the
defense of any such suit and retain such counsel, the Underwriter or
Underwriters or other indemnified person or persons, defendant or
defendants in the suit, may retain additional counsel but shall bear the
fees and expenses of such counsel unless (i) such Selling Securityholder
shall have specifically authorized the retaining of such counsel or (ii)
the parties to such suit include such Underwriter or Underwriters or
other indemnified person or persons and such Selling Securityholder and
such Underwriter or Underwriters or other indemnified person or persons
have been advised by counsel that one or more legal defenses may be
available to it or them which may not be available to such Selling
Securityholder, in which case such Selling Securityholder shall not be
entitled to assume the defense of such suit notwithstanding its obligation
to bear the fees and expenses of such counsel, provided the Selling
Securityholder shall not be responsible for the fees and expenses of more
than one such counsel. The Selling Securityholder against whom indemnity
may be sought shall not be liable to indemnify any person for any
settlement of such claim effected without such Selling Securityholder's
consent which shall not be unreasonably withheld. This indemnity
agreement will be in addition to any liability which such Selling
Securityholder might otherwise have.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed
the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act and each Selling Securityholder and
each person, if any, who controls a Selling Securityholder within the
meaning of the Act, against any losses, claims, damages, liabilities or
expenses (including the reasonable cost of investigating and defending
against any claims therefor and reasonable counsel fees incurred in
connection therewith), joint or several, which may be based upon the Act,
or any other statute or at common law, arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant to
Rule 430A(b) of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for
use in the preparation thereof;
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<PAGE> 16
provided, however, that in no case is such Underwriter to be liable with
respect to any claims made against the Company or any person against whom
the action is brought unless the Company or such person shall have
notified such Underwriter in writing within a reasonable time after the
summons or other first legal process giving information of the nature of
the claim shall have been served upon the Company or such person, but
failure to notify such Underwriter of such claim shall not relieve it from
any liability which it may have to the Company or such person otherwise
than on account of its indemnity agreement contained in this paragraph.
Such Underwriter shall be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Underwriter elects to
assume the defense, such defense shall be conducted by counsel chosen by
it and reasonably satisfactory to the Company or such person, as the case
may be. In the event that any Underwriter elects to assume the defense
of any such suit and retain such counsel, the Company, said employees,
agents, officers and directors and any other Underwriter or Underwriters
or employee or employees or agent or agents or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, provided the
Underwriters shall not be responsible for the fees and expenses of more
than one such counsel. The Underwriter against whom indemnity may be
sought shall not be liable to indemnify any person for any settlement of
any such claim effected without such Underwriter's consent which shall
not be unreasonably withheld. This indemnity agreement will be in
addition to any liability which such Underwriter might otherwise have.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a), (b) or (c) above in respect of any losses, claims,
damages, liabilities or expenses (or actions in respect thereof) referred
to herein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Securityholders on the one hand
and the Underwriters on the other from the offering of the Stock. If,
however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling
Securityholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Securityholders on the
one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling
Securityholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the
Selling Securityholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling
Securityholders and the Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
16
<PAGE> 17
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Further, notwithstanding the
provisions of this subsection, no Selling Securityholder shall be required
to contribute any amount that, together with the amount of any damages
which such Selling Securityholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, exceeds the limit of such Selling Securityholder's liability
prescribed by subsection (b) of this Section 6. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Securityholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter, the Selling
Securityholders, the Company or any of its officers or directors or any
controlling person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof, the Representation
Date and the Closing Date or the Option Closing Date, as the case may be, of
the representations and warranties made herein by the Company and the Selling
Securityholders, to the accuracy of the statements of the Company's officers or
directors in any certificate furnished pursuant to the provisions hereof, to
compliance at and as of such Closing Date by the Company and the Selling
Securityholders with their covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to such Closing Date, and to the
following additional conditions:
(a) The Registration Statement shall become effective not later than
3:00 p.m., New York City time, on the date hereof or, with the consent of
the Representatives, at a later time and date, not later, however, than
5:30 p.m., New York City time on the first business day following the date
hereof, or at such later date as may be approved by a majority in interest
of the Underwriters, and at such Closing Date (i) no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been initiated or, to the knowledge of the Company
or the Representatives, threatened by the Commission, and any request for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives, and
(ii) there shall not have come to the attention of the Representatives any
facts that would cause them to believe that the Prospectus, at the time it
was required to be delivered to a purchaser of the Stock, contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price
of the Stock and any price related information previously omitted from the
effective Registration Statement pursuant to Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and before the
Closing Date the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules
and Regulations.
(b) At the time of execution of this Agreement, the Representatives
shall have received from Coopers & Lybrand L.L.P. a letter, dated the
date of such execution, in form and substance previously approved by the
Representatives, and to the effect that:
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<PAGE> 18
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries and PA Contractors
within the meaning of the Act and the Rules and Regulations;
(ii) In their opinion, the consolidated financial statements
and supporting schedules audited by them and included in the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the
related published Rules and Regulations thereunder;
(iii) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years
included in the Prospectus agrees with the corresponding amounts
(after restatement where applicable) in the audited consolidated
financial statements for the five such fiscal years; and
(iv) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited consolidated interim
financial statements of the Company as included in the Registration
Statement and the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries
and PA Contractors, inspection of the minute books of the Company
and its subsidiaries and PA Contractors since the date of the
latest audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the Company
and its subsidiaries and PA Contractors responsible for financial
and accounting matters and such other inquiries and procedures as
may be specified in such letter, they have made the following
inquiries of certain officials of the Company:
(A) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus (I) are in conformity
with generally accepted accounting principles applied in a
basis substantially consistent with that of the audited
financial statements included in the Prospectus, and (II) and
comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations thereunder;
(B) as of a specified date not more than five days prior
to the date of such letter, there has been no change in the
consolidated capital stock of the Company (other than
issuances of capital stock upon exercise of options, and upon
conversions of convertible securities, in each case which
were outstanding on the date of the latest balance sheet
included in the Prospectus) or no increase in the
consolidated long-term debt of the Company and consolidated
subsidiaries and PA Contractors, any decrease in the
consolidated net current assets and stockholders' equity or
any change in any other items specified by the
Representatives, in each case as compared with amounts shown
in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (B) there was no decrease in
consolidated net patient service revenues or the total or per
share amounts of consolidated net income or other items
specified by the Representatives, or no increases in any
items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by
the Representatives, except in each case for increases or
decreases
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<PAGE> 19
which the Prospectus discloses have occurred or may
occur or which are described in such letter.
(v) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in
paragraphs (iii) and (iv) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting
records of the Company and its subsidiaries and PA Contractors,
which appear in the Prospectus or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the
Representatives and have compared certain of such amounts,
percentages and financial information with the accounting records
of the Company and its subsidiaries and PA Contractors and have
found them to be in agreement; and
(vi) In addition, they have carried out certain specified
procedures, not constituting an examination in accordance with
generally accepted auditing standards with respect to the pro forma
condensed consolidated financial statements including reading of
the unaudited pro forma condensed consolidated financial statements
included in the Registration Statement and the Prospectus, carrying
out certain specified procedures and inquiries of certain officials
of the Company and its consolidated subsidiaries and PA Contractors
who have responsibility for financial and accounting matters as to
whether all significant assumptions regarding the business
combination have been reflected in the pro forma adjustments and
whether the unaudited pro forma condensed consolidated financial
statements comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulations S-X
and proving the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the unaudited pro
forma condensed consolidated financial statements.
(c) The Representatives shall have received from Coopers & Lybrand,
L.L.P. a letter, dated the Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as though made on such
Closing Date, the statements made in the letter furnished by such
accountants pursuant to paragraph (b) of this Section 8, except that the
specified date will be a date not more than five business days prior to
the Closing Date.
(d) The Representatives shall have received from Greenberg, Traurig,
Hoffman, Lipoff Rosen & Quentel, counsel for the Company, an opinion
dated the Closing Date, to the effect that:
(i) The Company (a) has been incorporated under the Florida
Business Corporation Act (the "FBCA") and its status is active; (b)
was organized under the FBCA; and (c) has the corporate power to
conduct its business as described in the Prospectus. To our best
knowledge, the Company is in possession of and is operating in
compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for
the conduct of its business (collectively, the "Permits"), except
for such Permits the failure to so possess or comply with would,
not singly or in the aggregate, have a Material Adverse Effect; and
the Company is duly qualified as a foreign corporation in good
standing in all other jurisdictions where its ownership or leasing
of properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not,
singly or in the aggregate, have a Material Adverse Effect.
(ii) We have reviewed (i) the contractual relationships (a)
between the Company and its PA Contractors ("Management Services
Contracts") and (b) between the Company and certain hospitals and
between the PA Contractors and certain hospitals (collectively,
"Hospital
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<PAGE> 20
Contracts") and (ii) the federal and state health care
laws and regulations in the jurisdictions in which the Company or
the PA Contractors are doing business that are applicable to such
relationships, including but not limited to those laws governing
the corporate practice of medicine, medical practices, professional
corporations, fee splitting, fraud and abuse and self-referral. We
are of the opinion as of the date hereof, that the Management
Services Contracts and the Hospital Contracts do not violate any
such federal or state law or present regulation in any jurisdiction
in which the Company or a PA Contractor is doing business, except
where such violation would not, singly or in the aggregate, have a
Material Adverse Effect.
(iii) The Company has authorized, and to the best knowledge of
such counsel, outstanding capital stock as set forth under the
heading "Capitalization" in the Prospectus; all outstanding shares
of Common Stock (including the shares of Firm Stock of Optional
Stock delivered on the date hereof) conform in all material
respects to the description thereof in the Prospectus and have been
duly authorized and validly issued and are fully paid and
nonassessable, and the stockholders of the Company have no
statutory preemptive rights or, to the best knowledge of such
counsel, similar rights with respect to any shares of capital stock
of the Company.
(iv) Except as disclosed in the Prospectus, to the best of
such counsel's knowledge, there are no legal or governmental
proceedings pending other than those set forth under the heading
"Business -- Proceedings" in the Prospectus to which the Company or
any of its subsidiaries or PA Contractors is a party or of which
any property of the Company or any subsidiary or PA Contractor is
the subject, which individually or in the aggregate, if adversely
determined, would have a Material Adverse Effect; and to the best
of such counsel's knowledge no such proceedings are threatened by
governmental authorities or others.
(v) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company; and the
performance of this Agreement and the Pricing Agreement and the
consummation of the transactions herein and therein contemplated
will not result in a breach or violation of any of the terms or
provisions of or constitute a default under any Federal or Florida
statute, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to such
counsel to which the Company is a party or by which it is bound,
the Company's articles of incorporation or by-laws, or any order,
rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties (except any state securities or "Blue Sky"
rules or regulations, as to which we render no opinion).
(vi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by
the Company of the transactions contemplated by this Agreement and
the Pricing Agreement, except such as may be required under the Act
or as may be required under the securities or Blue Sky laws of any
jurisdiction or by the NASD in connection with the purchase and
distribution of the Stock by the Underwriters.
(vii) The Registration Statement has become effective under
the Act, and to the best of the knowledge of such counsel, no stop
order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(viii) The Common Stock has been approved for listing on the
Nasdaq National Market System. The Registration Statement on Form
8-A relating to the Common Stock has become effective under the
Securities Exchange Act of 1934, as amended.
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<PAGE> 21
(ix) The Registration Statement and the Prospectus (other than
the financial statements and supporting schedules included therein,
as to which no opinions need be rendered), and each amendment or
supplement thereto, as of their respective effective or issue dates
and as of the Closing Date complied as to form in all materials
respects with the requirements of the Act and the Rules and
Regulations.
(x) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all
material respects and such descriptions fairly present in all
material respects the information required to be show; and such
counsel does not know of any legal or governmental proceedings or
of any contracts or documents of a character required to be
described in the Registration Statement or Prospectus to be filed
as exhibits to the Registration Statement or Prospectus which are
not described and filed as required.
(xi) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended.
(xii) To such counsel's knowledge, the Registration Statement
(other than the financial statements and supporting schedules
included therein, as to which no opinions need be rendered), at the
time it became effective or at the Representation Date, did not
contain any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus, at the Representation Date
(unless the term "Prospectus" refers to a prospectus which as been
provided to the Underwriters by the Company for use in connection
with the offering of the Stock which differs from the prospectus on
file at the Commission at the time the Registration Statement
became effective, in which case at the time it was first provided
to the Underwriters for such use) or at the Closing Date, included
any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(xiii) The subsidiaries of the Company (the "Subsidiaries")
and the PA Contractors, each (a) has been incorporated or organized
under the laws of its respective jurisdiction of incorporation or
organization and its status is active, (b) was organized under such
laws and (c) has corporate power to conduct its respective
businesses as described in the Prospectus, and each of such
Subsidiaries and PA Contractors are duly qualified as foreign
corporations, partnerships or professional corporations in good
standing in all other jurisdictions where their ownership or
leasing of properties or the conduct of their businesses requires
such qualification, except where the failure to be so qualified
would not singly or in the aggregate have a Material Adverse Effect.
(xiv) All outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and to such counsel's knowledge, are
owned by the Company free and clear of any liens, encumbrances,
equities and claims.
(e) The Representatives shall have received from (a) Hutchins,
Wheeler & Dittmar, counsel for Summit Partners and (b) Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel for the Selling
Securityholders other than Summit Partners, opinions dated the Closing
Date to the effect that:
(i) Each Selling Securityholder has full right, power and
authority to enter into this Agreement, the Pricing Agreement and
the Custody Agreement. Each Selling Securityholder has duly
executed and delivered this Agreement and the Pricing Agreement.
The Custody Agreement has been duly executed and delivered on
behalf of each Selling Securityholder and constitutes the valid and
binding agreement of such Selling Securityholder
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<PAGE> 22
enforceable against such Selling Securityholder in accordance with
its terms subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws
affecting the enforcement of creditors' rights generally and to
equitable principles.
(ii) Each Selling Securityholder has full right, power and
authority to sell, transfer, assign and deliver the Stock being
sold by such Selling Securityholder hereunder. Immediately prior
to the delivery of the shares of Stock being sold by such Selling
Securityholder, such Selling Securityholder was the sole registered
owner of such shares of Stock and, upon registration of such shares
of Stock in the names of the Underwriters or their nominees,
assuming that such purchasers purchased such shares of Stock in
good faith without notice of any adverse claims as defined in
Section 8-302 of the Uniform Commercial Code, such purchasers will
have acquired all the rights of such Selling Securityholder in such
shares of Stock free of any adverse claim, or to the best of such
counsel's knowledge, any lien in favor of the Company or
restrictions on transfer imposed by the Company.
(iii) The performance of this Agreement, the Pricing Agreement
and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not, with the giving of notice
of passage of time or both, result in a breach or violation of any
of the terms or provisions of or constitute a default under any
statute, rule or regulation applicable to any Selling
Securityholder, or, to the best of such counsel's knowledge, any
indenture, mortgage, deed of trust, note agreement or other
material agreement or instrument to which any Selling
Securityholder is a party or by which it is bound, or any judgment,
order or decree known to such counsel after due inquiry of any
court or governmental agency or body having jurisdiction over the
Selling Securityholder or any of their properties (except any state
securities or "Blue Sky" rules or regulations, as to which we
render no opinion) or, (a) if the Selling Securityholder is a
corporation, the certificate or articles of incorporation and
by-laws of the Selling Securityholder or (b) if the Selling
Securityholder is a partnership, the partnership agreement or
certificate of limited partnership of the Selling Securityholder.
(iv) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by
any of the Selling Securityholders of the transactions contemplated
by this Agreement and the Pricing Agreement.
(v) Any transfer taxes which are required to be paid in
connection with the sale and delivery of the Stock to the
Underwriters hereunder have been paid and all laws imposing such
taxes have been fully complied with.
(f) The Representatives shall have received from Latham & Watkins,
counsel for the Underwriters, their opinion or opinions dated the Closing
Date with respect to the validity of the Stock, the Registration
Statement, the Prospectus and such other related matters as the
Representatives may require. In giving such opinion, such counsel may
rely, as to all matters governed by the laws of jurisdictions other than
the law of the State of New York and the federal law of the United
States, upon opinions of counsel satisfactory to the Representatives.
The Company and the Selling Securityholders shall have furnished to such
counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(g) The Representatives shall have received a certificate, dated
such Closing Date, of the Chief Executive Officer or the President and
the chief financial or accounting officer on behalf of the Company to
the effect that: (i) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Act; (ii) subsequent to the respective dates as of which information is
given in the Prospectus and except as contemplated in the Prospectus,
neither the Company nor any of its subsidiaries or PA Contractors has
incurred any liabilities or obligations, direct or contingent, nor
entered into any transactions, not in the ordinary course of business,
which in either case are material to the Company and its subsidiaries and
PA Contractors considered as a whole, whether or not arising in the
ordinary course of business, and there has not been any material adverse
change in the condition (financial or otherwise), business, prospects or
results of operations of the Company and its subsidiaries and PA
22
<PAGE> 23
Contractors considered as a whole, or any change in the capital stock or
long-term debt of the Company and its subsidiaries and PA Contractors
considered as a whole; (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at
or before the Closing Date; (iv) the representations and warranties of
the Company in this Agreement are true and correct at and as of the
Closing Date; and (v) between the execution of this Agreement and the
Closing Date, the business operations conducted by the Company and its
subsidiaries and PA Contractors have not sustained a loss by strike,
fire, flood, accident or other calamity (whether or not insured) of such
a character as to interfere materially with the conduct of the business
and operations of the Company and its subsidiaries considered as a whole.
As used in this Section 8(g), the term "Prospectus" means the Prospectus
in the form first used to confirm sales of Stock.
(h) The Representatives shall have received a certificate or
certificates, dated such Closing Date, by or on behalf of each of the
Selling Securityholders to the effect that as of the Closing Date its
representations and warranties in this Agreement are true and correct as
if made on and as of the Closing Date, and that it has performed all its
obligations and satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date.
(i) The Company and each of the Selling Securityholders shall have
furnished to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at and
as of the Closing Date, of the representations and warranties made herein
by them as to compliance at and as of the Closing Date by it with their
covenants and agreements herein contained and other provisions hereof to
be satisfied at or prior to the Closing Date and as to other conditions
to the obligations of the Underwriters hereunder.
(j) The Stock shall have been approved for listing on Nasdaq
National Market System.
(k) In the event the Underwriters exercise the option granted in
Section 3 hereof to purchase all or any portion of the Optional Shares,
the representations and warranties of the Company and the Selling
Shareholders contained herein and the statements in any certificates
furnished by the Company hereunder shall be true and correct as of the
Option Closing Date, and you shall have received:
(i) A letter from Coopers & Lybrand L.L.P. in form and
substance satisfactory to you and dated the Option Closing Date,
substantially the same in scope and substance as the letter
furnished to you pursuant to Section 8(b), except that the
specified date in the letter furnished pursuant to this Section
8(k) shall be a date not more than five days prior to the Option
Closing Date.
(ii) A certificate, dated the Option Closing Date, of the
Chief Executive Officer or President and the chief financial or
accounting officer of the Company confirming that the certificate
delivered at the First Closing Date pursuant to Section 8(g)
remains true as of the Option Closing Date.
(iii) A certificate, dated the Option Closing Date, of the
Selling Shareholders confirming that the certificates delivered at
the First Closing Date pursuant to Section 8(h) remain true as of
the Option Closing Date.
23
<PAGE> 24
(iv) The opinion of Greenberg, Traurig, Hoffman, Lipoff Rosen
& Quentel, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated the Option
Closing Date, relating to the Optional Stock and otherwise to the
same effect as the opinion required by Section 8(d).
(v) The opinions of (a) Hutchins, Wheeler & Dittmar, counsel
for Summit Partners and (b) Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, counsel for the Selling Securityholders other than
Summit Partners, in form and substance satisfactory to counsel for
the Underwriters, dated the Option Closing Date, to the same effect
as the opinions required by Section 8(e).
(vi) The opinion of Latham & Watkins, counsel for the
Underwriters, dated the Option Closing Date, relating to the
Optional Stock and otherwise to the same effect as the opinion
required by Section 8(f).
If any of the conditions hereinabove provided for in this Section shall
not have been satisfied when and as required by this Agreement, this Agreement
may be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the First Closing Date,
but the Representatives shall be entitled to waive any of such conditions.
9. Termination. This Agreement may be terminated by the Representatives
by notice to the Company and the Attorney-in-Fact for the Selling
Securityholders if at or prior to the First Closing Date or the Option Closing
Date, as the case may be, (i) trading in securities on the Nasdaq National
Market System shall have been suspended or minimum or maximum prices shall have
been established on such system, or a banking moratorium shall have been
declared by New York or United States authorities; (ii) there shall have been
any adverse change in the financial markets in the United States, Japan or
Europe or any outbreak or escalation of hostilities between the United States
and any foreign power, or of any other insurrection or armed conflict involving
the United States that, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer, sell or deliver the Firm Stock or the
Optional Stock as applicable, on the terms contemplated by the Prospectus or
this Agreement; (iii) there shall have been since the execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus any material adverse change in the condition (financial or
otherwise), or business, prospects or results of operations of the Company and
its subsidiaries and PA Contractors considered as a whole; (iv) there shall
have been any material adverse development involving the business or properties
or securities of the Company or any of its subsidiaries or PA Contractors or
the transactions contemplated by this Agreement, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer, sell or
deliver the Firm Stock or Option Stock, as applicable, on the terms
contemplated by the Prospectus or this Agreement; or (v) if there shall be any
litigation, pending or threatened, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Firm Stock or the Optional Stock, as applicable, on the terms contemplated by
the Prospectus or this Agreement. As used in this Section 9, the term
"Prospectus" means the Prospectus in the form first used to confirm sales of
stock.
10. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall be terminated by the Representatives under
Section 8, Sections 9(iii), (iv) or (v) or Section 12, the Company will bear
and pay the expenses specified in Section 5 hereof and, in addition to its
obligation pursuant to Section 6, hereof, the Company will reimburse the
reasonable out-of-pocket expense of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives. In addition, the provisions of Section 6 shall survive any
such termination.
11. Default by Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder on
the First Closing Date or the Option Closing Date and the aggregate number of
shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does
24
<PAGE> 25
not exceed 10% of the total number of shares which the Underwriters are
obligated to purchase on such Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than 10% of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company and the Selling Shareholders
for the purchase of such shares by other persons are not made within 48 hours
after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or a part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 11, (i) the Company and
the Selling Shareholders shall have the right to postpone the First Closing
Date for a period of not more than five full business days, in order that the
Company and the Selling Shareholders may effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter
of its liability to the Company, the Selling Shareholders or the other
Underwriters for damages occasioned by its default hereunder. Any termination
of this Agreement pursuant to this Section 11 shall be without liability on the
part of any non-defaulting Underwriter, the Selling Shareholders or the
Company, except for expenses to be paid or reimbursed pursuant to Section 5 and
except for the provisions of Section 6.
12. Default By Selling Securityholders or the Company. If one or more of
the Selling Securityholders shall fail at the First Closing Date to sell and
deliver the number of shares of Firm Stock which such Selling Securityholders
are obligated to sell hereunder, and the remaining Selling Securityholders do
not exercise the right hereby granted to increase, pro rata or otherwise, the
number of shares of Stock to be sold by them hereunder to the total number to
be sold by all Selling Securityholders as set forth in Schedule B, then the
Underwriters may at the option of the Representatives, by notice from the
Representatives to the Company and the non-defaulting Selling Securityholders,
either (a) terminate this Agreement without any liability on the part of any
non-defaulting party or (b) elect to purchase the shares of Stock which this
Company and the non-defaulting Selling Securityholders have agreed to sell
hereunder; provided, however, that the Underwriters may not terminate this
Agreement pursuant to clause (a) of this Section if the number of shares of
Stock involved in that default does not exceed 10% of the total number of
shares of Firm Stock.
In the event of a default by any Selling Securityholders pursuant to this
Section, either the Representatives or the Company or the non-defaulting
Selling Securityholders shall have the right to postpone the First Closing Date
for a period not exceeding five full business days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
document or arrangements.
If the Company shall fail at the First Closing Date to sell and deliver
the number of shares of Stock which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the Company or any
Selling Securityholders so defaulting from liability, if any, in respect of
such default.
13. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Dean Witter Reynolds Inc. at Two
World Trade Center, 65th Floor, New York, New York 10048, except that notices
given to an Underwriter pursuant to Section 6 hereof shall be sent to such
Underwriter at the address furnished by the Representative(s) or, if sent to
the Company or any of the Selling Securityholders, shall be mailed, delivered
or telegraphed and
25
<PAGE> 26
confirmed c/o Pediatrix Medical Group, Inc. at 1455 Northpark Drive, Ft.
Lauderdale, Florida 33326; Attention: Roger Medel.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling
Securityholders and their respective successors and legal representatives.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person other than the persons mentioned in the preceding
sentence any legal or equitable right, remedy or claim under or in respect of
this Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person;
except that the representations, warranties, covenants, agreements and
indemnities of the Company and the Selling Securityholders contained in this
Agreement shall also be for the benefit of the person or persons, if any, who
control any Underwriter or Underwriters within the meaning of Section 15 of the
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed
the Registration Statement and the person or persons, if any, who control the
Company or any Selling Securityholder within the meaning of Section 15 of the
Act.
15. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. The Company and the Selling Securityholders hereby
consent to personal jurisdiction in the State of New York and voluntarily
submit to the jurisdiction of the courts of such state, including the federal
district courts located in such state, in any proceeding with respect to this
Agreement.
16. Counterparts. This Agreement may be executed by one or more parties
hereto in any number of counterparts each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
17. Authority of the Representatives. In connection with this Agreement,
the Representatives will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representatives jointly or by Dean
Witter Reynolds Inc., as representatives of the several Underwriters, will be
binding on all the Underwriters; and any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all the Selling
Securityholders.
Any person executing and delivering this Agreement as Attorney-in-fact for
a Selling Securityholder represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Securityholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact
to take such action.
26
<PAGE> 27
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
PEDIATRIX MEDICAL GROUP, INC.
By:
-------------------------------------------
Roger J. Medel
President and Chief Executive Officer
SELLING SECURITYHOLDERS LISTED IN
SCHEDULES B AND C
By:
-------------------------------------------
Roger J. Medel
Attorney-in-fact
By:
-------------------------------------------
Cathy J. Lerman
Attorney-in-fact
Acting on their own behalf and on behalf of
the Selling Securityholders listed in
Schedules B and C.
Accepted and delivered on and
as of the date first above written:
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
Acting on their own behalf and as
Representatives of the several Underwriters
referred to in the foregoing Agreement.
By DEAN WITTER REYNOLDS INC.
By:
-----------------------------------
Authorized Signature
27
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
NAME STOCK TO BE
PURCHASED
- ----- -----------
<S> <C>
Dean Witter Reynolds Inc.
Alex. Brown & Sons Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Hambrecht & Quist LLC
Smith Barney Inc.
---------
TOTAL............................................. 5,000,000
=========
</TABLE>
28
<PAGE> 29
<TABLE>
<Captio>
SCHEDULE B
SELLING SECURITYHOLDER
NUMBER OF
SHARES OF
COMMON STOCK TO
BE
SOLD
---------
<S> <C>
Summit Investors II, L.P............................................................. 1,500,000
Summit Ventures III, L.P.............................................................
K. Steven Haskins, M.D............................................................... 300,000
Stefan R. Maxwell, M.D............................................................... 300,000
Gregory Melnick, M.D................................................................. 300,000
______________ Melnick...............................................................
Brian D. Udell, M.D.................................................................. 300,000
Carlos A. Perez, M.D................................................................. 300,000
Roger Medel, M.D..................................................................... 500,000
---------
3,500,000
Total............................................................... =========
29
</TABLE>
<PAGE> 30
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
OPTION STOCK TO
OPTION SELLING SHAREHOLDERS BE SOLD
- ---------------------------- -----------------
<S> <C>
Summit Investors II, L.P.... 500,000
Roger Medel, M.D............ 250,000
-------
TOTAL....................... 750,000
=======
</TABLE>
30
<PAGE> 31
SCHEDULE D
SHAREHOLDER LOCKUP AGREEMENTS
Summit Investors II, L.P.
Summit Ventures III, L.P.
Roger J. Medel
Virginia B. Turnier
K. Steven Haskins
Stefan R. Maxwell
Gregory Melnick
_______ Melnick
Carlos A. Perez
Richard J. Stull
Lawrence M. Mullen
Cathy J. Lerman
Brian D. Udell
Fredrick V. Miller
E. Roe Stamps
Bruce R. Evans
31
<PAGE> 32
5,000,000 SHARES
PEDIATRIX MEDICAL GROUP, INC.
COMMON STOCK
PRICING AGREEMENT
July __, 1996
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated July __, 1996 (the
"Underwriting Agreement"), relating to the purchase by the several Underwriters
named in Schedule A thereto, for whom Dean Witter Reynolds Inc., Alex. Brown &
Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Hambrecht & Quist LLC and Smith Barney Inc. are acting as representatives (the
"Representatives"), of the above shares of Common Stock (the "Common Stock") of
Pediatrix Medical Group, Inc. ("Company").
Pursuant to Section 3 of the Underwriting Agreement, the Company and each
Selling Securityholder agree with each Underwriter as follows:
1. The initial public offering price per share for the Stock, determined
as provided in Section 3, shall be $_____.
2. The purchase price per share for the Stock to be paid by the several
Underwriters shall be $_____ (the "Purchase Price").
32
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart thereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters, the Selling Securityholders and the Company
in accordance with its terms.
Very truly yours,
PEDIATRIX MEDICAL GROUP, INC.
By:
------------------------------------
Roger J. Medel
President and Chief Executive Officer
SELLING SECURITYHOLDERS LISTED IN
SCHEDULES B AND C
By:
------------------------------------
Roger J. Medel
Attorney-in-fact
By:
------------------------------------
Cathy J. Lerman
Attorney-in-fact
Acting on their own behalf and on behalf
of the Selling Securityholders listed in
Schedules B and C.
Accepted and delivered on and
as of the date first above written:
DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
SMITH BARNEY INC.
Acting on their own behalf and as
Representatives of the several Underwriters
referred to in the foregoing Agreement.
By DEAN WITTER REYNOLDS INC.
By:
------------------------------
Authorized Signature
33
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
July 22, 1996
Pediatrix Medical Group, Inc.
1455 Northpark Drive
Ft. Lauderdale, Florida 33326
RE: PUBLIC OFFERING OF COMMON STOCK
Ladies and Gentlemen:
On June 28, 1996, Pediatrix Medical Group, Inc., a Florida corporation (the
"Company"), filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, Registration No. 333-07125 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the sale by the Company and certain selling
shareholders (the "Selling Shareholders") of up to 1,500,000 and 3,500,000
shares, respectively, of the Company's Common Stock, par value $.01 per share
(the "Shares"). We have acted as special counsel to the Company in connection
with the preparation and filing of the Registration Statement. Defined terms
used herein shall have the meanings attributed thereto in the Registration
Statement.
In connection therewith, we have examined and relied upon the original or a
copy, certified to our satisfaction, of (i) the Amended and Restated Articles of
Incorporation and the Bylaws of the Company; (ii) actions of the Board of
Directors of the Company authorizing the offering and the issuance of the Shares
and related matters; (iii) the Registration Statement and exhibits thereto; and
(iv) such other documents and instruments as we have deemed necessary for the
expression of opinions herein contained. In making the foregoing examinations,
we have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, and the conformity to original documents
of all documents submitted to us as certified or photostatic copies. As to
various questions of fact material to this opinion, we have relied, to the
extent we deem reasonably appropriate, upon representations or certificates of
officers or directors of the Company and upon documents, records and instruments
furnished to us by the Company, without independently checking or verifying the
accuracy of such documents, records and instruments.
<PAGE> 2
Based upon the foregoing examination, we are of the opinion that (i) the
Shares to be sold by the Company pursuant to the Registration Statement have
been duly and validly authorized and, when issued and delivered in accordance
with the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement will be validly issued, fully paid and nonassessable, and (ii) the
Shares to be sold by the Selling Shareholders pursuant to the Registration
Statement have been duly and validly authorized and issued and are fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do no admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Commission thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
<PAGE> 1
EXHIBIT 10.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PEDIATRIX MEDICAL GROUP
FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of June 27, 1996
THE FIRST NATIONAL BANK OF BOSTON, Agent and Lender
SUNTRUST BANK/SOUTH FLORIDA, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions; Certain Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1. Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.1. Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.2. Maximum Amount of Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.3. Borrowing Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.4. Loan Accounts; Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2. The Mortgage Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2.1. Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2.2. Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3.1. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3.2. Specifically Prohibited Applications . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4. Nature of Obligations of Lenders to Make Extensions of Credit . . . . . . . . . . . . . . . . . 21
3. Interest; Eurodollar Pricing Options; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2. Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2.1. Election of Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2.2. Notice to Lenders and the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2.3. Selection of Eurodollar Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2.4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2.5. Violation of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2.6. Funding Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.3. Fixed Rate Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4. Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.5. Reserve Requirements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.7. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.8. Regulatory Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.9. Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1. Payment of Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.1. Payment at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.2. Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.3. Voluntary Prepayments of Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.4. Reborrowing; Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2. Payment of Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.1. Payment at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.2. Mandatory Prepayments of the Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . 29
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4.2.3. Voluntary Prepayments of the Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . 29
4.2.4. No Reborrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5. Conditions to Extending Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1. Conditions on Initial Closing Date on the Revolving Loan . . . . . . . . . . . . . . . . . . . . 29
5.1.1. Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1.2. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1.3. Payment of Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.1.4. Forms of Acquisition Documents. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 30
5.1.5. Offering Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2. Conditions to Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.1. Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.2. Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.3. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.4. Payment of Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.5. Environmental Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2.6. Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3. Conditions to Making Each Permitted Acquisition Advance. . . . . . . . . . . . . . . . . . . . 31
5.3.1. Permitted Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3.2. Notes and Credit Documents; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3.3. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4. Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4.1. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4.2. Legality, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4.3. Proper Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4.4. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. General Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1. Taxes and Other Charges; Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1.1. Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1.2. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2. Conduct of Business, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2.1. Types of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2.2. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2.3. Statutory Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2.4. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.2.5. Compliance with Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.3.1. Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.3.2. Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.3.3. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.4. Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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6.4.1. Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4.2. Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.4.3. Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.4.4. Notice of Litigation, Defaults, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.4.5. ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.4.6. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.5. Certain Financial Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.5.1. Total Liabilities to Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . 39
6.5.2. Total Liabilities to Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . 40
6.5.3. Consolidated Total Debt Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.5.4. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.5.5. Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.6. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.7. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.8. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.9. Investments and Permitted Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.11. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.12. Asset Dispositions and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.13. ERISA, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.14. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15.1. Compliance with Law and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15.2. Notice of Claims, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.16. Depository Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1. Organization and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1.1. The Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1.2. Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.2. Financial Statements and Other Information; Material Agreements . . . . . . . . . . . . . . . . 46
7.2.1. Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . 46
7.2.2. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.3. Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.4. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.5. Operations in Conformity With Law, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.6. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.7. Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.8. No Legal Obstacle to Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.9. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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7.10. Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.12. Future Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.13. Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.13.1. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.13.2. Environmental Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.13.3. Environmental Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.14. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.15. Acquisition Agreement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.16. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.1. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.2. Specified Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.3. Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.4. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.5. Cross Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.6. Enforceability, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1.7. Medicaid, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.1.8. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.1.9. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.1.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.1.11. Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2. Certain Actions Following an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2.1. Terminate Obligation to Extend Credit . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2.2. Specific Performance; Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2.3. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.2.4. Enforcement of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.2.5. Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.3. Annulment of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.4. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.1. Guarantees of Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.2. Continuing Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.3. Waivers with Respect to Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.4. Lenders' Power to Waive, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5. Information Regarding the Borrowers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.6. Certain Guarantor Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.8. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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9.9. Future Subsidiaries; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 60
10. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.2. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11. Operations; Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.1. Interests in Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.2. Agent's Authority to Act, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.3. Borrowers to Pay Agent, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.4. Lender Operations for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.4.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.4.2. Agent to Allocate Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.4.3. Delinquent Lenders; Nonperforming Lenders . . . . . . . . . . . . . . . . . . . . . . 63
11.5. Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.6. Amendments, Consents, Waivers, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 65
11.7. Agent's Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.8. Concerning the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.8.1. Action in Good Faith, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.8.2. No Implied Duties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.8.3. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.8.4. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.8.5. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.8.6. Reliance on Documents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.8.7. Agent's Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.10. Independent Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12. Successors and Assigns; Lender Assignments and Participations . . . . . . . . . . . . . . . . . 69
12.1. Assignments by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.1.1. Assignees and Assignment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.1.2. Terms of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . 70
12.1.3. Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
12.1.4. Acceptance of Assignment and Assumption . . . . . . . . . . . . . . . . . . . . . . . 71
12.1.5. Federal Reserve Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
12.1.6. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
12.2. Credit Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
12.3. Replacement of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
14. Course of Dealing; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 74
15. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
16. Venue; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
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17. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
18. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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EXHIBITS
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2.1.4 - Form of Revolving Note
2.2.2 - Form of Mortgage Note
5.3.2 - Joinder Agreement
5.4.1 - Officer's Certificate
6.4.1 - Financial Officer's Certificate for Annual Reports
6.4.2 - Financial Officer's Certificate for Quarterly Reports
6.6 - Existing Indebtedness
6.7 - Existing Guarantees
6.8 - Existing Liens
6.11 - Asset Dispositions and Mergers
6.14 - Transactions with Affiliates
7.1 - Company and its Subsidiaries
7.2.2 - Material Agreements
7.3 - Financing Debt, Certain Investments, etc.
7.4 - Changes in Condition
7.6 - Litigation
7.11 - Tax Assessment
7.13 - Environmental
7.14 - Multi-employer and Defined Benefit Plans
8.1.6 - Certain Stockholders of the Company
</TABLE>
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<TABLE>
<S> <C> <C>
12.1.1 - Assignment and Acceptance
</TABLE>
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PEDIATRIX MEDICAL GROUP
AMENDED AND RESTATED
CREDIT AGREEMENT
This Agreement, dated as of June 27, 1996, is among Pediatrix
Medical Group, Inc., a Florida corporation, the Related Entities of
Pediatrix Medical Group, Inc. from time to time party hereto, the Lenders
from time to time party hereto including SunTrust Bank/South Florida,
National Association as Lender under the Revolving Loan, and The First
National Bank of Boston, both in its capacity as a Lender under the
Revolving Loan and the Mortgage Loan and in its capacity as agent for
itself and the other Lenders. The parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain capitalized terms
are used in this Agreement and in the other Credit Documents with the
specific meanings defined below in this Section 1. Except as otherwise
explicitly specified to the contrary or unless the context clearly requires
otherwise, (a) the capitalized term "Section" refers to sections of this
Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the
meaning provided under GAAP, (f) terms defined in the UCC and not otherwise
defined herein have the meaning provided under the UCC, (g) references to a
particular statute or regulation include all rules and regulations
thereunder and any successor statute, regulation or rules, in each case as
from time to time in effect and (h) references to a particular Person
include such Person's successors and assigns to the extent not prohibited
by this Agreement and the other Credit Documents. References to "the date
hereof" mean the date first set forth above.
1.1. "Accumulated Benefit Obligations" means the actuarial present
value of the accumulated benefit obligations under any Plan, calculated in
accordance with Statement No. 87 of the Financial Accounting Standards
Board.
1.2. "Acquired Party" shall mean any Person, 100% of the
outstanding capital stock or beneficial interests or substantially all of
the assets of which are acquired by any Borrower in connection with a
Permitted Acquisition.
1.3. "Affected Lender" is defined in Section 12.3.
1.4. "Affiliate" means, with respect to any Borrower (or any other
specified Person), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with such
Borrower, and shall include (a) any executive officer or director or
general partner of such Borrower and (b) any Person of which such Borrower
or any Affiliate (as defined in clause (a) above) of such Borrower shall,
directly or indirectly,
<PAGE> 11
beneficially own either (i) at least 10% of the outstanding equity
securities having the general power to vote or (ii) at least 10% of all
equity interests.
1.5. "Agent" means Bank of Boston in its capacity as agent for the
Lenders hereunder, as well as its successors and assigns in such capacity.
1.6. "Agreement" means this Agreement as from time to time amended,
modified and in effect.
1.7. "Applicable Rate" means, at any date, the sum of:
(a) (i) with respect to each portion of the Loans
subject to a Eurodollar Pricing Option, the sum of the
0.8750% plus the Eurodollar Rate with respect to such
Eurodollar Pricing Option;
(ii) with respect to each portion of the
Mortgage Loan subject to the Fixed Rate Option, the sum
of 1.25% plus the Bank of Boston's cost of funds as
determined on two Banking Days prior to the Closing Date
on the Mortgage Loan;
(iii) with respect to each other portion of the Loans,
the Base Rate;
plus (b) an additional 4% effective on the day the Agent
notifies the Company that the interest rates hereunder
are increasing as a result of the occurrence and
continuance of an Event of Default until the earlier of
such time as (i) such Event of Default is no longer
continuing or (ii) such Event of Default is deemed no
longer to exist, in each case pursuant to Section 8.3.
1.8. "Approved Subordinated Debt" means debt subordinated and junior
in right of payment to prior payment in full of all Credit Obligations
pursuant to a subordination agreement, the terms of which shall be
satisfactory to the Agent.
1.9. "Acquisition Agreement" means the documentation pursuant to which
any Borrower commits itself to make a Permitted Acquisition.
1.10. "Assignee" is defined in Section 12.11.
1.11. "Assignment and Acceptance" is defined in Section 12.1.1.
1.12. "Bank of Boston" means The First National Bank of Boston.
1.13. "Banking Day" means any day other than Saturday, Sunday or a day
on which banks in Boston, Massachusetts are authorized or required by law
or other governmental
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action to close and, if such term is used with reference to a Eurodollar
Pricing Option, any day on which dealings are effected in the Eurodollars
in question by first-class banks in the inter-bank Eurodollar markets in
New York, New York.
1.14. "Bankruptcy Code" means Title 11 of the United States Code.
1.15. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.10.
1.16. "Base Rate" means, on any date, the greater of (a) the rate of
interest announced by Bank of Boston at the Boston Office as its Base Rate
or (b) the sum of 1/2% plus the Federal Funds Rate.
1.17. "Borrowers" means, collectively, the Company, its Related
Entities and such other Related Entities as shall become Borrowers
hereunder in accordance with Section 5.2.2.
1.18. "Boston Office" means the principal banking office of Bank of
Boston in Boston, Massachusetts.
1.19. "By-laws" means all written by-laws, rules, regulations and all
other documents relating to the management, governance or internal
regulation of any Person other than an individual, or interpretive of the
Charter of such Person, all as from time to time in effect.
1.20. "Capital Expenditures" means, for any period, amounts added or
required to be added to the property, plant and equipment or other fixed
assets account on the Consolidated balance sheet of the Company and its
Subsidiaries, prepared in accordance with GAAP, in respect of (a) the
acquisition, construction, improvement or replacement of land, buildings,
machinery, equipment, leaseholds and any other real or personal property,
and (b) to the extent not included in clause (a) above, materials, contract
labor and direct labor relating thereto (excluding amounts properly
expensed as repairs and maintenance in accordance with GAAP).
1.21. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards
Board.
1.22. "Capitalized Lease Obligations" means the amount of the
liability reflecting the aggregate discounted amount of future payments
under all Capitalized Leases calculated in accordance with GAAP, including
Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
1.23. "Cash Equivalents" means:
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(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
issued by any United States financial institution having capital and
surplus and undivided profits aggregating at least $100,000,000 and
rated at least Prime-1 by Moody's Investors Service, Inc. or A-1 by
Standard & Poor's Ratings Group or issued by any Lender;
(b) short-term corporate obligations rated at least Prime-1
by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Ratings
Group or issued by any Lender;
(c) any direct obligation of the United States of America
or any agency or instrumentality thereof, or of any state or
municipality thereof, (i) which has a remaining maturity at the time
of purchase of not more than one year or which is subject to a
repurchase agreement with any Lender (or any other financial
institution referred to in clause (a) above) exercisable within one
year from the time of purchase and (ii) which, in the case of
obligations of any state or municipality, is rated at least Aa by
Moody's Investors Service, Inc. or AA by Standard & Poor's Ratings
Group; and
(d) any mutual fund or other pooled investment vehicle
rated at least Aa by Moody's Investors Service, Inc. or AA by
Standard & Poor's Ratings Group which invests principally in
obligations described above.
1.24. "CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
1.25. "CERCLIS" means the federal Comprehensive Environmental Response
Compensation Liability Information System List (or any successor document)
promulgated under CERCLA.
1.26. "Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other
charter document of any Person other than an individual, each as from time
to time in effect.
1.27. "Closing Date" means the Initial Closing Date and each other
date on which any extension of credit is made pursuant to Sections 2.1 or
2.2.
1.28. "Code" means the federal Internal Revenue Code of 1986, as
amended from time to time.
1.29. "Commitment" means, with respect to any Lender, such Lender's
obligations
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to extend the credits contemplated by Section 2. The original Commitments
are set forth in Section 11.1 and the current Commitments are recorded from
time to time in the Register.
1.30. "Company" means Pediatrix Medical Group, Inc., a Florida
corporation.
1.31. "Computation Covenants" means Sections 6.5, 6.6.7, 6.9.4, 6.10,
6.11, 6.12 and 6.13.
1.32. "Consolidated" and "Consolidating", when used with reference to
any term, mean that term as applied to the accounts of the Company (or
other specified Person) and all of its Related Entities (or other specified
group of Persons), or such of its Related Entities as may be specified,
consolidated (or combined) or consolidating (or combining), as the case may
be, in accordance with GAAP and with appropriate deductions for minority
interests in Related Entities.
1.33. "Consolidated EBITDA" means, for any period, an amount equal
to the sum of (a) the Net Income (or loss) of the Company and its Related
Entities plus (b) all amounts deducted in computing such Net Income in
respect of (i) taxes based upon or measured by income, (ii) Consolidated
Interest Expense and (iii) depreciation and amortization.
1.34. "Consolidated Fixed Charges" means, for any period, the sum of:
(a) the aggregate amount of interest, including payments in the
nature of interest under Capitalized Leases and Interest Rate
Protection Agreements, paid or accrued by the Company and its Related
Entities (whether such interest is reflected as an item of expense or
capitalized) in accordance with GAAP on a consolidated basis;
plus (b) the aggregate amount of all mandatory scheduled payments,
prepayments and sinking fund payments with respect to principal paid
or accrued by the Company and its Related Entities in respect of
Financing Debt, including payments in the nature of principal under
capitalized Leases and Interest Rate Protection Agreements, in
accordance with GAAP on a Consolidated basis;
plus (c) any mandatory dividends paid or payable by the Company
or any of its Related Entities to third parties;
plus (d) $3,000,000.
1.35. "Consolidated Interest Expense" means, for any period, the
aggregate amount of interest, including commitment fees and payments
in the nature of interest under Capitalized Leases (whether such
interest is reflected as an item of expense or capitalized), paid or
accrued by the Company and its Related Entities in accordance with
GAAP.
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1.36. "Consolidated Net Worth" means, at any date, the stockholders'
equity of the Company and its Related Entities at such date determined in
accordance with GAAP on a Consolidated basis.
1.37. "Consolidated Tangible Net Worth" means, at any date, the excess
of the total tangible assets of the Company and its Related Entities over
the Total Liabilities of the Company and its Related Entities. Total
tangible assets shall mean total assets of the Company and its Related
Entities as determined in accordance with GAAP, excluding, however:
(i) all loans to any Related Entity, employee, officer or other
Affiliate of the Company, and all amounts payable to the Company
from any of such Persons,
(ii) all assets which would be classified as intangible assets
under GAAP, including goodwill (whether representing the excess
of cost over book value of assets acquired or otherwise),
patents, trademarks, trade names, copyrights, franchise and
deferred charges (including unamortized debt discount and
expense, organization cost and research and development costs),
and
(iii) minority interests in other Persons.
1.38. "Control Group Person" means the Company, any Subsidiary of the
Company and any Person which is a member of the controlled group or under
common control with the Company or any Subsidiary within the meaning of
section 414 of the Code or section 4001(a)(14) of ERISA.
1.39. "Credit Documents" means:
(a) this Agreement, the Revolving Notes, the Mortgage Note
and the Mortgage, each as from time to time in effect;
(b) all financial statements, reports, notices, mortgages,
assignments, UCC financing statements or certificates delivered to the
Agent or any of the Lenders by any of the Borrowers or any other
Obligor in connection herewith or therewith; and
(c) any other present or future agreement or instrument
from time to time entered into among any of the Borrowers or any other
Obligor, on one hand, and the Agent, or all the Lenders, on the other
hand, relating to, amending or modifying this Agreement or any other
Credit Document referred to above or which is stated to be a Credit
Document, each as from time to time in effect.
1.40. "Credit Obligation Advance" is defined in Section 2.1.3.
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1.41. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of any of the Borrowers or any other Obligor
owing to the Agent or any Lender under or in connection with this Agreement
or any other Credit Document, including obligations in respect of
principal, interest, commitment fees, amounts provided for in Sections
3.2.4, 3.4, 3.5, 3.6, 3.7, 3.8 and 10 and other fees, charges, indemnities
and expenses from time to time owing hereunder or under any other Credit
Document (whether accruing before or after a Bankruptcy Default).
1.42. "Credit Participant" is defined in Section 12.2.
1.43. "Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or intended
or required so to be subjected pursuant to this Agreement or any other
Credit Document) to secure the payment or performance of any of the Credit
Obligations.
1.44. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become
an Event of Default and the filing against the Company, any of its Related
Entities or any other Obligor of a petition commencing an involuntary case
under the Bankruptcy Code.
1.45. "Delinquency Period" is defined in Section 11.4.3.
1.46. "Delinquent Lender" is defined in Section 11.4.3.
1.47. "Delinquent Payment" is defined in Section 11.4.3.
1.48. "Distribution" means, with respect to the Company (or other
specified Person):
(a) the declaration or payment of any dividend or
distribution, including dividends payable in shares of capital stock
of or other equity interests in the Company (or such specified
Person), on or in respect of any shares of any class of capital stock
of or other equity interests in the Company (or such specified
Person);
(b) the purchase or redemption of any shares of any
class of capital stock of or other equity interest in the Company (or
such specified Person) or of options, warrants or other rights for the
purchase of such shares, directly, indirectly through a Related Entity
or otherwise;
(c) any other distribution on or in respect of any shares
of any class of capital stock of or equity or other beneficial
interest in the Company (or such specified Person);
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(d) any payment of principal or interest with respect to,
or any purchase, redemption or defeasance of, any Indebtedness of
the Company (or such specified Person) which by its terms or the
terms of any agreement is subordinated to the payment of the
Credit Obligations; and
(e) any payment, loan or advance by the Company (or such
specified Person) to, or any other Investment by the Company (or
such specified Person) in, the holder of any shares of any class
of capital stock of or equity interest in the Company (or such
specified Person), or any Affiliate of such holder;
provided, however, that the term "Distribution" shall not include (i)
dividends payable in perpetual common stock of or other similar equity
interests in the Company (or such specified Person) or (ii) payments in the
ordinary course of business in respect of (A) reasonable compensation paid
to employees, officers and directors, (B) advances to employees for travel
expenses, drawing accounts and similar expenditures, or (C) rent paid to,
or accounts payable for services rendered or goods sold by, non-Affiliates
that own capital stock of or other equity interests in the Company (or such
specified Person).
1.49. "EBITDA" means, for any period, an amount equal to the sum of
(a) the Net Income (or loss) of any Person for such period plus (b) all
amounts deducted in computing such Net Income in respect of (i) taxes based
upon or measured by income, (ii) Interest Expense and (iii) depreciation
and amortization.
1.50. "Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public
health and safety and protection of the environment, including OSHA.
1.51. "ERISA" means the federal Employee Retirement Income Security
Act of 1974.
1.52. "Eurodollars" means, with respect to any Lender, deposits of
coin or currency of United States of America in a non-United States office
or an international banking facility of such Lender.
1.53. "Eurodollar Basic Rate" means, for any Eurodollar Interest
Period, the rate of interest at which Eurodollar deposits in an amount
comparable to the portion of the Loans as to which a Eurodollar Pricing
Option has been elected and which have a term corresponding to such
Eurodollar Interest Period are offered to the Agent by first class banks in
the inter-bank Eurodollar market for delivery in immediately available
funds at a Eurodollar Office on the first day of such Eurodollar Interest
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Period as determined by the Agent at approximately 10:00 a.m. (Boston time)
two Banking Days prior to the date upon which such Eurodollar Interest
Period is to commence (which determination by the Agent shall, in the
absence of manifest error, be conclusive).
1.54. "Eurodollar Interest Period" means any period, selected as
provided in Section 3.2.1, of one, two, three or six months, commencing on
any Banking Day and ending on the corresponding date in the subsequent
calendar month so indicated (or, if such subsequent calendar month has no
corresponding date, on the last day of such subsequent calendar month);
provided, however, that subject to Section 3.2.3, if any Eurodollar
Interest Period so selected would otherwise begin or end on a date which is
not a Banking Day, such Eurodollar Interest Period shall instead begin or
end, as the case may be, on the immediately preceding or succeeding Banking
Day as determined by the Agent in accordance with the then current banking
practice in the inter-bank Eurodollar market with respect to Eurodollar
deposits at the applicable Eurodollar Office, which determination by the
Agent shall, in the absence of manifest error, be conclusive.
1.55. "Eurodollar Office" means such non-United States office or
international banking facility of the Agent as the Agent may from time to
time select.
1.56. "Eurodollar Pricing Options" means the options granted pursuant
to Section 3.2.1 to have the interest on any portion of either Loan
computed on the basis of a Eurodollar Rate.
1.57. "Eurodollar Rate" for any Eurodollar Interest Period means the
rate, rounded upward to the nearest 1/100%, obtained by dividing (a) the
Eurodollar Basic Rate for such Eurodollar Interest Period by (b) an amount
equal to 1 minus the Eurodollar Reserve Rate; provided, however, that if at
any time during such Eurodollar Interest Period the Eurodollar Reserve Rate
applicable to any outstanding Eurodollar Pricing Option changes, the
Eurodollar Rate for such Eurodollar Interest Period shall automatically be
adjusted to reflect such change, effective as of the date of such change.
1.58. "Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic,
supplemental, marginal or emergency reserve or any reserve asset), if any,
as from time to time in effect, required by any Legal Requirement to be
maintained by any Lender against (a) "Eurocurrency liabilities" as
specified in Regulation D of the Board of Governors of the Federal Reserve
System applicable to Eurodollar Pricing Options, (b) any other category of
liabilities that includes Eurodollar deposits by reference to which the
interest rate on portions of the Loans subject to Eurodollar Pricing
Options is determined, (c) the principal amount of or interest on any
portion of the Loans subject to a Eurodollar Pricing Option or (d) any
other category of extensions of credit, or other assets, that includes
loans subject to a Eurodollar Pricing Option by a non-United States office
of any of the Lenders to United States residents, in each case without the
benefits of credits for prorations, exceptions or offsets that may be
available to a Lender.
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1.59. "Event of Default" is defined in Section 8.1.
1.60. "Exchange Act" means the federal Securities Exchange Act of
1934.
1.61. "FACA" means the Federal Assignment of Claims Act as set forth
in 31 U.S.C. Section 3727 and 41 U.S.C. Section 15.
1.62. "Federal Funds Rate" means, for any day, the rate equal to the
weighted average (rounded upward to the nearest 1/8%) of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, (a) as such weighted average is
published for such day (or, if such day is not a Banking Day, for the
immediately preceding Banking Day) by the Federal Reserve Bank of New York
or (b) if such rate is not so published for such Banking Day, as determined
by the Agent using any reasonable means of determination. Each
determination by the Agent of the Federal Funds Rate shall, in the absence
of manifest error, be conclusive.
1.63. "Final Maturity Date" means (i) with respect to the Revolving
Loan, June 30, 1999 and (ii) with respect to the Mortgage Loan, June 30,
2003.
1.64. "Financial Officer" of the Company (or other specified Person)
means its chief executive officer, chief financial officer, chief operating
officer, chairman, president, treasurer or any of its vice presidents whose
primary responsibility is for its financial affairs, all of whose
incumbency and signatures have been certified to the Agent by the secretary
or other appropriate attesting officer of the Company (or such specified
Person).
1.65. "Financing Debt" means each of the items described in clauses
(a) through (e) of the definition of the term "Indebtedness".
1.66. "Fixed Rate Option" means the options granted pursuant to
Section 3.3 to have the interest on any portion of the Mortgage Loan
computed on the basis of the Bank of Boston's cost of funds on two Banking
Days prior to the Closing Date on the Mortgage Loan.
1.67. "Funding Liability" means (a) any Eurodollar deposit which was
used (or deemed by Section 3.2.6 to have been used) to fund any portion of
the Loans subject to a Eurodollar Pricing Option, and (b) any portion of
the Loans subject to a Eurodollar Pricing Option funded (or deemed by
Section 3.2.6 to have been funded) with the proceeds of any such Eurodollar
deposit.
1.68. "GAAP" means generally accepted accounting principles as from
time to time in effect, including the statements and interpretations of the
United States Financial Accounting Standards Board provided, however, that
for purposes of compliance with Section 6 (other than Section 6.4) and
related definitions, "GAAP" means such principles as in effect on the date
hereof as applied by the Borrowers in preparation of the financial
statements
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referred to in Section 7.2, and consistently followed, without giving effect
to any subsequent changes thereto.
1.69. "Guarantee" means, with respect to the Company (or other
specified Person):
(a) any guarantee by the Company (or such specified Person)
of the payment or performance of, or any contingent obligation by the
Company (or such specified Person) in respect of, any Indebtedness or
other obligation of any primary obligor other than the Company or
other Borrower (or such specified Person);
(b) any other arrangement whereby credit is extended to a
primary obligor on the basis of any promise or undertaking of the
Company or other Borrower (or such specified Person), including any
binding "comfort letter" or "keep well agreement" written by the
Company (or such specified Person), to a creditor or prospective
creditor of such primary obligor, to (i) pay the Indebtedness of such
primary obligor, (ii) purchase an obligation owed by such primary
obligor, (iii) pay for the purchase or lease of assets or services
regardless of the actual delivery thereof or (iv) maintain the
capital, working capital, solvency or general financial condition of
such primary obligor;
(c) any liability of the Company (or such specified
Person), as a general partner of a partnership in respect of
Indebtedness or other obligations of such partnership;
(d) any liability of the Company (or such specified Person)
as a joint venturer of a joint venture in respect of Indebtedness or
other obligations of such joint venture;
(e) reimbursement obligations, whether contingent or
matured, of the Company (or such specified Person) with respect to
letters of credit, bankers acceptances, surety bonds, other financial
guarantees and Interest Rate Protection Agreements,
whether or not any of the foregoing are reflected on the balance sheet of
the Company (or such specified Person) or in a footnote thereto; provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee
shall be the maximum amount that the guarantor may become obligated to pay
in respect of the obligations (whether or not such obligations are
outstanding at the time of computation).
1.70. "Guarantor" means each Borrower, each Subsidiary of the
respective Borrowers which subsequently becomes party to this Agreement as
a Guarantor.
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1.71. "Hazardous Material" means any pollutant, toxic or hazardous
material or waste, including any "hazardous substance" or "pollutant" or
"contaminant" as defined in section 101(14) of CERCLA or any other
Environmental Law or regulated as toxic or hazardous under RCRA or any
other Environmental Law.
1.72. "Health Benefit Laws" means all federal, state and local
statutes and regulations related to the licensure, certification,
qualification or authority to transact business relating to the provision
of and/or payment for health benefits, including without limitation health
maintenance organization laws, insurance laws, reinsurance and insolvency
laws, preferred provider organization laws, point-of-service laws,
certificate of need laws, third party administrator laws, ERISA, COBRA,
provider credentialling laws, utilization review laws, coordination of
benefit requirements, hospital reimbursement laws, Medicaid participation
laws, insurance holding company laws, fraud and abuse laws and patient
referral laws.
1.73. "Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the
balance sheet of the Company (or other specified Person) as liabilities,
but in any event including (without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) deferred purchase price of assets (other than normal
trade accounts payable in the ordinary course of business);
(e) mandatory redemption or dividend rights on capital
stock (or other equity);
(f) unfunded pension liabilities;
(g) obligations that are immediately and directly due and
payable out of the proceeds of or production from property;
(h) liabilities secured by any Lien existing on property
owned or acquired by the Company (or such specified Person), whether
or not the liability secured thereby shall have been assumed; and
(i) all Guarantees in respect of Indebtedness of others.
1.74. "Indemnified Party" is defined in Section 10.2.
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1.75. "Initial Closing Date" means the first date on or prior to June
27, 1996 on which all the conditions set forth in Section 5.1 and 5.3 have
been satisfied.
1.76. "Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap, interest rate hedge or other contractual
arrangement that converts variable interest rates into fixed interest
rates, fixed interest rates into variable interest rates or other similar
arrangements.
1.77. "Interest Expense" means, for any period, the aggregate amount
of interest, including commitment fees and payments in the nature of
interest under Capitalized Leases (whether such interest is reflected as an
item of expense or capitalized), paid or accrued by any Person.
1.78. "Investment" means, with respect to any Borrower (or other
specified Person):
(a) any share of capital stock, partnership or other equity
interest, evidence of Indebtedness or other security issued by any
other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other Person;
(d) any acquisition of all or any part of the business of
any other Person or the assets comprising such business or part
thereof;
(e) any commitment or option to make any Investment; and
(f) any other similar investment.
The investments described in the foregoing clauses (a) through (f)
shall be included in the term "Investment" whether they are made or
acquired by purchase, exchange, issuance of stock or other securities,
merger, reorganization or any other method; provided, however, that the
term "Investment" shall not include (i) trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) advances and prepayments to suppliers for property leased,
goods furnished and services rendered in the ordinary course of business,
(iii) advances to employees, agents or consultants in the ordinary course
of business, including travel expenses, drawing accounts, payroll and
similar expenditures, (iv) stock or other securities acquired in connection
with the satisfaction or enforcement of Indebtedness or claims
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due to the Company (or such specified Person) or as security for any such
Indebtedness or claim or (v) demand deposits in banks or similar financial
institutions.
1.79. "Legal Requirement" means any present or future requirement
imposed upon any of the Lenders or the Company and its Related Entities by
any law, statute, rule, regulation, directive, order, decree, guideline (or
any interpretation thereof by courts or of administrative bodies) of the
United States of America, or any jurisdiction in which any Eurodollar
Office is located or any state or political subdivision of any of the
foregoing, or by any board, governmental or administrative agency, central
bank or monetary authority of the United States of America, any
jurisdiction in which any Eurodollar Office is located, or any political
subdivision of any of the foregoing including, but not limited to, all
Health Benefit Laws, including but not limited to all Health Benefit Laws.
Any such requirement imposed on any of the Lenders which such Lender
reasonably believes has the force of law shall be deemed to be a Legal
Requirement.
1.80. "Lender" means each of the Persons listed as lenders on the
signature page hereto, including Bank of Boston in its capacity as a Lender
and such other Persons who may from time to time own a Percentage Interest
in either of the Loans.
1.81. "Lending Officer" means such individuals whom the Agent may
designate by notice to the Company from time to time as an officer who may
receive telephone requests for borrowings under Section 2.1.3.
1.82. "Lien" means, with respect to the Company (or any other
specified Person):
(a) any lien, encumbrance, mortgage, pledge, charge or
security interest of any kind upon any property or assets of the
Company (or such specified Person), whether now owned or hereafter
acquired, or upon the income or profits therefrom;
(b) the acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease);
(c) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or
such specified Person), with or without recourse;
(d) the transfer of any tangible property or assets for the
purpose of subjecting such items to the payment of previously
outstanding Indebtedness in priority to payment of the general
creditors of the Company (or such specified Person); and
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(e) the existence for a period of more than 120 consecutive days
of any Indebtedness against the Company (or such specified Person)
which if unpaid would by law or upon a Bankruptcy Default be given any
priority over general creditors.
1.83. "Loans" means the Mortgage Loan and the Revolving Loan,
collectively.
1.84. "Loan Accounts" is defined in Section 2.1.4.
1.85. "Margin Stock" means "margin stock" within the meaning
of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
1.86. "Material Adverse Change" means, since any specified date or
from the circumstances existing immediately prior to the happening of any
specified event, a material adverse change in (a) the business, assets,
financial condition, income or prospects of the Company and its Related
Entities, whether as a result of (i) general economic conditions affecting
the industry in which the Company and its Related Entities are engaged,
(ii) difficulties in obtaining supplies and raw materials, (iii) fire,
flood or other natural calamities, (iv) environmental pollution, (v)
regulatory changes, judicial decisions, war or other governmental action or
(vi) any other event or development, whether or not related to those
enumerated above or (b) the ability of the Obligors to perform their
obligations under the Credit Documents or (c) the rights and remedies of
the Agent and the Lenders under the Credit Documents.
1.87. "Material Agreements" is defined in Section 7.2.2.
1.88. "Material Plan" means any Plan or Plans, collectively, as to
which (a) the excess of (i) the aggregate Accumulated Benefit Obligations
under such Plan or Plans over (ii) the aggregate fair market value of the
assets of such Plan or Plans allocable to such benefits, all determined as
of the then most recent valuation date or dates for such Plan or Plans, is
greater than (b) $500,000.
1.89. "Maximum Amount of Revolving Credit" is defined in Section
2.1.2.
1.90. "Mortgage" means the Mortgage and Security Agreement dated as of
September 30, 1993, as modified andeffect from time to time made by the
Company in favor of Bank of Boston with respect to the headquarters
buildings of the Company located in Fort Lauderdale, Florida.
1.91. "Mortgage Loan" has the meaning provided in Section 2.2.1.
1.92. "Mortgage Note" has the meaning provided in Section 2.2.2.
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1.93. "Multiemployer Plan" means any Plan tha is a
"multiemployer plan" as defined in section 4001(a)(3) of ERISA.
1.94. "Net Income" means, for any period, the net income (or loss) of
the Company and its Related Entities, determined in accordance with GAAP;
provided, however, that Net Income shall not include the net amount after
taxes of:
(a) the income (or loss) of any other Person accrued prior
to the date such other Person becomes a Related Entity or is merged
into or consolidated with such Person;
(b) all amounts included in computing such net income (or
loss) in respect of the write-up of any asset after March 31, 1996;
(c) extraordinary and nonrecurring gains; and
(d) the income of any Subsidiary to the extent the payment
of such income in the form of a Distribution or repayment of
Indebtedness to such Person is not permitted, whether on account of
any Charter or By-law restriction, any agreement, instrument, deed or
lease or any law, statute, judgment, decree or governmental order,
rule or regulation applicable to such Subsidiary.
1.95. "Nonperforming Lender" is defined in Section 11.4.3.
1.96. "Obligor" means the Company, each other Borrower, each Guarantor
and each Person guaranteeing, providing collateral for or subordinating
obligations to, the Credit Obligations.
1.97. "Operating Cash Flow" means, for any period, the total of:
(a) Consolidated EBITDA;
minus (b) Capital Expenditures;
minus (c) taxes based upon or measured by net income that
are actually paid in cash during such period.
1.98. "Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.
1.99. "Payment Date" means the first Banking Day of each quarter,
commencing with the first such date after the Initial Closing Date.
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1.100. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
1.101. "Percentage Interest" is defined in Section 11.1.
1.102. "Performing Lender" is defined in Section 11.4.3.
1.103. "Permitted Acquisition" means an Investment by any Borrower
permitted under Section 6.9.4.
1.104. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability,
joint stock or other company, business trust, trust, organization, business
or government or any governmental agency or political subdivision thereof.
1.105. "Plan" means, at any date, any pension benefit plan subject to
Title IV of ERISA maintained, or to which contributions have been made or
are required to be made, by any ERISA Group Person within six years prior
to such date.
1.106. "Pro Forma Gross Profit" shall mean, for any period, the pro
forma EBITDA of the Acquired Party, the value and calculation of which must
be approved by the Agent.
1.107. "Purchase Price" means the amount of the consideration,
including, but not limited to, cash or Cash Equivalents, capital stock,
assets, debt, including contingent or other promissory notes, and any other
form of payment, for any Permitted Acquisition.
1.108. "RCRA" means the federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 690, et seq.
1.109. "Register" is defined in Section 13.
1.110. "Related Entities" means all of the Related Entities listed on
Exhibit 7.1, as amended from time to time in accordance with Sections 6.4.1
and 6.4.2.
1.111. "Related Entities Total Liabilities" means, at any date, all
Indebtedness of the Company and its Subsidiaries on a Consolidated basis.
1.112. "Replacement Lender" is defined in Section 12.3.
1.113. "Required Lenders" means, with respect to any approval,
consent, modification, waiver or other action to be taken by the Agent or
the Lenders under either Loan which require action by the Required Lenders,
such Lenders as own at least a two-thirds of the Percentage Interests of
such Loan; provided, however, that with respect to any matters
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referred to in the proviso to Section 11.6, Required Lenders means such
Lenders as own at least the respective portions of the Percentage Interests
of the relevant Loan required by Section 11.6.
1.114. "Revolving Loan" is defined in Section 2.1.4
1.115. "Revolving Notes" is defined in Section 2.1.4.
1.116. "Securities Act" means the federal Securities Act of 1933.
1.117. "Sellers" means the Person or Persons selling or otherwise
transferring the capital stock, partnership or other equity interest or
assets of the Acquired Party to a Borrower pursuant to a Permitted
Acquisition.
1.118. "Specified Insurance Reserve Amount" means $2,000,000 or such
other amount specified by the Company by notice to the Agent.
1.119. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or
more of its Subsidiaries, (a) own at least 50% of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally,
(b) hold at least 50% of the partnership, joint venture or similar
interests or (c) be a general partner or joint venturer.
1.120. "Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any time
required by any Legal Requirement (a) to be paid by any Lender or (b) to be
withheld or deducted from any payment otherwise required hereby to be made
to any Lender, in each case on or with respect to its obligations
hereunder, the Loans, any payment in respect of the Credit Obligations or
any Funding Liability not included in the foregoing; provided, however,
that the term "Tax" shall not include taxes imposed upon or measured by the
net income of such Lender (other than withholding taxes) or franchise taxes.
1.121. "Total Liabilities" means, at any date, all Indebtedness of the
Company and its Related Entities.
1.122. "UCC" means the Uniform Commercial Code as in effect in
Massachusetts on the date hereof; provided, however, that with respect to
the perfection of the Agent's Lien in the Credit Security and the effect of
nonperfection thereof, the term "UCC" means the Uniform Commercial Code as
in effect in any jurisdiction the laws of which are made applicable by
Section 9-103 of the Uniform Commercial Code as in effect in Massachusetts.
2. The Credits.
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2.1. Revolving Credit.
2.1.1. Revolving Loan. Subject to all the terms and conditions of
this Agreement and so long as no Default then exists, from time to time on
and after the Initial Closing Date and prior to the Final Maturity Date the
Lenders will, severally in accordance with their respective Percentage
Interests, make loans to any Borrower in such amounts as may be requested
by such Borrower in accordance with Section 2.1.3. The sum of the
aggregate principal amount of loans made under this Section 2.1.1 at any
one time outstanding shall in no event exceed the Maximum Amount of
Revolving Credit. In no event will the principal amount of loans at any one
time outstanding made by any Lender pursuant to this Section 2.1 exceed
such Lender's Commitment. The aggregate principal amount of the loans made
pursuant to this Section 2.1 at anyone time outstanding is referred to as
the "Revolving Loan".
2.1.2. Maximum Amount of Revolving Credit. The term "Maximum Amount
of Revolving Credit" means, on any date, the lesser of (a) $30,000,000 or
(b) the amount (in an integral multiple of $1,000,000) to which the then
applicable amount shall have been irrevocably reduced from time to time by
notice from the Company to the Agent.
2.1.3. Borrowing Requests. Any Borrower may from time to time
request a loan under Section 2.1.1 by providing to the Agent a notice
(which may be given by a telephone call received by a Lending Officer if
promptly confirmed in writing). Such notice must be not later than noon
(Boston time) on the requested Closing Date, (which shall be the third
Banking Day prior to the requested Closing Date for such loan if any
portion of such loan will be subject to a Eurodollar Pricing Option on the
requested Closing Date). If such notice requested that a loan, or any
portion thereof, be made subject to a Eurodollar Pricing Option, and the
Agent shall have notified the Borrower pursuant to Section 3.2.2 that such
election did not become effective, the notice shall be deemed to have been
made for a loan at the Base Rate. The notice must specify (a) the amount of
the requested loan (which shall be not less than $50,000 and an integral
multiple of $10,000), (b) the requested Closing Date therefor (which shall
be a Banking Day) and (c) the portion of the requested loan that is to be
used for purposes other than Permitted Acquisitions. Upon receipt of such
notice, the Agent will promptly inform each other Lender (by telephone or
otherwise). Each such loan will be made at the Boston Office by depositing
the amount thereof to the general account of such Borrower with the Agent.
In connection with each such loan, such Borrower shall furnish to the Agent
a certificate in substantially the form of Exhibit 5.3.1.
Notwithstanding anything contained in this Agreement, (i) Bank of
Boston may, in its sole discretion, make Revolving Loans to any Borrower
under Section 2.1 at any time and in any amount and may apply any such
Revolving Loan to cover the Credit Obligations of such Borrower then due
and (ii) subject to all the terms and
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conditions of this Agreement and so long as no Default exists, if any
payment of interest due under this Agreement in respect of either the
Revolving Loan or the Mortgage Loan is not paid when due, the Agent will
make Revolving Loans to the Borrower under Section 2.1 on the third Banking
Day after such payment of interest became due in the amount of the interest
then due and will apply any such Revolving Loan to cover the interest then
due (each Revolving Loan made under clauses (i) or (ii) of this paragraph
being a "Credit Obligation Advance").
2.1.4. Loan Accounts; Revolving Notes. The Agent will establish on
its books separate loan accounts for each Borrower (collectively the "Loan
Accounts") each of which the Agent shall administer as follows: (a) the
Agent shall add to each Loan Account, and each Loan Account shall evidence,
the principal amount of all loans from time to time made by the Lenders, in
accordance with Section 11, to such Borrower pursuant to Section 2.1.1 and
(b) the Agent shall reduce each Borrower's Loan Account by the amount of
all payments made on account of the Indebtedness evidenced by the Loan
Account of such Borrower. The Revolving Loan shall be deemed owed to each
Lender severally in accordance with such Lender's Percentage Interest
therein, and all payments credited to the Loan Accounts shall be for the
account of each Lender in accordance with its Percentage Interest in the
Revolving Loan. Each Borrower's obligations to pay each Lender's Percentage
Interest in the Revolving Loan shall be evidenced by a separate note of
such Borrower in substantially the form of Exhibit 2.1.4 (the "Revolving
Notes"), payable to each Lender in maximum principal amount equal to such
Lender's Percentage Interest in the Revolving Loan. Each Lender shall keep
a record of the date and amount of (i) each loan made by it to each
Borrower pursuant to Section 2.1 and (ii) each payment of principal made by
such Borrower pursuant to Section 4. Prior to the transfer of a Revolving
Note, the relevant Lender shall endorse on a schedule thereto appropriate
notations evidencing such dates and amounts; provided, however, that the
failure of the Lender to make any such recordation or endorsement shall not
affect the obligations or such Borrower under this Agreement, the Revolving
Note or any other Credit Document.
2.2. The Mortgage Credit.
2.2.1. Mortgage Loan. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, on the Initial Closing
Date, Bank of Boston will make a term loan to the Company, in an aggregate
principal amount equal to $3,000,000. The aggregate principal amount of the
loan made pursuant to this Section 2.2.1 at any one time outstanding is
referred to as the "Mortgage Loan."
2.2.2. Mortgage Loan. Subject to all the terms andage Note. The
Mortgage Loan will be made by depositing the amount thereof to the general
account of the Company with Bank of Boston. The Mortgage Loan shall be
evidenced by a note in substantially the form of Exhibit 2.2.2 (the
"Mortgage Note") payable by the Company to Bank of Boston. Bank of Boston
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shall keep a record of the date and amount of (i) the term loan made by
the Bank of Boston to the Company pursuant to Section 2.2.1 and (ii) each
payment of principal made by the Company pursuant to Section 4. Prior to
the transfer of the Mortgage Note, Bank of Boston shall endorse on a
schedule thereto appropriate notations evidencing such dates and amounts;
provided, however, that the failure of Bank of Boston to make any such
recordation or endorsement shall not affect the obligations of the Company
under this Agreement, the Mortgage Note or any other Credit Document.
2.3. Application of Proceeds.
2.3.1. The Loans. Subject to Section 2.3.2, the Borrowers will
apply the proceeds of the Loans (a) to fund Permitted Acquisitions and (b)
for working capital, provided, however, proceeds from the Revolving Loan
used for purposes other than funding Permitted Acquisitions may never
exceed 15% of the Maximum Amount of Revolving Credit, minus the Specified
Insurance Reserve Amount.
2.3.2. Specifically Prohibited Applications. The Borrowers will
not, directly or indirectly, apply any part of the proceeds of any
extension of credit made pursuant to the Credit Documents to purchase or to
carry Margin Stock or to any transaction prohibited by Legal Requirements
applicable to the Lenders or by the Credit Documents.
2.4. Nature of Obligations of Lenders to Make Extensions of Credit.
The Lenders' obligations to extend credit under this Agreement are several
and are not joint or joint and several. If on any Closing Date any Lender
shall fail to perform its obligations under this Agreement, the aggregate
amount of Commitments to make the extensions of credit under this Agreement
shall be reduced by the amount of unborrowed Commitment of the Lender so
failing to perform and the Percentage Interests of the relevant Loan shall
be appropriately adjusted. Lenders that have not failed to perform their
obligations to make the extensions of credit contemplated by Section 2 may,
if any such Lender so desires, assume, in such proportions as such Lenders
may agree, the obligations of any Lender who has so failed and the
Percentage Interests shall be appropriately adjusted. The provisions of
this Section 2.4 shall not affect the rights of the Borrowers against any
Lender failing to perform its obligations hereunder.
3. Interest; Eurodollar Pricing Options; Fees.
3.1. Interest. The Loans shall accrue and bear interest at a
rate per annum which shall at all times equal the Applicable Rate. Prior to
any stated or accelerated maturity of the Loans, on each Payment Date each
Borrower will pay the accrued and unpaid interest on the portion of the
Revolving Loan evidenced by its Loan Account, and the Company will pay the
accrued and unpaid interest on the portion of the Mortgage Loan, which
portions were not subject to a Eurodollar Pricing Option. On the last day
of each Eurodollar Interest Period or
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on any earlier termination of any Eurodollar Pricing Option, each Borrower will
pay the accrued and unpaid interest on the portion of the Revolving Loan
evidenced by its Loan Account, and the Company will pay the accrued and unpaid
interest on the portion of the Mortgage Loan, which portions were subject to
the Eurodollar Pricing Option which expired or terminated on such date. In the
case of any Eurodollar Interest Period longer than three months, each Borrower
will also pay the accrued and unpaid interest on the portion of the Revolving
Loan evidenced by its Loan Account, and the Company will pay the accrued and
unpaid interest on the portion of the Mortgage Loan, subject to the Eurodollar
Pricing Option having such Eurodollar Interest Period at three-month intervals,
the first such payment to be made on the last Banking Day of the three-month
period which begins on the first day of such Eurodollar Interest Period. On the
stated or any accelerated maturity of the Loans, each Borrower will pay all
accrued and unpaid interest on the portion of the Revolving Loan evidenced by
its Loan Account, and the Company will pay the accrued and unpaid interest on
the portion of the Mortgage Loan, including any accrued and unpaid interest on
any portion of such Loans which is subject to a Eurodollar Pricing Option. Upon
the occurrence and during the continuance of an Event of Default, the Lenders
may require accrued interest to be payable on demand or at regular intervals
more frequent than each Payment Date. All payments of interest hereunder shall
be made to the Agent for the account of each Lender in accordance with such
Lender's Percentage Interest in each Loan.
3.2. Eurodollar Pricing Options.
3.2.1. Election of Eurodollar Pricing Options. Subject to
all of the terms and conditions hereof and so long as no Default
exists, any Borrower may from time to time, by irrevocable notice to
the Agent actually received not less than three Banking Days prior to
the commencement of the Eurodollar Interest Period selected in such
notice, elect to have such portion of the Loans as such Borrower may
specify in such notice accrue and bear interest during the Eurodollar
Interest Period so selected at the Applicable Rate computed on the
basis of the Eurodollar Rate. No such election shall become effective:
(a) if, prior to the commencement of any such Eurodollar
Interest Period, the Agent determines that (i) the electing or
granting of the Eurodollar Pricing Option in question would violate a
Legal Requirement, (ii) Eurodollar deposits in an amount comparable to
the principal amount of the Loans as to which such Eurodollar Pricing
Option has been elected and which have a term corresponding to the
proposed Eurodollar Interest Period are not readily available in the
inter-bank Eurodollar market, or (iii) by reason of circumstances
affecting the inter-bank Eurodollar market, adequate and reasonable
methods do not exist for ascertaining the interest rate applicable to
such deposits for the proposed Eurodollar Interest Period; or
(b) if any Lender shall have advised the Agent by telephone
or otherwise at or prior to noon (Boston time) on the second Banking
Day prior to the commencement
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of such proposed Eurodollar Interest Period (and shall have
subsequently confirmed in writing) that, after reasonable efforts to
determine the availability of such Eurodollar deposits, such Lender
reasonably anticipates that Eurodollar deposits in an amount equal to
the Percentage Interest of such Lender in the portion of the Loans as
to which such Eurodollar Pricing Option has been elected and which
have a term corresponding to the Eurodollar Interest Period in
question will not be offered in the Eurodollar market to such Lender
at a rate of interest that does not exceed the anticipated Eurodollar
Basic Rate.
3.2.2. Notice to Lenders and the Borrowers. The Agent will
promptly inform each Lender (by telephone or otherwise) of each notice
received by it from a Borrower pursuant to Section 3.2.1 and of the
Eurodollar Interest Period specified in such notice. Upon
determination by the Agent of the Eurodollar Rate for such Eurodollar
Interest Period or in the event such election shall not become
effective, the Agent will promptly notify such Borrower and each
Lender (by telephone or otherwise) of the Eurodollar Rate so
determined or why such election did not become effective, as the case
may be.
3.2.3. Selection of Eurodollar Interest Periods. Eurodollar
Interest Periods shall be selected so that:
(a) the minimum portion of the Loans subject to any
Eurodollar Pricing Option shall be $500,000 and an integral multiple
of $100,000;
(b) no more than 6 Eurodollar Pricing Options shall be
outstanding at any one time; and
(c) no Eurodollar Interest Period with respect to any part of
the Loans subject to a Eurodollar Pricing Option shall expire later
than the relevant Final Maturity Date.
3.2.4. Additional Interest. If any portion of the Loans
subject to a Eurodollar Pricing Option is repaid, or any Eurodollar
Pricing Option is terminated for any reason (including acceleration of
maturity), on a date which is prior to the last Banking Day of the
Eurodollar Interest Period applicable to such Eurodollar Pricing
Option, the Borrowers will pay to the Agent for the account of each
Lender in accordance with such Lender's Percentage Interest, in
addition to any amounts of interest otherwise payable hereunder, an
amount equal to the present value (calculated in accordance with this
Section 3.2.4) of interest for the unexpired portion of such
Eurodollar Interest Period on the portion of the Loans so repaid, or
as to which a Eurodollar Pricing Option was so terminated, at a per
annum rate equal to the excess, if any, of (a) the rate applicable to
such Eurodollar Pricing Option minus (b) the lowest rate of interest
obtainable by the Agent upon the purchase of debt securities
customarily
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issued by the Treasury of the United States of America which have a
maturity date approximating the last Banking Day of such Eurodollar
Interest Period. The present value of such additional interest shall
be calculated by discounting the amount of such interest for each day
in the unexpired portion of such Eurodollar Interest Period from such
day to the date of such repayment or termination at a per annum
interest rate equal to the interest rate determined pursuant to clause
(b) of the preceding sentence, and by adding all such amounts for all
such days during such period. The determination by the Agent of such
amount of interest shall, in the absence of manifest error, be
conclusive. For purposes of this Section 3.2.4, if any portion of the
Revolving Loan which was to have been subject to a Eurodollar Pricing
Option is not outstanding on the first day of the Eurodollar Interest
Period applicable to such Eurodollar Pricing Option other than for
reasons described in Section 3.2.1, the Borrowers shall be deemed to
have terminated such Eurodollar Pricing Option.
3.2.5. Violation of Legal Requirements. If any Legal
Requirement shall prevent any Lender from funding or maintaining
through the purchase of deposits in the interbank Eurodollar market
any portion of the Loans subject to a Eurodollar Pricing Option or
otherwise from giving effect to such Lender's obligations as
contemplated by Section 3.2, (a) the Agent may by notice to the
Borrowers terminate all of the affected Eurodollar Pricing Options,
(b) the portion of the Loans subject to such terminated Eurodollar
Pricing Options shall immediately bear interest thereafter at the
Applicable Rate computed on the basis of the Base Rate and (c) the
Borrowers shall make any payment required by Section 3.2.4.
3.2.6. Funding Procedure. The Lenders may fund any portion of
the Loans subject to a Eurodollar Pricing Option out of any funds
available to the Lenders. Regardless of the source of the funds
actually used by any of the Lenders to fund any portion of the Loans
subject to a Eurodollar Pricing Option, however, all amounts payable
hereunder, including the interest rate applicable to any such portion
of the Loans and the amounts payable under Sections 3.2.4, 3.6, 3.7,
3.8 and 3.9, shall be computed as if each Lender had actually funded
such Lender's Percentage Interest in such portion of the Loans (or
such portion of the Mortgage Loan) through the purchase of deposits in
such amount of the type by which the Eurodollar Basic Rate was
determined with a maturity the same as the applicable Eurodollar
Interest Period relating thereto and through the transfer of such
deposits from an office of the Lender having the same location as the
applicable Eurodollar Office to one of such Lender's offices in the
United States of America.
3.3. Fixed Rate Option. Subject to all of the terms and conditions
hereof and so long as no Default exists, the Borrowers may, by irrevocable
notice to the Agent actually received not less than one Banking Day prior to
the Closing Date on the Mortgage Loan, elect to have such portion of the
Mortgage Loan as the Borrowers may specify in such notice accrue
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and bear interest at the Applicable Rate computed on the basis of the Bank of
Boston's cost of funds.
3.4. Commitment Fees. In consideration of the Lenders' commitments
to make the extensions of credit provided for in Section 2.1, while such
commitments are outstanding, the Borrowers will pay to the Agent for the
account of the Lenders in accordance with the Lenders' respective Percentage
Interests in the Revolving Loan, on the first Banking Day of each fiscal
quarter, an amount equal to interest computed at the rate of 0.15% per annum on
the amount by which (a) the average daily Maximum Amount of Revolving Credit
during the three-month period or portion thereof ending on such Payment Date
exceeded (b) the sum of (i) the average daily Revolving Loan during such period
or portion thereof; provided, however, that the first such payment shall be for
the period beginning on the Initial Closing Date and ending on the first
Payment Date.
3.5. Reserve Requirements, etc. If any Legal Requirement shall (a)
impose, modify, increase or deem applicable any insurance assessment, reserve,
special deposit or similar requirement against any Funding Liability, (b)
impose, modify, increase or deem applicable any other requirement or condition
with respect to any Funding Liability, or (c) change the basis of taxation of
Funding Liabilities (other than changes in the rate of taxes measured by the
overall net income of such Lender) and the effect of any of the foregoing shall
be to increase the cost to any Lender of issuing, making, funding or
maintaining its respective Percentage Interest in any portion of the Loans
subject to a Eurodollar Pricing Option, to reduce the amounts received or
receivable by such Lender under this Agreement or to require such Lender to
make any payment or forego any amounts otherwise payable to such Lender under
this Agreement, then, the Lender shall, promptly after it has made such
determination, give notice thereof to the Company. Promptly after the receipt
by the Company of any such notice, the Company and the Lender shall attempt to
negotiate in good faith an adjustment to the amount payable by the Borrowers to
the Lender under this Section 3.4, which amount shall be sufficient to
compensate the Lender for such increased cost or reduced return. If the Company
and the Lender are unable to agree to such adjustment within thirty days of the
date upon which the Company receives such notice, then the Borrowers will, on
demand by the Lender, pay to the Lender such additional amount as shall be
sufficient, in the Lender's reasonable determination, to compensate the Lender
for such increased cost or such reduced return, together with interest at the
Overdue Reimbursement Rate from the 30th day after receipt of such certificate
until payment in full thereof; provided, however, that the foregoing provisions
shall not apply to any Tax or to any reserves which are included in computing
the Eurodollar Reserve Rate. The determination by such Lender of the amount of
such costs shall, in the absence of manifest error, be conclusive.
3.6. Taxes. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions, including
deductions for Taxes, unless the Borrowers are required by law to make such
deductions. If (a) any Lender shall be subject to any Tax with respect to any
payment of the Credit Obligations or its obligations hereunder
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or (b) any Borrower shall be required to withhold or deduct any Tax on any
payment on the Credit Obligations, then, the Lender shall, promptly give notice
of its claim for compensation under this Section 3.6 to the Company. Promptly
after the receipt by the Company of any such notice, the Company and the Lender
shall attempt to negotiate in good faith an adjustment to the amount payable by
the Borrowers to the Lender under this Section 3.6, which amount shall be
sufficient to compensate the Lender for the amount of the Tax so imposed or the
full amount of all payments which would have been received on the Credit
Obligations in the absence of such Tax. If the Company and the Lender are
unable to agree to such adjustment within thirty days of the date upon which
the Company receives such notice, then the Borrowers will, on demand by the
Lender, pay to the Lender such additional amount as shall be sufficient, in the
Lender's reasonable determination, to enable such Lender to receive the amount
of Tax so imposed on the Lender's obligations hereunder or the full amount of
all payments which it would have received on the Credit Obligations (including
amounts required to be paid under Sections 3.5, 3.7, 3.8 and this Section 3.6)
in the absence of such Tax, as the case may be, together with interest at the
Overdue Reimbursement Rate on such amount from the 30th day after receipt of
such certificate until payment in full thereof. Whenever Taxes must be withheld
by any Borrower with respect to any payments of the Credit Obligations, the
Borrowers shall promptly furnish to the Agent for the account of the applicable
Lender official receipts (to the extent that the relevant governmental
authority delivers such receipts) evidencing payment of any such Taxes so
withheld. If the Borrowers fail to pay any such Taxes when due or fail to remit
to the Agent for the account of the applicable Lender the required receipts
evidencing payment of any such Taxes so withheld or deducted, the Borrowers
shall indemnify the affected Lender for any incremental Taxes and interest or
penalties that may become payable by such Lender as a result of any such
failure. The determination by such Lender of the amount of such Tax and the
basis therefor shall, in the absence of manifest error, be conclusive.
3.7. Capital Adequacy. If any Lender shall determine that
compliance by such Lender with any Legal Requirement regarding capital adequacy
of banks or bank holding companies has or would have the effect of reducing the
rate of return on the capital of such Lender and its Affiliates as a
consequence of such Lender's commitment to make the extensions of credit
contemplated hereby, or such Lender's maintenance of the extensions of credit
contemplated hereby, to a level below that which such Lender could have
achieved but for such compliance (taking into consideration the policies of
such Lender and its Affiliates with respect to capital adequacy immediately
before such compliance and assuming that the capital of such Lender and its
Affiliates was fully utilized prior to such compliance) by an amount deemed by
such Lender to be material, then, the Lender shall, promptly after it has made
such determination, give notice thereof to the Company. Promptly after the
receipt by the Company of any such notice, the Company and the Lender shall
attempt to negotiate in good faith an adjustment to the amount payable by the
Borrowers to the Lender under this Section 3.7, which amount shall be
sufficient to compensate the Lender for such reduced return. If the Company and
the Lender are unable to agree to such adjustment within thirty days of the
date upon which the Company receives such notice, then the Borrowers will, on
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demand by the Lender, pay to the Lender such additional amount as shall be
sufficient, in the Lender's reasonable determination, to compensate the Lender
for such reduced return, together with interest at the Overdue Reimbursement
Rate from the 30th day until payment in full thereof. The determination by such
Lender of the amount to be paid to it and the basis for computation thereof
shall, in the absence of manifest error, be conclusive. In determining such
amount, such Lender may use any reasonable averaging, allocation and
attribution methods.
3.8. Regulatory Changes. If any Lender shall determine that (a) any
change in any Legal Requirement (including any new Legal Requirement) after the
date hereof shall directly or indirectly (i) reduce the amount of any sum
received or receivable by such Lender with respect to the Revolving Loan or the
Letters of Credit or the return to be earned by such Lender on the Revolving
Loan or the Letters of Credit, (ii) impose a cost on such Lender or any
Affiliate of such Lender that is attributable to the making or maintaining of,
or such Lender's commitment to make, its portion of the Revolving Loan or the
Letters of Credit, or (iii) require such Lender or any Affiliate of such Lender
to make any payment on, or calculated by reference to, the gross amount of any
amount received by such Lender under any Credit Document, and (b) such
reduction, increased cost or payment shall not be fully compensated for by an
adjustment in the Applicable Rate or the Letter of Credit fees, then, the
Lender shall, promptly after it has made such determination, give notice
thereof to the Company. Promptly after the receipt by the Company of any such
notice, the Company and the Lender shall attempt to negotiate in good faith an
adjustment to the amount payable by the Borrowers to the Lender under this
Section 3.8, which amount, together with any adjustment in the Applicable Rate,
shall be sufficient to fully compensate the Lender for such reduction,
increased cost or payment taking into account any compensation for such
reduction, increased cost or payment received by the Lender pursuant to the
provisions of Section 3.5, 3.6 or 3.7 hereof. If the Company and the Lender are
unable to agree to such adjustment within thirty days of the date upon which
the Company receives such notice, then the Borrowers will, on demand by the
Lender, pay to the Lender such additional amount, together with any adjustment
in the Applicable Rate, as shall be sufficient to fully compensate the Lender
for such reduction, increased cost or payment, together with interest on such
amount from the 30th day after receipt of such certificate until payment in full
thereof at the Overdue Reimbursement Rate. The determination by such Lender of
the amount to be paid to it and the basis for computation thereof hereunder
shall, in the absence of manifest error, be conclusive. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
3.9. Computations of Interest and Fees. For purposes of this
Agreement, interest and commitment fees (and any other amount expressed as
interest or such fees) shall be computed on the basis of a 360-day year for
actual days elapsed. If any payment required by this Agreement becomes due on
any day that is not a Banking Day, such payment shall, except as otherwise
provided in the Eurodollar Interest Period, be made on the next succeeding
Banking Day. If the due date for any payment of principal is extended as a
result of the
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immediately preceding sentence, interest shall be payable for the time during
which payment is extended at the Applicable Rate.
4. Payment.
4.1. Payment of Revolving Loan.
4.1.1. Payment at Maturity. On the stated or any accelerated
maturity of the Revolving Note, each Borrower will pay to the Agent
for the account of the Lenders as evidenced by its Loan Account,
together with all accrued and unpaid interest thereon.
4.1.2. Mandatory Prepayment. If at any time the Revolving
Loan exceeds the Maximum Amount of Revolving Credit minus the
Specified Insurance Reserve Amount, whether as a result of voluntary
reductions pursuant to Section 2.1 or otherwise, the Borrowers will
promptly pay the amount of such excess to the Agent for the account of
the Lenders.
4.1.3. Voluntary Prepayments of Revolving Loan. In
addition to the prepayment required by Section 4.1.2, the Borrowers
may from time to time prepay all or any portion of the Revolving Loan,
without penalty or premium (except as provided in Section 3.2.4 with
respect to the early termination of Eurodollar Pricing Options). Such
Borrower shall give the Agent at least one Banking Day prior notice of
its intention to prepay, specifying the date of payment, the total
amount of the Revolving Loan to be paid on such date and the amount of
interest to by paid with such prepayment.
4.1.4. Reborrowing; Application of Payments. The amounts of
the Revolving Loan prepaid pursuant to Section 4.1.3 may be reborrowed
from time to time prior to the Final Maturity Date in accordance with
Section 2.1. The amount of the Revolving Loan prepaid pursuant to
Section 4.1.1 may not be reborrowed. All payments of principal
hereunder shall be made to the Agent for the account of the Lenders
and shall be applied first to the portion of the Revolving Loan then
subject to Eurodollar Pricing Option then the balance of any such
payment shall be applied to a portion of the Revolving Loan then
subject to the Eurodollar Pricing Options, in the chronological order
of the respective maturities, thereof, together with any payment
required by Section 3.4.
4.2. Payment of Mortgage Loan.
4.2.1. Payment at Maturity. On the stated or any accelerated
maturity of the Mortgage Note, the Company will pay to Bank of Boston
for credit to the Mortgage Note an amount equal to the Indebtedness
evidenced by the Mortgage Note, together
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with all accrued and unpaid interest thereon and all other Credit
Obligations then outstanding in respect of the Mortgage Loan.
4.2.2. Mandatory Prepayments of the Mortgage Loan. On each
Payment Date, commencing with the first such date after the Initial
Closing Date, the Company will pay to the Agent for credit to the
Mortgage Note an amount equal to the lesser of (i) 1.67% of the
original principal amount of the Mortgage Loan or (ii) the remaining
balance of the Mortgage Loan.
4.2.3. Voluntary Prepayments of the Mortgage Loan. In
addition to the prepayments required by Section 4.2.2, the Company may
from time to time prepay all or any portion of the Mortgage Loan,
other than portions subject to the Fixed Rate Option, without penalty
or premium, together with all accrued and unpaid interest on the
portion of the Mortgage Loan then being prepaid. With respect to such
prepayment, the Company shall give the Agent at least one Banking
Day's prior notice of its intention to prepay, specifying the date of
payment, the total principal amount of the Mortgage Loan to be paid on
such date and the amount of interest to be paid with such prepayment.
No voluntary prepayment of the Mortgage Loan shall relieve the Company
of its obligations to make the mandatory prepayments required by
Section 4.2.2 and any such voluntary prepayment shall be applied to
the payments required by Section 4.2.2 in the inverse order of
maturity.
4.2.4. No Reborrowing. The amounts of the Mortgage Loan paid
pursuant to Section 4.2 may not be reborrowed.
5. Conditions to Extending Credit.
5.1. Conditions on Initial Closing Date on the Revolving Loan. The
obligations of the Lenders to make the initial Revolving Loan pursuant to
Section 2.1 shall be subject to the satisfaction, on or before the Initial
Closing Date, of the conditions set forth in this Section 5.1 as well as the
further conditions in Section 5.4. If the conditions set forth in this Section
5.1 and 5.4 are not met on or prior to the Initial Closing Date, the Lenders
shall have no obligation to make any extensions of credit under the Revolving
Loan.
5.1.1. Revolving Notes. Each Borrower shall have duly
executed and delivered to the Agent a Revolving Note for each Lender.
5.1.2. Legal Opinion. On the Initial Closing Date, the
Lenders shall have received from Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A., counsel for the Borrowers, their opinion with
respect to the transactions contemplated by the Credit Documents,
which opinion shall be in form and substance satisfactory to the
Required Lenders.
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The Borrowers authorize and direct their counsel to furnish the
foregoing opinions.
5.1.3. Payment of Fee. The Borrowers shall have paid a
facility fee of $75,000 to the Agent for the accounts of the Lenders
in accordance with their respective Percentage Interests in the
Revolving Loan.
5.1.4. Forms of Acquisition Documents. The Company shall have
delivered to the Agent proposed forms of Acquisition Agreement,
Employment Agreement and such other form agreements as the Company
will use in connection with Permitted Acquisitions.
5.1.5. Offering Documents. The Company shall have delivered
to the Agent copies of any offering memoranda or other similar
documents used in connection with the offering of any ownership
interests in the Company.
5.2. Conditions to Mortgage Loan. The obligation of the Lenders to
make the Mortgage Loan pursuant to Section 2.2 shall be subject to the
satisfaction on or before July 31, 1996, of the conditions set forth in this
Section 5.2 as well as the further conditions in Section 5.4. If the conditions
set forth in this Section 5.2 are not met on or prior to July 31, 1996, the
Lenders will have no obligation to make any extension of credit under the
Mortgage Loan.
5.2.1. Mortgage Note. The Company shall have executed and
delivered the Mortgage Note.
5.2.2. Mortgage. The Company shall have executed and
delivered the Mortgage.
5.2.3. Title Insurance. The Company shall have obtained at
its sole cost and expense title insurance reasonably satisfactory to
the Agent covering the premises subject to the Mortgage.
5.2.4. Payment of Fee. The Company shall have paid a facility
fee of $15,000 to the Agent for the accounts of the Lenders in
accordance with their respective Percentage Interests in the Mortgage
Loan.
5.2.5. Environmental Audit. The Company shall have delivered
to the Agent an environmental audit of the premises subject to the
Mortgage, from a reputable environmental consultant, in form and
substance reasonably satisfactory to the Agent, which audit indicates
that (i) neither the property nor any existing improvements thereof
have been or are presently being used for the handling, storage,
transportation or disposal of hazardous or toxic materials, (ii) no
asbestos materials exist on the
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premises, and (iii) there has been no discharge of hazardous or toxic
materials on or from the premises.
5.2.6. Insurance Policies. The Company shall have with
financially sound and reputable insurers, reasonably acceptable to the
Agent, Insurance against liability for hazards, risks and liability to
persons (for both death and bodily injury) and property, including
product liability insurance and medical malpractice insurance, to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities in similar localities, and all such policies shall provide
for at least 30 days prior written notice to the Agent of the
cancellation, expiration or substantial modification thereby. All
hazard policies relating to the premises covered by the Mortgage must
name Bank of Boston and its successors and assigns as first mortgagee.
5.3. Conditions to Making Each Permitted Acquisition Advance. The
Lenders' several obligations to make any loan contemplated by Section 2.1 or
2.2, the proceeds of which will be applied to a Permitted Acquisition, shall be
subject to the satisfaction, on or before the date of consummation of the
proposed Permitted Acquisition, of the following conditions, as well as the
further conditions set forth in Section 5.4:
5.3.1. Permitted Acquisition. Other than as consented to by
the Agent in writing:
(a) The provisions of the Acquisition Agreement relating to
such Permitted Acquisition shall not have been amended, modified,
waived or terminated in any material respect from the form of such
Agreement delivered to the Agent pursuant to Section 5.1 (unless such
amendment or modification, in form reasonably acceptable to the Agent,
shall have been provided to the Agent prior to such Permitted
Acquisition) and all material executed documents, including all
schedules and exhibits thereto, shall have been delivered to the Agent
within 30 days of the closing of such Permitted Acquisition.
(b) All of the representations and warranties of the Sellers
set forth in such Acquisition Agreement shall be complete and correct
in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of such date.
(c) All of the other conditions to the obligations of the
Borrowers set forth in such Acquisition Agreement shall have been
satisfied or waived by each of the other parties to such
Acquisition Agreement.
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(d) Any material consent, authorization, order or approval of
any Person required in connection with the transactions contemplated
by such Acquisition Agreement shall have been obtained and shall be in
full force and effect.
(e) All of the items required to be delivered under such
Acquisition Agreement shall have been so delivered.
(f) The Company shall furnish to the Required Lenders
computations demonstrating compliance with Section 6.9.4, certified by
a Financial Officer of the Company.
(g) Contemporaneously with or immediately after the making by
the Lenders of the extension of credit hereunder, the Lenders shall
have received a certificate of a Financial Officer of the Borrower to
the effect that (A) the initial closing has occurred under such
Acquisition Agreement and (B) each of the conditions set forth in this
Section 5.3.1 has been satisfied.
5.3.2. Notes and Credit Documents; Merger. Contemporaneously
with or immediately after such Permitted Acquisition, such Acquired
Party shall either (a) execute and deliver to the Agent a Revolving
Note for each Lender and a Joinder Agreement to the Credit Agreement
and each other Lender Agreement in the form of Exhibit 5.3.2 or (b) be
merged with and into an existing Borrower, in which case the Company
shall have received a certificate of a Financial Officer of the
Company to the effect that the merger of such Acquired Party with and
into an existing Borrower has been consummated.
5.3.3. Legal Opinions. On the date of such Permitted
Acquisition, the Lenders shall have received from counsel reasonably
satisfactory to the Agent (a) an opinion with respect to the addition
of the Acquired Party as a Borrower and a Guarantor under this
Agreement and the other Credit Documents and (b) an opinion with
respect to the transactions contemplated by the Acquisition Agreement,
which opinions shall be in a form and substance satisfactory to the
Agent.
5.4. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of
credit, of the following conditions:
5.4.1. Officer's Certificate. The representations and
warranties contained in Section 7 shall be true and correct on and as
of such Closing Date with the same force and effect as though made on
and as of such date (except as to any representation or warranty which
refers to a specific earlier date); that the Borrowers shall be in
compliance with the covenants contained in Section 6 and no Default
shall exist on such Closing Date prior to or immediately after giving
effect to the requested extension of
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credit; no Material Adverse Change shall have occurred since December
31, 1995; and the Borrower that is requesting an extension of credit
shall have furnished to the Agent in connection with the requested
extension of credit a certificate to these effects, in substantially
the form of Exhibit 5.4.1, signed by a Financial Officer.
5.4.2. Legality, etc. The making of the requested extension
of credit shall not (a) subject any Lender to any penalty or special
tax (other than a Tax for which the Borrowers are required to
reimburse the Lenders under Section 3.5), (b) be prohibited by any
Legal Requirement or (c) violate any credit restraint program of the
executive branch of the government of the United States of America,
the Board of Governors of the Federal Reserve System or any other
governmental or administrative agency so long as any Lender reasonably
believes that compliance is in the best interests of the Lender.
5.4.3. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall
have been authorized by all necessary corporate or other proceedings
of the Borrowers. All necessary consents, approvals and authorizations
of any governmental or administrative agency or any other Person of
any of the transactions contemplated hereby or by any other Credit
Document shall have been obtained and shall be in full force and
effect.
5.4.4. General. All legal and corporate proceedings in
connection with the transactions contemplated by this Agreement and
each other Credit Document shall be satisfactory in form and substance
to the Agent and the Agent shall have received copies of all
documents, including certified copies of the Charter and By-Laws of
the Borrowers and the other Obligors, records of corporate
proceedings, certificates as to signatures and incumbency of officers
and opinions of counsel, which the Agent may have reasonably requested
in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
6. General Covenants. Each of the Borrowers covenants that, until all of the
Credit Obligations shall have been paid in full and until the Lenders'
commitments to extend credit under this Agreement and any other Credit Document
shall have been irrevocably terminated, it will comply, and will cause its
Subsidiaries to comply with the following provisions:
6.1. Taxes and Other Charges; Accounts Payable.
6.1.1. Taxes and Other Charges. Each of the Borrowers shall
duly pay and discharge, or cause to be paid and discharged, before the
same become in arrears, all taxes, assessments and other governmental
charges imposed upon such Person and its properties, sales or
activities, or upon the income or profits therefrom, as well as all
claims for labor, materials or supplies which if unpaid might by law
become a Lien upon any of its property; provided, however, that any
such tax, assessment, charge or
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claim need not be paid if the validity or amount thereof shall at the
time be contested in good faith by appropriate proceedings and if such
Person shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto; and provided, further, that
each of the Borrowers shall pay or bond, or cause to be paid or
bonded, all such taxes, assessments, charges or other governmental
claims immediately upon the commencement of proceedings to foreclose
any Lien which may have attached as security therefor (except to the
extent such proceedings have been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Borrowers shall promptly
pay when due, or in conformity with customary trade terms, all other
Indebtedness, including accounts payable, incident to the operations
of such Person not referred to in Section 6.1.1; provided, however,
that any such Indebtedness need not be paid if the validity or amount
thereof shall at the time be contested in good faith and if such
Person shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Borrowers shall engage only in
the business of providing medical and related services.
6.2.2. Maintenance of Properties. Each of the Borrowers:
(a) shall keep its properties in such repair, working order
and condition, and shall from time to time make such repairs,
replacements, additions and improvements thereto as are necessary for
the efficient operation of its businesses and shall comply at all
times in all material respects with all franchises, licenses, leases
and other material agreements to which it is party so as to prevent
any loss or forfeiture thereof or thereunder, except where (i)
compliance is at the time being contested in good faith by appropriate
proceedings or (ii) failure to comply with the provisions being
contested has not resulted, or does not create a material risk of
resulting, in the aggregate in any Material Adverse Change; provided,
however, that this Section 6.2.2(a) shall not apply to assets or
entities disposed of in transactions permitted by Section 6.12; and
(b) shall do all things necessary to preserve, renew and keep
in full force and effect and in good standing its legal existence and
authority necessary to continue its business; provided, however, that
this Section 6.2.2(b) shall not prevent the merger, consolidation or
liquidation of Subsidiaries permitted by Section 6.12.
6.2.3. Statutory Compliance. Each of the Borrowers shall
comply in all material respects with all Legal Requirements, except
where (a) compliance therewith shall at the time be contested in good
faith by appropriate proceedings or (b) failure so
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to comply with the provisions being contested would not in the
aggregate result in any Material Adverse Change.
6.2.4. No Subsidiaries. No Borrower shall form or suffer to
exist any Subsidiary, except for such Subsidiaries as shall have
executed and delivered to the Agent either (a) this Agreement and each
other Credit Document as of the Initial Closing Date or (b) a Joinder
Agreement in the form of Exhibit 5.3.2 pursuant to which such
Subsidiary shall have become a Borrower and a Guarantor hereunder.
6.2.5. Compliance with Material Agreements. Each of the
Borrowers shall comply in all material respects with the Material
Agreements (to the extent not in violation of the other provisions of
this Agreement or any other Credit Document). Without the prior
written consent of the Required Lenders, which consent shall not be
unreasonably withheld, no Material Agreement shall be amended,
modified, waived or terminated in any manner that would have in any
material respect an adverse effect on the interests of the Lenders.
6.3. Insurance.
6.3.1. Business Interruption Insurance. The Borrowers shall
maintain with financially sound and reputable insurers, reasonably
satisfactory to the Agent, insurance related to interruption of
business, either for loss of revenues or for extra expense, in the
manner customary for businesses of similar size engaged in similar
activities in similar localities.
6.3.2. Property Insurance. The Borrowers shall keep their
assets which are of an insurable character insured by financially
sound and reputable insurers, reasonably satisfactory to the Agent,
against theft and fraud and against loss or damage by fire, explosion
and hazards and such other extended coverage risks insured against by
extended coverage to the extent, in amounts and with deductibles at
least as favorable as those generally maintained by businesses of
similar size engaged in similar activities in similar localities and
all such policies which relate to the premises covered by the Mortgage
shall name Bank of Boston and its successors and assigns as first
mortgagee.
6.3.3. Liability Insurance. The Borrowers shall maintain with
financially sound and reputable insurers, reasonably satisfactory to
the Agent, insurance against liability for hazards, risks and
liability to persons (for both death and bodily injury) and property,
including product liability insurance and medical malpractice
insurance, to the extent, in amounts and with deductibles at least as
favorable as those generally maintained by businesses of similar size
engaged in similar activities in similar localities; provided,
however, that it may effect workers' compensation insurance or similar
coverage with respect to operations in any particular state or other
jurisdiction
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through an insurance fund operated by such state or jurisdiction or by
meeting the self-insurance requirements of such state or jurisdiction.
Each of the required policies described in this Section 6.3
shall provide for at least 30 days prior written notice to the Agent
of the cancellation, expiration or substantial modification thereof.
6.4. Financial Statements and Reports. Each of the Borrowers shall
maintain a system of accounting in which correct entries shall be made of all
transactions in relation to their business and affairs in accordance with
generally accepted accounting practice. The fiscal year of the Borrowers shall
end on December 31 in each year and the fiscal quarters of the Borrowers shall
end on March 31, June 30, September 30 and December 31 in each year.
6.4.1. Annual Reports. The Borrowers shall furnish to the
Lenders as soon as available, and in any event within 120 days after
the end of each fiscal year, the Consolidated balance sheets of the
Borrowers and their respective Subsidiaries as at the end of such
fiscal year, the Consolidated statements of income and Consolidated
statements of changes in shareholders' equity and of cash flows of the
Borrowers and their respective Subsidiaries for such fiscal year (all
in reasonable detail) and together, in the case of Consolidated
financial statements, with comparative figures for the immediately
preceding fiscal year, all accompanied by:
(a) Unqualified reports of Coopers & Lybrand (or, if they
cease to act as auditors of the Borrowers, independent certified
public accountants of recognized national standing reasonably
satisfactory to the Required Lenders), containing no material
uncertainty, to the effect that they have audited the foregoing
Consolidated financial statements in accordance with generally
accepted auditing standards and that such Consolidated financial
statements present fairly, in all material respects, the financial
position of the Borrowers and their respective Subsidiaries covered
thereby at the dates thereof and the results of their operations for
the periods covered thereby in conformity with GAAP.
(b) The statement of such accountants that they have caused
this Agreement to be reviewed and that in the course of their audit of
the Borrowers and their respective Subsidiaries no facts have come to
their attention that cause them to believe that any Default exists and
in particular that they have no knowledge of any Default under
Sections 6.5 through 6.16 or, if such is not the case, specifying such
Default and the nature thereof. This statement is furnished by such
accountants with the understanding that the examination of such
accountants cannot be relied upon to give such accountants knowledge
of any such Default except as it relates to accounting or auditing
matters within the scope of their audit.
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(c) A certificate of the Company signed by a Financial
Officer, substantially in the form of Exhibit 6.4.1, to the effect
that such officer has caused this Agreement to be reviewed and has no
knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof, and what action such
Borrower has taken, is taking or proposes to take with respect
thereto, and containing a schedule of computations by the Company
demonstrating, as of the end of such fiscal year, compliance with the
Computation Covenants.
(d) Supplements to Exhibits 7.1 and 7.3 showing any changes
in the information set forth in such Exhibits not previously furnished
to the Lenders in writing, as well as any changes in the Charter,
Bylaws or incumbency of officers of any of the Borrowers or their
respective Subsidiaries from those previously certified to the Agent.
6.4.2. Quarterly Reports. The Borrowers shall furnish to the
Lenders as soon as available and, in any event, within 60 days after
the end of each of the first three fiscal quarters of the Borrowers,
the internally prepared Consolidated balance sheets of the Borrowers
and their respective Subsidiaries as of the end of such fiscal
quarter, the Consolidated statements of income and Consolidated
statements of cash flows of the Borrowers and their respective
Subsidiaries for such fiscal quarter and for the portion of the fiscal
year then ended (all in reasonable detail) and together, in the case
of Consolidated statements, with comparative figures for the same
period in the preceding fiscal year, all accompanied by:
(a) A certificate of the Company signed by a Financial
Officer, substantially in the form of Exhibit 6.4.2
(i) to the effect that such financial statements
have been prepared in accordance with GAAP and present fairly,
in all material respects, the financial position of the
Borrowers and their respective Subsidiaries covered thereby at
the dates thereof and the results of their operations for the
periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes;
(ii) to the effect that such officer has caused this
Agreement to be reviewed and has no knowledge of any Default,
or if such officer has such knowledge, specifying such Default
and the nature thereof and what action the Company has taken,
is taking or proposes to take with respect thereto; and
(iii) including a schedule of computations by the
Company demonstrating, as of the end of such quarter,
compliance with the Computation Covenants.
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(b) Supplements to Exhibits 7.1 and 7.3 showing any changes
in the information set forth in such Exhibits not previously furnished
to the Lenders in writing, as well as any changes in the Charter,
Bylaws or incumbency of officers of any of the Borrowers or their
respective Subsidiaries from those previously certified to the Agent.
6.4.3. Other Reports. The Borrowers shall promptly furnish to
the Lenders:
(a) As soon as prepared and in any event within 30 days after
the beginning of each fiscal year, a business plan, an annual budget
and operating projections for such fiscal year of the Company,
certified by a Financial Officer of the Company.
(b) As soon as available, any material updates of such plan,
budget and projections.
(c) Any management letters furnished to the Company or any of
its Related Entities by the Company's auditors.
(d) As soon as practicable but, in any event, within 20
Banking Days after the filing thereof, such registration statements,
proxy statements and reports, including, to the extent applicable,
Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by the
Company or any of its Related Entities with the Securities and
Exchange Commission.
(e) Any material information relating to a material audit or
investigation of any Borrower in its capacity as a Medicaid provider
by a governmental or administrative agency.
6.4.4. Notice of Litigation, Defaults, etc. Each of the
Borrowers shall promptly furnish to the Lenders notice of any
litigation or any administrative or arbitration proceeding (a) which
creates a material risk of resulting, after giving effect to any
applicable insurance, in the payment by any Borrower or any of its
Subsidiaries of more than $750,000 or (b) which results, or creates a
material risk of resulting, in a Material Adverse Change. Within five
Banking Days after acquiring knowledge thereof, such Borrower shall
notify the Lenders of the existence of any Default or Material Adverse
Change, specifying the nature thereof and what action the Company,
such Borrower or such Subsidiary has taken, is taking or proposes to
take with respect thereto.
6.4.5. ERISA Reports. Each of the Borrowers shall furnish to
the Lenders promptly after the same shall become available the
following items with respect to any Plan:
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(a) any request for a waiver of the funding standards or an
extension of the amortization period required by sections 303 and 304
of ERISA or section 412 of the Code, promptly after any Control Group
Person submits such request to the Department of Labor or the Internal
Revenue Service,
(b) any reportable event (as defined in section 4043 of
ERISA), unless the notice requirement with respect thereto has been
waived by regulation, promptly after any Control Group Person learns
of such reportable event; and furnish the Bank with a copy of the
notice of such reportable event required to be filed with the PBGC,
promptly after such notice is required to be given,
(c) any notice received by any Control Group Person that the
PBGC has instituted or intends to institute proceedings to terminate
any Plan, or that any Multiemployer Plan is insolvent or in
reorganization status under Title IV of ERISA, promptly after receipt
of such notice,
(d) notice of the possibility of the termination of any Plan
by its administrator pursuant to section 4041 of ERISA, as soon as any
Control Group Person learns of such possibility and in any event prior
to such termination; and furnish the Bank with a copy of any notice to
the PBGC that a Plan is to be terminated, promptly after any Control
Group Person files a copy of such notice, and
(e) notice of the intention of any Control Group Person to
withdraw, in whole or in part, from any Multiemployer Plan, prior to
such withdrawal, and, upon any Bank's request from time to time, of
the extent of the liability, if any, of such Person as a result of
such withdrawal, to be the best of such Person's knowledge at such
time.
6.4.6. Other Information. From time to time upon request of
any authorized officer of any Lender, each of the Borrowers shall
furnish to the Lenders (a) such information regarding the Tax
Assessment disclosed on Schedule 7.11 as such officer may request and
(b) and if such Tax Assessment has not been resolved by the second
anniversary of the Initial Closing Date, the Borrower shall furnish to
the Lenders a written statement of their intentions regarding how they
plan to dispose of the Tax Assessment, and such other information
regarding the business, assets, financial condition, income or
prospects of the Borrowers as such officer may reasonably request,
including copies of all tax returns, licenses, agreements, leases and
instruments to which any of the Borrowers is party. The Lenders'
authorized officers and representatives shall have the right during
normal business hours upon reasonable notice and at reasonable
intervals to examine the books and records of the Borrowers, to make
copies and notes therefrom for the purpose of ascertaining compliance
with or obtaining enforcement of this Agreement or any other Credit
Document.
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6.5. Certain Financial Tests.
6.5.1. Total Liabilities to Consolidated Net Worth. The
Company and its Related Entities will at all times maintain the ratio
of Total Liabilities to Consolidated Net Worth of not more than 0.75
to 1.0.
6.5.2. Total Liabilities to Consolidated Tangible Net Worth.
The Borrower and its Related Entities will at all times maintain the
ratio of Total Liabilities to Consolidated Tangible Net Worth of not
more than 3.0 to 1.0.
6.5.3. Consolidated Total Debt Service. On the last day of
each fiscal quarter of the Company and its Related Entities, Operating
Cash Flow shall be at least 130% of Consolidated Fixed Charges for the
period of four consecutive fiscal quarters then ended.
6.5.4. Consolidated Net Worth. On the last day of each fiscal
quarter, the Consolidated Net Worth shall equal at least $55,000,000,
plus the aggregate net proceeds of any offerings of equity interests
in the Company or any of its Related Entities occurring on or after
the Initial Closing Date.
6.5.5. Total Liabilities. At all times, Total Liabilities
incurred after the Initial Closing Date other than the Credit
Obligations and up to $4.5 million liabilities arising form matters
disclosed on Exhibit 7.11 shall be less than or equal to $5,000,000.
6.6. Indebtedness. None of the Borrowers shall create, incur,
assume or otherwise become or remain liable with respect to any Indebtedness
except the following:
6.6.1. Indebtedness in respect of the Credit Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Current liabilities, other than Financing Debt,
incurred in the ordinary course of business, provided, however that
all such Indebtedness, including without limitation trade payables,
shall be paid in accordance with Section 6.1.
6.6.4. To the extent that payment thereof shall not at the
time be required by Section 6.1, Indebtedness in respect of taxes,
assessments, governmental charges and claims for labor, materials and
supplies.
6.6.5. Indebtedness secured by Liens of carriers, warehouses,
mechanics and landlords permitted by Sections 6.8.5 and 6.8.6.
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6.6.6. Indebtedness in respect of judgments or awards (a)
which have been in force for less than the applicable appeal period or
(b) in respect of which the Borrower shall at the time in good faith
be prosecuting an appeal or proceedings for review and, in the case of
each of clauses (a) and (b), such Borrower shall have taken
appropriate reserves therefor in accordance with GAAP and execution of
such judgment or award shall not be levied.
6.6.7. Indebtedness with respect to deferred compensation in
the ordinary course of business and Indebtedness with respect to
employee benefit programs (including liabilities in respect of
deferred compensation, pension or severance benefits, early
termination benefits, disability benefits, vacation benefits and
tuition benefits) incurred in the ordinary course of business so long
as the Borrower is in compliance with Section 6.13.
6.6.8. Indebtedness in respect of customer advances and
deposits, deferred income, deferred taxes and other deferred credits
arising in the ordinary course of business.
6.6.9. Indebtedness relating to deferred gains and deferred
taxes arising in connection with sale of assets permitted under
Section 6.12.
6.6.10. Indebtedness in respect of inter-company loans and
advances among the Borrowers which are not prohibited by Section 6.9.
6.6.11. Approved Subordinated Indebtedness.
6.6.12. Indebtedness to the extent set forth on Exhibit 6.6.
6.7. Guarantees. None of the Borrowers shall become or remain
liable with respect to any Guarantee, including reimbursement obligations,
whether contingent or matured, under letters of credit or other financial
guarantees by third parties, except the following:
6.7.1. Guarantees of the Credit Obligations.
6.7.2. Guarantees outstanding on the Initial Closing Date and
described on Exhibit 6.7.
6.8. Liens. None of the Borrowers shall create, incur or enter
into, or suffer to be created or incurred or to exist, any Lien, except the
following:
6.8.1. Liens on real property that secure the Mortgage.
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6.8.2. Liens to secure taxes, assessments and other
governmental charges, to the extent that payment thereof shall not
at the time be required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection
with, or to secure payment of, workers' compensation, unemployment
insurance, old age pensions or other social security, (b) in
connection with casualty insurance maintained in accordance with
Section 6.3, (c) to secure the performance of bids, tenders,
contracts (other than contracts relating to Financing Debt) or
leases, (d) to secure statutory obligations or surety or appeal
bonds, (e) to secure indemnity, performance or other similar bonds
in the ordinary course of business or (f) in connection with
contested amounts to the extent that payment thereof shall not at
that time be required by Section 6.1.
6.8.4. Liens in respect of judgments or awards, to
the extent that such judgments or awards are permitted by Section
6.6.6.
6.8.5. Liens of carriers, warehouses, mechanics and
similar Liens, in each case (a) in existence less than 120 days
from the date of creation thereof or (b) being contested in good
faith by the Borrower in appropriate proceedings (so long as such
Borrower shall, in accordance with GAAP, have set aside on its
books adequate reserves with respect thereto).
6.8.6. Encumbrances in the nature of (a) zoning
restrictions, (b) easements, (c) restrictions of record on the use
of real property, (d) landlords' and lessors' Liens on rented
premises and (e) restrictions on transfers or assignment of leases,
which in each case do not materially detract from the value of the
encumbered property or impair the use thereof in the business of
any Borrower.
6.8.7. Capitalized Lease Obligations incurred after
the Initial Closing Date and purchase money security interests in
or purchase money mortgages on real or personal property acquired
after the Initial Closing Date to secure purchase money
Indebtedness to the extent permitted by Section 6.5.5 incurred in
connection with the acquisition of such property, which security
interests or mortgages cover only the real or personal property so
acquired and proceeds thereof and reasonable attachments and
accessories thereto.
6.8.8. Other Liens and Capitalized Lease Obligations
on the property secured by such Liens or the subject of such
Capitalized Lease as set forth on Exhibit 6.8 and any renewals
thereof, but not any increase in the amount thereof.
6.9. Investments and Permitted Acquisitions. None of the
Obligors shall have outstanding, acquire, commit itself to acquire or hold
any Investment (including any Investment consisting of the Permitted
Acquisition of any business) except for the following:
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6.9.1. Intercompany loans and advances from any
Borrower to any other Borrower but in each case only to the extent
reasonably necessary for Consolidated tax planning and working
capital management.
6.9.2. Investments in Cash Equivalents.
6.9.3. Guarantees permitted by Section 6.7.
6.9.4. Investments constituting the acquisition of
all of the capital stock, equity, partnership or other beneficial
interests in, or substantially all the assets of, any Person that
derives substantially all of its revenues from a business that the
Borrowers would be permitted to engage in under Section 6.2.1;
provided, however, that:
(a) immediately before and after giving effect to
such acquisition, no Default shall exist; and
(b) either (i) proceeds from the Loans are not being
used to fund such acquisition and the Purchase Price for such
acquisition does not exceed $10,000,000 or (ii) such acquisition is
being funded with proceeds of the Loans and the Purchase Price for
such acquisition does not exceed the lesser of $10,000,000 or five
times the Pro Forma Gross Profit of such Person (which calculation
shall be reasonably satisfactory to the Agent), unless the terms
and the documentation relating to such acquisition is satisfactory
to the Required Lenders.
6.9.5. Loans to employees not to exceed a principal
amount of $1,000,000 in the aggregate at any one time outstanding
provided that loans may be made to selling physicians as part of
the consideration in a Permitted Acquisition in an amount not to
exceed $2,000,000.
6.9.6. Investments representing Indebtedness of any
Person owing as a result of the sale by any Borrower in the
ordinary course of business to such Person of products, services or
tangible property no longer required in such Borrower's business.
6.9.7. Investments described on Exhibit 6.9.7.
6.10. Distributions. None of the Borrowers shall make any
Distribution except distributions in respect of the redemption of capital
stock of the Company from employees of any Borrower; provided, however,
that the amount of all such Distributions shall not exceed $500,000 in the
aggregate in any fiscal year.
6.11. Capital Expenditures. None of the Borrowers will make
Capital Expenditures exceeding $2,000,000 in the aggregate in any fiscal
year provided, however, that during fiscal
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1996 the Company may make additional Capital Expenditures in respect of a
new office building to be constructed on the property subject to the
Mortgage so long as such additional Capital Expenditures do not exceed
$3,000,000 in the aggregate.
6.12. Asset Dispositions and Mergers. None of the
Obligors shall merge or enter into a consolidation or sell, lease, sell and
lease back, sublease or otherwise dispose of any of its assets, except the
following:
6.12.1. So long as immediately prior to and after
giving effect thereto there shall exist no Default, the Obligors
may sell or otherwise dispose of (a) inventory in the ordinary
course of business, (b) tangible assets to be replaced in the
ordinary course of business within 12 months by other assets of
equal or greater value, or (c) tangible assets no longer used or
useful in the business of such Obligor; provided, however, that the
aggregate fair market value (or book value, if greater) of the
assets sold or disposed of pursuant to this clause (c) shall not
exceed $100,000 in any fiscal year.
6.12.2. Any Borrower may merge or be liquidated
into any other Borrower.
6.13. ERISA, etc. Each of the Obligors shall comply, and shall
cause all Control Group Persons to comply, in all material respects, with
the provisions of ERISA and the Code applicable to each Plan. Each of the
Obligors shall meet, and shall cause all Control Group Persons to meet, all
minimum funding requirements applicable to them with respect to any Plan
pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed
the fair market value of the assets of such Plan allocable to such benefits
by more than $250,000. Within 45 days after the end of each fiscal year,
the Borrowers shall deliver to the Agent an annual actuarial report
regarding their compliance with the funding requirements applicable to them
with respect to each Multiemployer Plan and each Plan that constitutes a
"defined benefit plan" (as defined in ERISA).
6.14. Transactions with Affiliates. Except with respect to
transactions set forth on Exhibit 6.14, none of the Obligors shall effect
any transaction with any of their respective Affiliates (except for other
Obligors) on a basis less favorable to such Obligor than would be the case
if such transaction had been effected with a non-Affiliate.
6.15. Environmental Laws.
6.15.1. Compliance with Law and Permits. Each of the
Obligors shall use and operate all of its facilities and properties
in material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and
remain in material
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compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Environmental Laws.
6.15.2. Notice of Claims, etc. Each of the Obligors
shall immediately notify the Agent, and provide copies upon
receipt, of all written claims, complaints, notices or inquiries
from governmental authorities relating to the condition of its
facilities and properties or compliance with Environmental Laws,
and shall promptly cure and have dismissed with prejudice to the
satisfaction of the Agent any actions and proceedings relating to
compliance with Environmental Laws.
6.16. Depository Accounts. The Borrowers shall maintain, and
shall cause all of their Subsidiaries to maintain, all principal deposit
accounts used in their businesses at one or more of the Lenders.
7. Representations and Warranties. In order to induce the Lenders to
extend credit to the Borrowers hereunder, each of the Obligors as are party
hereto from time to time jointly and severally represents and warrants as
follows:
7.1. Organization and Business.
7.1.1. The Obligors. Each of the Obligors is duly
organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized with all power and
authority, corporate or otherwise, necessary to (a) enter into and
perform this Agreement and each other Credit Document to which it
is party, (b) guarantee the Credit Obligations, and (c) own its
properties and carry on the business now conducted or proposed to
be conducted by it. In addition, the Company has all corporate
power and authority necessary to grant Bank of Boston a security
interest in the real property owned by it to secure the Mortgage.
Certified copies of the Charter and By-laws of each Obligor have
been previously delivered to the Agent and are correct and
complete. Exhibit 7.1, as from time to time hereafter supplemented
in accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the
later of the date hereof or as of the end of the most recent fiscal
quarter for which financial statements are required to be furnished
in accordance with such Sections, (i) the name and jurisdiction of
incorporation of each Borrower and (ii) the address of each
Borrower's principal executive office and chief place of business.
7.1.2. Qualification. Each of the Borrowers is duly
and legally qualified to do business as a foreign corporation and
is in good standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified and
licensed under all laws, regulations, ordinances or orders of
public authorities, or otherwise, to carry on its business in the
places and in the manner in which it is conducted, except for
failures to be so qualified, authorized or licensed which would not
in the aggregate result, or pose a material risk of resulting, in
any Material Adverse Change.
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7.1.3. Capitalization. No options, warrants,
conversion rights, preemptive rights or other statutory or
contractual rights to purchase shares of capital stock or other
securities of any Borrower, other than the Company, now exist, nor
has any Borrower, other than the Company, authorized any such
right, nor is any Borrower, other than the Company, obligated in
any other manner to issue shares of its capital stock or other
securities.
7.2. Financial Statements and Other Information; Material
Agreements.
7.2.1. Financial Statements and Other Information.
The Borrowers have previously furnished to the Lenders copies of
the following:
(a) The audited balance sheets of the Borrowers as
at December 31, 1995 and the audited statements of income and the
audited statements of changes in shareholders' equity and of cash
flows of the Borrowers for its fiscal year then ended.
(b) The unaudited balance sheets of the Borrowers
for the three months ended March 31, 1996 and the unaudited
statements of income and of cash flows of the Borrowers for the
portion of the fiscal year then ended.
The audited financial statements (including the notes
thereto) referred to in clause (a) above were prepared in
accordance with GAAP and fairly present the financial position of
the Borrowers at the date thereof and the results of their
operations for the periods covered thereby. The audited financial
statements referred to in clause (a) above and the unaudited
financial statements referred to in clause (b) above were prepared
in accordance with GAAP and fairly present the financial position
of the Borrowers at the respective dates thereof and the results of
its operations for the periods covered thereby, subject to normal
year-end audit adjustment and the addition of footnotes in the case
of interim financial statements. Except as described on Exhibit
7.11, none of the Borrowers has any known contingent liability
material to it which is not reflected in the balance sheets
referred to in clauses (a) or (b) above (or delivered pursuant to
Sections 6.4.1 or 6.4.2) or in the notes thereto.
7.2.2. Material Agreements. The Borrowers have
previously furnished to the Lenders correct and complete copies,
including all exhibits, schedules and amendments thereto, of the
agreements, each as in effect on the date hereof, listed in Exhibit
7.2.2 (the "Material Agreements").
7.3. Changes in Condition. Since December 31, 1995 no
Material Adverse Change has occurred and between December 31, 1995 and the
date hereof, except as set forth in Exhibit 7.3, none of the Obligors has
entered into any material transaction outside the
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rdinary course of business except for the transactions contemplated by or
otherwise permitted or authorized pursuant to this Agreement and the
Material Agreements.
7.4. Title to Assets. Each of the Borrowers has good and
marketable title to or rights to use under leases all assets necessary for
or used in the operations of their business as now conducted by them and
reflected in the most recent balance sheet referred to in Section 7.2.1 (or
the balance sheet most recently furnished to the Lenders pursuant to
Sections 6.4.1 or 6.4.2), and to all assets acquired subsequent to the date
of such balance sheet, subject to no Liens except for Liens permitted by
Section 6.8 or reflected on Exhibit 7.4 and except for assets disposed of
as permitted by Section 6.12.
7.5. Operations in Conformity With Law, etc. The operations
of the Obligors as now conducted or proposed to be conducted are not in
violation of, nor is any Obligor in default under, any Legal Requirement
presently in effect, except for such violations and defaults as do not and
will not, in the aggregate, result, or create a material risk of resulting,
in any Material Adverse Change. No Obligor has received notice of any such
violation or default or has knowledge of any basis on which the operations
of the Obligors, as now conducted and as currently proposed to be conducted
after the date hereof, would be held so as to violate or to give rise to
any such violation or default.
7.6. Litigation. Except as otherwise set forth in Exhibit
7.6, no litigation, at law or in equity, or any proceeding before any
court, board or other governmental or administrative agency or any
arbitrator is pending or, to the knowledge of any Borrower, threatened
which may involve any material risk of any final judgment, order or
liability which, after giving effect to any applicable insurance, has
resulted, or creates a material risk of resulting, in any Material Adverse
Change or which seeks to enjoin the consummation, or which questions the
validity, of any of the transactions contemplated by this Agreement or any
other Credit Document. No judgment, decree or order of any court, board or
other governmental or administrative agency or any arbitrator has been
issued against or binds any Obligor which has resulted, or creates a
material risk of resulting, in any Material Adverse Change.
7.7. Authorization and Enforceability. Each of the Obligors
has taken all corporate action required to execute, deliver and perform
this Agreement and each other Credit Document to which it is party. No
consent of stockholders of any Obligor is necessary in order to authorize
the execution, delivery or performance of this Agreement or any other
Credit Document to which such Obligor is party. Each of this Agreement and
each other Credit Document constitutes the legal, valid and binding
obligation of each Obligor party thereto and is enforceable against such
Obligor in accordance with its terms.
7.8. No Legal Obstacle to Agreements. Neither the execution
and delivery of this Agreement or any other Credit Document, nor the making
of any borrowings hereunder, nor the guaranteeing of the Credit
Obligations, nor the securing of the Credit Obligations with the
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Credit Security, nor the consummation of any transaction referred to in or
contemplated by this Agreement or any other Credit Document, nor the
fulfillment of the terms hereof or thereof or of any other agreement,
instrument, deed or lease contemplated by this Agreement or any other
Credit Document, has constituted or resulted in or will constitute or
result in:
(a) any breach or termination of the provisions of
any material agreement, instrument, deed or lease to which any
Obligor is a party or by which it is bound, or of the Charter or
By-laws of any Obligor;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable to any
Obligor;
(c) the creation under any agreement, instrument,
deed or lease of any Lien (other than Liens on the Credit Security
which secure the Credit Obligations) upon any of the assets of any
Obligor; or
(d) any redemption, retirement or other repurchase
obligation of any Obligor under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by any Obligor in connection with the
execution, delivery and performance of this Agreement, the Revolving Notes
or any other Credit Document, the transactions contemplated hereby or
thereby, the making of any borrowing hereunder, the guaranteeing of the
Credit Obligations or the securing of the Credit Obligations with the
Credit Security.
7.9. Defaults. None of the Obligors is in default under any
provision of its Charter or By-laws or of this Agreement or any other
Credit Document. None of the Obligors is in default under any provision of
any material agreement, instrument, deed or lease to which it is party or
by which it or its property is bound. None of the Obligors has violated any
law, judgment, decree or governmental order, rule or regulation, in each
case so as to result, or create a material risk of resulting, in any
Material Adverse Change.
7.10. Licenses, etc. The Obligors have all patents, patent
applications, patent licenses, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, franchises, permits,
authorizations and other rights as are necessary for the conduct of the
business of the Obligors as now conducted by them. All of the foregoing are
in full force and effect in all material respects, and each of the Obligors
is in substantial compliance with the foregoing without any known conflict
with the valid rights of others which has resulted, or creates a material
risk of
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resulting, in any Material Adverse Change. No event has occurred which
permits, or after notice or lapse of time or both would permit, the
revocation or termination of any such license, franchise or other right or
which affects the rights of any of the Obligors thereunder so as to result,
or to create a material risk of resulting, in any Material Adverse Change.
No litigation or other proceeding or dispute exists with respect to the
validity or, where applicable, the extension or renewal, of any of the
foregoing which has resulted, or creates a material risk of resulting, in
any Material Adverse Change.
7.11. Tax Returns. Each of the Obligors has filed all material
tax and information returns which are required to be filed by it and has
paid, or made adequate provision for the payment of, all taxes which have
or may become due pursuant to such returns or to any assessment received by
it. Except as disclosed on Exhibit 7.11, none of the Obligors knows of any
material additional assessments or any basis therefor. Each of the Obligors
reasonably believes that the charges, accruals and reserves on the books of
the Obligors in respect of taxes or other governmental charges are adequate.
7.12. Future Expenditures. None of the Obligors anticipate
that the future expenditures, if any, by the Obligors needed to meet the
provisions of any federal, state or foreign governmental statutes, orders,
rules or regulations will be so burdensome as to result, or create a
material risk of resulting, in any Material Adverse Change.
7.13. Environmental Regulations.
7.13.1. Environmental Compliance. Each of the
Borrowers is in compliance in all material respects with the Clean
Air Act, the Federal Water Pollution Control Act, the Marine
Protection Research and Sanctuaries Act, RCRA, CERCLA and any other
Environmental Law in effect in any jurisdiction in which any
properties of the Borrowers are located or where any of them
conducts its business, and with all applicable published rules and
regulations (and applicable standards and requirements) of the
federal Environmental Protection Agency and of any similar agencies
in states or foreign countries in which the Borrowers conduct their
businesses other than those which in the aggregate have not
resulted, and do not create a material risk of resulting, in a
Material Adverse Change.
7.13.2. Environmental Litigation. No suit, claim,
action or proceeding of which any Borrower has been given notice or
otherwise has knowledge is now pending before any court,
governmental agency or board or other forum, or to any Borrower's
knowledge, threatened by any Person (nor to any Borrower's
knowledge, does any factual basis exist therefor) for, and none of
the Borrowers have received written correspondence from any
federal, state or local governmental authority with respect to:
(a) noncompliance by any Borrower with any
Environmental Law;
(b) personal injury, wrongful death or other
tortious conduct relating to materials, commodities or products
used, generated, sold, transferred or manufactured
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by any Borrower (including products made of, containing or
incorporating asbestos, lead or other hazardous materials,
commodities or toxic substances); or
(c) the release into the environment by any Borrower
of any Hazardous Material generated by any Borrower whether or not
occurring at or on a site owned, leased or operated by any
Borrower.
7.13.3. Environmental Condition of Properties. None
of the properties owned or leased by any Borrower has been used as
a treatment, storage or disposal site, other than as disclosed in
Exhibit 7.13. No Hazardous Material is present in any real property
currently or formerly owned or operated by any Borrower except that
which has not resulted, and does not create a material risk of
resulting, in a Material Adverse Change.
7.14. Pension Plans. Each Plan (other than a
Multiemployer Plan) and, to the knowledge of each of the Obligors, each
Multiemployer Plan is in material compliance with the applicable provisions
of ERISA and the Code and with Section 6.13. Each Multiemployer Plan and
each Plan that constitutes a "defined benefit plan" (as defined in ERISA)
are set forth in Exhibit 7.14. Each Control Group Person has met all of the
funding standards applicable to all Plans that are not Multiemployer Plans,
and no condition exists which would permit the institution of proceedings
to terminate any Plan that is not a Multiemployer Plan under section 4042
of ERISA. To the best knowledge of each of the Obligors, no Plan that is a
Multiemployer Plan is currently insolvent or in reorganization or has been
terminated within the meaning of ERISA.
7.15. Acquisition Agreement, etc. Each Acquisition Agreement
is a valid and binding contract as to the Borrower party thereto and, to
the best of such Borrower's knowledge, as to the Sellers party thereto.
Such Borrower is not in default in any material respect of its obligations
under any Acquisition Agreement and, to the best of such Borrower's
knowledge, the Sellers party thereto are not in default in any material
respect of any of their obligations thereunder. The representations and
warranties of such Borrower set forth in each Acquisition Agreement are
true and correct in all material respect as of the date hereof with the
same force and effect as though made on and as of the date hereof. To the
best of such Borrower's knowledge all of the representations and warranties
of the Sellers set forth in each Acquisition Agreement are true and correct
in all material respects as of the date hereof with the same force and
effect as though made on and as of the date hereof.
7.16. Disclosure. Neither this Agreement nor any other Credit
Document to be furnished to the Lenders by or on behalf of any Obligor in
connection with the transactions contemplated hereby or by such Credit
Document contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made. No fact is actually known to any Obligor which has resulted, or in
the future (so far as any Obligor
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can reasonably foresee) will result, or creates a material risk of
resulting, in any Material Adverse Change, except to the extent that
present or future general economic conditions may result in a Material
Adverse Change.
8. Defaults.
8.1. Events of Default. The following events are referred to
as "Events of Default":
8.1.1. Payment. Any Borrower shall fail to make any
payment in respect of: (a) interest or any fee on or in respect of
any of the Credit Obligations owed by it as the same shall become
due and payable, and such failure shall continue for a period of
three Banking Days, or (b) principal of any of the Credit
Obligations owed by it as the same shall become due, whether at
maturity or by acceleration or otherwise.
8.1.2. Specified Covenants. Any Obligor shall fail
to perform or observe any of the provisions of Section 6.4.5 or
Sections 6.5 through and including 6.16.
8.1.3. Other Covenants. Any Obligor shall fail to
perform or observe any other covenant, agreement or provision to be
performed or observed by it under this Agreement or any other
Credit Document, and such failure shall not be rectified or cured
to the written satisfaction of the Required Lenders within 30 days
after notice thereof by the Agent to the Borrowers or (b) knowledge
thereof by the Chief Executive Officer of Chief Financial Officer
of the Company.
8.1.4. Representations and Warranties. Any
representation or warranty of or with respect to any Obligor made
to the Lenders or the Agent in, pursuant to or in connection with
this Agreement or any other Credit Document shall be materially
false on the date as of which it was made.
8.1.5. Cross Default. Any Obligor shall fail to make
any payment when due (after giving effect to any applicable grace
periods) in respect of any Indebtedness or of any Capitalized Lease
(other than the Credit Obligations) outstanding in an aggregate
amount of principal (whether or not due) of $250,000 or more or
shall fail to perform or observe any material terms evidencing or
securing any such Indebtedness or Capitalized Lease, the result of
which failure is to permit the holder of such Indebtedness or
Capitalized Lease to cause such Indebtedness or Capitalized Lease
to become due before its stated maturity.
8.1.6. Enforceability, etc. Any Credit Document or
any Material Agreement shall cease for any reason (other than the
scheduled termination thereof in accordance with its terms) to be
enforceable in accordance with its terms or in full force and
effect; or any Obligor in respect of any Credit Document or any
Material
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Agreement shall so assert in a judicial or similar proceeding; or
the security interests created by this Agreement or any other
Credit Documents shall cease to be enforceable and of the same
effect and priority purported to be created hereby.
8.1.7. Medicaid, etc. Any of the Borrowers receives
notice of exclusion from eligibility from Medicaid or any of the
Borrowers or their officers, employees or agents engage in
activities which are prohibited by any of the federal Medicare and
Medicaid Anti-Kickback Statute, 42 U.S.C. Section 1320a-7b, the
Ethics in Patient Referrals Act (the "Stark Law") 42 U.S.C. Section
1395 nn, as amended, the regulations promulgated thereunder, or
related state or local statutes or regulations or which are
prohibited by rules of professional conduct except where the
failure to so comply could not result in a Material Adverse Effect.
8.1.8. Change of Control. There shall be a change of
control in the Company which may consist of either (a) a change
within any six month period in the persons holding four or more of
the following offices of the Company: Chief Operating Officer;
Chief Financial Officer; General Counsel; Vice President, Business
Development; Vice President, Practice Integration; Chief Medical
Officer; or Chief Information Officer, or (b) Dr. Roger J. Medel
(i) ceasing at any time to serve as President and Chief Executive
Officer of the Company or (ii) becoming physically or mentally
disabled for six months or more (which may consist of more than one
period of disability) such that he is unable to perform his normal
administrative duties as President and Chief Executive Officer of
the Company.
8.1.9. Judgments. A final judgment (a) which, with
other outstanding final judgments against the Obligors, exceeds an
aggregate of $500,000 in excess of applicable insurance coverage
shall be rendered against any Obligor, or (b) which grants
injunctive relief that results, or creates a material risk of
resulting, in a Material Adverse Change and in either case if, (i)
within 60 days after entry thereof, such judgment shall not have
been discharged or execution thereof stayed pending appeal or (ii)
within 60 days after the expiration of any such stay, such judgment
shall not have been discharged.
8.1.10. ERISA. Any "reportable event" (as defined in
section 4043 of ERISA) shall have occurred that reasonably could be
expected to result in termination of a Material Plan or the
appointment by the appropriate United States District Court of a
trustee to administer any Material Plan or the imposition of a Lien
in favor of a Material Plan; or any ERISA Group Person shall fail
to pay when due amounts aggregating in excess of $500,000 which it
shall have become liable to pay to the PBGC or to a Material Plan
under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any ERISA
Group Person or administrator; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan or a
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proceeding shall be instituted by a fiduciary of any Material Plan
against any ERISA Group Person to enforce section 515 or 4219(c)(5)
of ERISA and such proceeding shall not have been dismissed within
30 days thereafter; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated.
8.1.11. Bankruptcy, etc. Any Obligor shall:
(a) commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board of
directors or other governing body, the commencement of such a
voluntary case;
(b) (i) have filed against it a petition commencing
an involuntary case under the Bankruptcy Code that shall not have
been dismissed within 60 days after the date on which such petition
is filed, or (ii) file an answer or other pleading within such
60-day period admitting or failing to deny the material allegations
of such a petition or seeking, consenting to or acquiescing in the
relief therein provided, or (iii) have entered against it an order
for relief in any involuntary case commenced under the Bankruptcy
Code;
(c) seek relief as a debtor under any applicable
law, other than the Bankruptcy Code, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or consent
to or acquiesce in such relief;
(d) have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or insolvent,
(ii) ordering or approving its liquidation or reorganization as a
debtor or any modification or alteration of the rights of its
creditors or (iii) assuming custody of, or appointing a receiver or
other custodian for, all or a substantial portion of its property;
or
(e) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or consent to
the appointment of, or suffer to exist a receiver or other
custodian for, all or a substantial portion of its property.
8.2. Certain Actions Following an Event of Default. If any
one or more Events of Default shall occur and be continuing, then in each
and every such case:
8.2.1. Terminate Obligation to Extend Credit. The
Agent on behalf of the Lenders may (and upon written request of the
Lenders holding at least one-third of the Percentage Interests the
Agent shall) terminate the obligations of the Lenders to make any
further extensions of credit under the Credit Documents by
furnishing notice of such termination to the Borrowers.
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8.2.2. Specific Performance; Exercise of Rights. The
Agent on behalf of the Lenders may (and upon written request of the
Lenders holding at least one-third of the Percentage Interests the
Agent shall) proceed to protect and enforce the Lenders' rights by
suit in equity, action at law and/or other appropriate proceeding,
either for specific performance of any covenant or condition
contained in this Agreement or any other Credit Document or in any
instrument or assignment delivered to the Lenders pursuant to this
Agreement or any other Credit Document, or in aid of the exercise
of any power granted in this Agreement or any other Credit Document
or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the
Lenders may (and upon written request of the Lenders holding at
least one-third of the Percentage Interests the Agent shall) by
notice in writing to the Borrowers declare all or any part of the
unpaid balance of the Credit Obligations then outstanding to be
immediately due and payable, and thereupon such unpaid balance or
part thereof shall become so due and payable without presentation,
protest or further demand or notice of any kind, all of which are
hereby expressly waived; provided, however, that if a Bankruptcy
Default shall have occurred, the unpaid balance of the Credit
Obligations shall automatically become immediately due and payable.
8.2.4. Enforcement of Payment. The Agent on behalf
of the Lenders may (and upon written request of the Lenders holding
at least one-third of the Percentage Interests the Agent shall)
proceed to enforce payment of the Credit Obligations in such manner
as it may elect. The Lenders may offset and apply toward the
payment of the Credit Obligations (and/or toward the curing of any
Event of Default) any Indebtedness from the Lenders to the
respective Obligors, including any Indebtedness represented by
deposits in any account maintained with the Lenders, regardless of
the adequacy of any security for the Credit Obligations. The
Lenders shall have no duty to determine the adequacy of any such
security in connection with any such offset.
8.2.5. Cumulative Remedies. To the extent not
prohibited by applicable law which cannot be waived, all of the
Lenders' rights hereunder and under each other Credit Document
shall be cumulative.
8.3. Annulment of Defaults. Any Default or Event of Default
shall be deemed not to exist or to have occurred for any purpose of the
Credit Documents if the Required Lenders or the Agent (with the consent of
the Required Lenders) shall have waived such Default or Event of Default in
writing, stated in writing that the same has been cured to such Lenders'
reasonable satisfaction or entered into an amendment to this Agreement
which by its express terms cures such Event of Default, at which time such
Event of Default shall no longer be deemed to exist or to have continued.
No such action by the Lenders or the Agent shall extend to or affect any
subsequent Event of Default or impair any rights of the Lenders upon
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the occurrence thereof. The making of any extension of credit during the
existence of any Default or Event of Default shall not constitute a waiver
thereof.
8.4. Waivers. To the extent that such waiver is not
prohibited by the provisions of applicable law that cannot be waived, each
of the Obligors waives:
(a) all presentments, demands for performance,
notices of nonperformance (except to the extent required by this
Agreement or any other Credit Document), protests, notices of
protest and notices of dishonor;
(b) any requirement of diligence or promptness on
the part of any Lender in the enforcement of its rights under this
Agreement, the Revolving Notes, the Mortgage, the Mortgage Notes or
any other Credit Document;
(c) any and all notices of every kind and
description which may be required to be given by any statute or
rule of law; and
(d) any defense (other than indefeasible payment in
full) which it may now or hereafter have with respect to its
liability under this Agreement, the Revolving Notes, the Mortgage,
the Mortgage Notes or any other Credit Document or with respect to
the Credit Obligations.
9. Guarantees.
9.1. Guarantees of Credit Obligations. Each Guarantor
unconditionally jointly and severally guarantees that the Credit
Obligations will be performed and will be paid in full in immediately
available funds when due and payable, whether at the stated or accelerated
maturity thereof or otherwise, this guarantee being a guarantee of payment
and not of collectability and being absolute and in no way conditional or
contingent. In the event any part of the Credit Obligations shall not have
been so paid in full when due and payable, each Guarantor will, immediately
upon notice by the Agent or, without notice, immediately upon the
occurrence of a Bankruptcy Default, pay or cause to be paid to the Agent
for the account of each Lender in accordance with the Lenders' respective
Percentage Interests the amount of such Credit Obligations which are then
due and payable and unpaid. The obligations of each Guarantor hereunder
shall not be affected by the invalidity, unenforceability or
irrecoverability of any of the Credit Obligations as against any other
Obligor, any other guarantor thereof or any other Person. For purposes
hereof, the Credit Obligations shall be due and payable when and as the
same shall be due and payable under the terms of this Agreement or any
other Credit Document notwithstanding the fact that the collection or
enforcement thereof may be stayed or enjoined under the Bankruptcy Code or
other applicable law.
9.2. Continuing Obligation. Each Guarantor acknowledges that
the Lenders and the Agent have entered into this Agreement (and, to the
extent that the Lenders or the Agent
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may enter into any future Credit Document, will have entered into such
agreement) in reliance on this Section 9 being a continuing irrevocable
agreement, and such Guarantor agrees that its guarantee may not be revoked
in whole or in part. The obligations of the Guarantors hereunder shall
terminate when the commitment of the Lenders to extend credit under this
Agreement shall have terminated and all of the Credit Obligations have been
indefeasibly paid in full in immediately available funds and discharged;
provided, however, that:
(a) if a claim is made upon the Lenders at any time
for repayment or recovery of any amounts or any property received
by the Lenders from any source on account of any of the Credit
Obligations and the Lenders repay or return any amounts or property
so received (including interest thereon to the extent required to
be paid by the Lenders) or
(b) if the Lenders become liable for any part of
such claim by reason of (i) any judgment or order of any court or
administrative authority having competent jurisdiction, or (ii) any
settlement or compromise of any such claim,
then the Guarantors shall remain liable under this Agreement for the
amounts so repaid or property so returned or the amounts for which the
Lenders become liable (such amounts being deemed part of the Credit
Obligations) to the same extent as if such amounts or property had never
been received by the Lenders, notwithstanding any termination hereof or the
cancellation of any instrument or agreement evidencing any of the Credit
Obligations. Not later than five days after receipt of notice from the
Agent, the Guarantors shall jointly and severally pay to the Agent an
amount equal to the amount of such repayment or return for which the
Lenders have so become liable. Payments hereunder by a Guarantor may be
required by the Agent on any number of occasions.
9.3. Waivers with Respect to Credit Obligations. Except to
the extent expressly required by this Agreement or any other Credit
Document, each Guarantor waives, to the fullest extent permitted by the
provisions of applicable law, all of the following (including all defenses,
counterclaims and other rights of any nature based upon any of the
following):
(a) presentment, demand for payment and protest of
nonpayment of any of the Credit Obligations, and notice of protest,
dishonor or nonperformance;
(b) notice of acceptance of this guarantee and
notice that credit has been extended in reliance on the Guarantor's
guarantee of the Credit Obligations;
(c) notice of any Default or of any inability to
enforce performance of the obligations of the Company or any other
Person with respect to any Credit Document, or notice of any
acceleration of maturity of any Credit Obligations;
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(d) demand for performance or observance of, and any
enforcement of any provision of, the Credit Obligations, this
Agreement or any other Credit Document or any pursuit or exhaustion
of rights or remedies with respect to any Credit Security or
against the Company or any other Person in respect of the Credit
Obligations or any requirement of diligence or promptness on the
part of the Agent or the Lenders in connection with any of the
foregoing;
(e) any act or omission on the part of the Agent or
the Lenders which may impair or prejudice the rights of the
Guarantor, including rights to obtain subrogation, exoneration,
contribution, indemnification or any other reimbursement from the
Company or any other Person, or otherwise operate as a deemed
release or discharge;
(f) failure or delay to perfect or continue the
perfection of any security interest in any Credit Security or any
other action which harms or impairs the value of, or any failure to
preserve or protect the value of, any Credit Security;
(g) any statute of limitations or any statute or
rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than
the obligation of the principal;
(h) any "single action" or "anti-deficiency" law
which would otherwise prevent the Lenders from bringing any action,
including any claim for a deficiency, against the Guarantor before
or after the Agent's or the Lenders' commencement or completion of
any foreclosure action, whether judicially, by exercise of power of
sale or otherwise, or any other law which would otherwise require
any election of remedies by the Agent or the Lenders;
(i) all demands and notices of every kind with
respect to the foregoing; and
(j) to the extent not referred to above, all
defenses (other than payment) which the Company may now or
hereafter have to the payment of the Credit Obligations, together
with all suretyship defenses, which could otherwise be asserted by
such Guarantor.
Each Guarantor represents that it has obtained the advice of counsel as to
the extent to which suretyship and other defenses may be available to it
with respect to its obligations hereunder in the absence of the waivers
contained in this Section 9.3.
No delay or omission on the part of the Agent or the Lenders in
exercising any right under this Agreement or any other Credit Document or
under any guarantee of the Credit Obligations or with respect to the Credit
Security shall operate as a waiver or relinquishment of such right. No
action which the Agent or the Lenders or the Company may take or refrain
from taking with respect to the Credit Obligations, including any
amendments thereto or
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modifications thereof or waivers with respect thereto, shall affect the
provisions of this Agreement or the obligations of the Guarantor hereunder.
None of the Lenders' or the Agent's rights shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any
Obligor, or by any noncompliance by the Company with the terms, provisions
and covenants of this Agreement, regardless of any knowledge thereof which
the Agent or the Lenders may have or otherwise be charged with.
9.4. Lenders' Power to Waive, etc. Each Guarantor grants to
the Lenders full power in their discretion, without notice to or consent of
such Guarantor, such notice and consent being expressly waived to the
fullest extent permitted by applicable law, and without in any way
affecting the liability of the Guarantor under its guarantee hereunder:
(a) To waive compliance with, and any Default under,
and to consent to any amendment to or modification or termination
of any terms or provisions of, or to give any waiver in respect of,
this Agreement, any other Credit Document, the Credit Security, the
Credit Obligations or any guarantee thereof (each as from time to
time in effect);
(b) To grant any extensions of the Credit
Obligations (for any duration), and any other indulgence with
respect thereto, and to effect any total or partial release (by
operation of law or otherwise), discharge, compromise or settlement
with respect to the obligations of the Obligors or any other Person
in respect of the Credit Obligations, whether or not rights against
the Guarantor under this Agreement are reserved in connection
therewith;
(c) To take security in any form for the Credit
Obligations, and to consent to the addition to or the substitution,
exchange, release or other disposition of, or to deal in any other
manner with, any part of any property contained in the Credit
Security whether or not the property, if any, received upon the
exercise of such power shall be of a character or value the same as
or different from the character or value of any property disposed
of, and to obtain, modify or release any present or future
guarantees of the Credit Obligations and to proceed against any of
the Credit Security or such guarantees in any order;
(d) To collect or liquidate or realize upon any of
the Credit Obligations or the Credit Security in any manner or to
refrain from collecting or liquidating or realizing upon any of the
Credit Obligations or the Credit Security; and
(e) To extend credit under this Agreement, any other
Credit Document or otherwise in such amount as the Lenders may
determine, including increasing the amount of credit and the
interest rate and fees with respect thereto, even though the
condition of the Obligors (financial or otherwise on an individual
or Consolidated basis) may have deteriorated since the date hereof.
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9.5. Information Regarding the Borrowers, etc. Each Guarantor
has made such investigation as it deems desirable of the risks undertaken
by it in entering into this Agreement and is fully satisfied that it
understands all such risks. Each Guarantor waives any obligation which may
now or hereafter exist on the part of the Agent or the Lenders to inform it
of the risks being undertaken by entering into this Agreement or of any
changes in such risks and, from and after the date hereof, each Guarantor
undertakes to keep itself informed of such risks and any changes therein.
Each Guarantor expressly waives any duty which may now or hereafter exist
on the part of the Agent or the Lenders to disclose to the Guarantor any
matter related to the business, operations, character, collateral, credit,
condition (financial or otherwise), income or prospects of the Borrowers or
their respective Affiliates or their properties or management, whether now
or hereafter known by the Agent or the Lenders. Each Guarantor represents,
warrants and agrees that it assumes sole responsibility for obtaining from
the Borrowers all information concerning this Agreement and all other
Credit Documents and all other information as to the Borrowers and their
respective Affiliates or their properties or management as such Guarantor
deems necessary or desirable.
9.6. Certain Guarantor Representations. Each Guarantor
represents that:
(a) it is in its best interest and in pursuit of the
purposes for which it was organized as an integral part of the
business conducted and proposed to be conducted by the Borrowers
and their respective Subsidiaries, and reasonably necessary and
convenient in connection with the conduct of the business conducted
and proposed to be conducted by them, to induce the Lenders to
enter into this Agreement and to extend credit to the Borrowers by
making the Guarantees contemplated by this Section 9,
(b) the credit available hereunder will directly or
indirectly inure to its benefit,
(c) by virtue of the foregoing it is receiving at
least reasonably equivalent value from the Lenders for its
Guarantee,
(d) it will not be rendered insolvent as a result of
entering into this Agreement,
(e) after giving effect to the transactions
contemplated by this Agreement, it will have assets having a fair
saleable value in excess of the amount required to pay its probable
liability on its existing debts as they become absolute and
matured,
(f) it has, and will have, access to adequate
capital for the conduct of its business,
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(g) it has the ability to pay its debts from time to
time incurred in connection with its business as such debts mature,
and
(h) it has been advised by the Agent that the
Lenders are unwilling to enter into this Agreement unless the
Guarantees contemplated by this Section 9 are given by it.
9.7. Subrogation. Each Guarantor agrees that, until the
Credit Obligations are paid in full, it will not exercise any right of
reimbursement, subrogation, contribution, offset or other claims against
the other Obligors arising by contract or operation of law in connection
with any payment made or required to be made by such Guarantor under this
Agreement. After the payment in full of the Credit Obligations, each
Guarantor shall be entitled to exercise against the Borrowers and the other
Obligors all such rights of reimbursement, subrogation, contribution and
offset, and all such other claims, to the fullest extent permitted by law.
9.8. Subordination. Each Guarantor covenants and agrees that,
after the occurrence of an Event of Default, all Indebtedness, claims and
liabilities then or thereafter owing by the Borrowers or any other Obligor
to such Guarantor whether arising hereunder or otherwise are subordinated
to the prior payment in full of the Credit Obligations and are so
subordinated as a claim against such Obligor or any of its assets, whether
such claim be in the ordinary course of business or in the event of
voluntary or involuntary liquidation, dissolution, insolvency or
bankruptcy, so that no payment with respect to any such Indebtedness, claim
or liability will be made or received while any Event of Default exists.
9.9. Future Subsidiaries; Further Assurances. Each Borrower
will from time to time cause (a) any present Wholly Owned Subsidiary that
is not a Guarantor within 30 days after notice from the Agent or (b) any
future Wholly Owned Subsidiary within 30 days after any such Person becomes
a Wholly Owned Subsidiary, to join this Agreement as a Borrower and a
Guarantor pursuant to a joinder agreement in the form attached hereto as
Exhibit 5.2.2. Each Guarantor will, promptly upon the request of the Agent
from time to time, execute, acknowledge and deliver, and file and record,
all such instruments, and take all such action, as the Agent deems
necessary or advisable to carry out the intent and purposes of this Section
9.
10. Expenses; Indemnity.
10.1. Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Company will pay:
(a) all reasonable expenses of the Agent (including
the out-of-pocket expenses related to forming the group of Lenders
and reasonable fees and disbursements of the counsel to the Agent,
up to $15,000) in connection with the preparation and duplication
of this Agreement, each other Credit Document, the
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transactions contemplated hereby and thereby and amendments,
waivers, consents and other operations hereunder and thereunder;
(b) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in respect
of this Agreement, any other Credit Document, or the incurrence of
the Credit Obligations; and
(c) to the extent not prohibited by applicable law
that cannot be waived, after the occurrence and during the
continuance of any Default or Event of Default, all other
reasonable expenses incurred by the Lenders or the holder of any
Credit Obligation in connection with the enforcement of any rights
hereunder or under any other Credit Document, including costs of
collection and reasonable attorneys' fees (including a reasonable
allowance for the hourly cost of attorneys employed by the Lenders
on a salaried basis) and expenses.
10.2. General Indemnity. The Borrowers shall indemnify the
Lenders and the Agent and hold them harmless from any liability, loss or
damage resulting from the violation by the Company of Section 2.3. In
addition, the Borrowers shall indemnify each Lender, the Agent, each of the
Lenders' or the Agent's directors, officers and employees, and each Person,
if any, who controls any Lender or the Agent (each Lender, the Agent and
each of such directors, officers, employees and control Persons is referred
to as an "Indemnified Party") and hold each of them harmless from and
against any and all claims, damages, liabilities and reasonable expenses
(including reasonable fees and disbursements of counsel with whom any
Indemnified Party may consult in connection therewith and all reasonable
expenses of litigation or preparation therefor) which any Indemnified Party
may incur or which may be asserted against any Indemnified Party in
connection with (a) the Indemnified Party's compliance with or contest of
any subpoena or other process issued against it in any proceeding involving
any of the Obligors or their Affiliates, (b) any litigation or
investigation involving the Obligors or their Affiliates, or any officer,
director or employee thereof, or (c) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby; provided,
however, that the foregoing indemnity shall not apply to litigation
commenced by any Borrower or Obligor against the Lenders or the Agent which
seeks enforcement of any of the rights of such Borrower or Obligor
hereunder or under any other Credit Document and is determined adversely to
the Lenders or the Agent in a final nonappealable judgment or to the extent
such claims, damages, liabilities and expenses result from a Lender's or
the Agent's gross negligence or willful misconduct.
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11. Operations; Agent.
11.1. Interests in Credits. The percentage interest of each
Lender in the Revolving Loan and Mortgage Loan, and the related
Commitments, shall be computed based on the maximum principal amount for
each Lender as follows:
<TABLE>
<CAPTION>
Maximum Percentage
------- ----------
Principle Amount Percentage Interest of
---------------- ---------- -----------
of Revolving Interest of Principle of Mortgage
------------ ----------- ------------ --------
Lender Loan Revolving Loan Mortgage Loan Loan
------ ---- -------------- ------------- ----
<S> <C> <C> <C> <C>
The First $15,000,000 50% $3,000,000 100%
National Bank of
Boston
SunTrust/South $15,000,000 50% $ 0 0%
Florida =========== === ========== ===
Total $30,000,000 100% $3,000,000 100%
</TABLE>
The foregoing percentage interests, as from time to time in effect and
reflected in the Register, are referred to as the "Percentage Interests"
with respect to all or any portion of the Loans, and the related
Commitments.
11.2. Agent's Authority to Act, etc. Each of the Lenders
appoints and authorizes Bank of Boston to act for the Lenders as the
Lenders' Agent in connection with the transactions contemplated by this
Agreement and the other Credit Documents on the terms set forth herein. In
acting hereunder, the Agent is acting for the account of Bank of Boston to
the extent of its Percentage Interest in each Loan and for the account of
each other Lender to the extent of the Lenders' respective Percentage
Interests, and all action in connection with the enforcement of, or the
exercise of any remedies (other than the Lenders' rights of set-off as
provided in Section 8.2.4 or in any Credit Document) in respect of the
Credit Obligations and Credit Documents shall be taken by the Agent.
11.3. Borrowers to Pay Agent, etc. Each Obligor shall be fully
protected in making all payments in respect of the Credit Obligations to
the Agent, in relying upon consents, modifications and amendments executed
by the Agent purportedly on the Lenders' behalf, and in dealing with the
Agent as herein provided. The Agent may charge the accounts of the
Borrowers, on the dates when the amounts thereof become due and payable,
with the amounts of the principal of and interest on the Revolving Loan,
principal and interest on the Mortgage Loan, commitment fees and all other
fees and amounts owing under any Credit Document.
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11.4. Lender Operations for Advances.
11.4.1. Advances. On each Closing Date, each Lender
shall advance to the Agent in immediately available funds such
Lender's Percentage Interest in the portion of the Revolving Loan
advanced on such Closing Date prior to 2:00 p.m. (Boston time). If
such funds are not received at such time, but all applicable
conditions set forth in Section 5 have been satisfied, each Lender
authorizes and requests the Agent to advance for the Lender's
account, pursuant to the terms hereof, the Lender's respective
Percentage Interest in such portion of the Revolving Loan and
agrees to reimburse the Agent in immediately available funds for
the amount thereof prior to 3:00 p.m. (Boston time) on the day any
portion of the Revolving Loan is advanced hereunder; provided,
however, that the Agent is not authorized to make any such advance
for the account of any Lender who has previously notified the Agent
in writing that such Lender will not be performing its obligations
to make further advances hereunder; and provided, further, that the
Agent shall be under no obligation to make any such advance.
11.4.2. Agent to Allocate Payments, etc. All
payments of principal and interest in respect of the extensions of
credit made pursuant to this Agreement, commitment fees and other
fees under this Agreement shall, as a matter of convenience, be
made by the Borrowers and the Guarantors to the Agent in
immediately available funds. The share of each Lender shall be
credited to such Lender by the Agent in immediately available funds
in such manner that the principal amount of the Credit Obligations
to be paid shall be paid proportionately in accordance with the
Lenders' respective Percentage Interests in such Credit
Obligations, except as otherwise provided in this Agreement. Under
no circumstances shall any Lender be required to produce or present
its Revolving Notes as evidence of its interests in the Credit
Obligations in any action or proceeding relating to the Credit
Obligations.
11.4.3. Delinquent Lenders; Nonperforming Lenders.
In the event that any Lender fails to reimburse the Agent pursuant
to Section 11.4.1 for the Percentage Interest of such Lender (a
"Delinquent Lender") in any credit advanced by the Agent pursuant
hereto, overdue amounts (the "Delinquent Payment") due from the
Delinquent Lender to the Agent shall bear interest, payable by the
Delinquent Lender on demand, at a per annum rate equal to (a) the
Federal Funds Rate for the first three days overdue and (b) the sum
of 2% plus the Federal Funds Rate for any longer period. Such
interest shall be payable to the Agent for its own account for the
period commencing on the date of the Delinquent Payment and ending
on the date the Delinquent Lender reimburses the Agent on account
of the Delinquent Payment (to the extent not paid by the Company as
provided below) and the accrued interest thereon (the "Delinquency
Period"), whether pursuant to the assignments referred to below or
otherwise. Upon notice by the Agent, the Borrowers will pay to the
Agent the principal (but not the interest) portion of the
Delinquent Payment. During the Delinquency Period, in order
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to make reimbursements for the Delinquent Payment and accrued
interest thereon, the Delinquent Lender shall be deemed to have
assigned to the Agent all interest, commitment fees and other
payments made by the Borrowers under Section 3 that would have
thereafter otherwise been payable under the Credit Documents to the
Delinquent Lender. During any other period in which any Lender is
not performing its obligations to extend credit under Section 2 (a
"Nonperforming Lender"), the Nonperforming Lender shall be deemed
to have assigned to each Lender that is not a Nonperforming Lender
(a "Performing Lender") all principal and other payments made by
the Borrowers under Section 4 that would have thereafter otherwise
been payable under the Credit Documents to the Nonperforming
Lender. The Agent shall credit a portion of such payments to each
Performing Lender in an amount equal to the Percentage Interest of
such Performing Lender in an amount equal to the Percentage
Interest of such Performing Lender divided by one minus the
Percentage Interest of the Nonperforming Lender until the
respective portions of the Revolving Loan owed to all the Lenders
are the same as the Percentage Interests of the Lenders immediately
prior to the failure of the Nonperforming Lender to perform its
obligations under Section 2. The foregoing provisions shall be in
addition to any other remedies the Agent, the Performing Lenders or
the Borrowers may have under law or equity against the Delinquent
Lender as a result of the Delinquent Payment or against the
Nonperforming Lender as a result of its failure to perform its
obligations under Section 2.
11.5. Sharing of Payments, etc. Each Lender agrees that (a) if
by exercising any right of set-off or counterclaim or otherwise, it shall
receive payment of (i) a proportion of the aggregate amount due with
respect to its Percentage Interest in the Revolving Loan which is greater
than (ii) the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's Percentage
Interest in the Revolving Loan and (b) if such inequality shall continue
for more than 10 days, the Lender receiving such proportionately greater
payment shall purchase participations in the Percentage Interests in the
Revolving Loan held by the other Lenders, and such other adjustments shall
be made from time to time (including rescission of such purchases of
participations in the event the unequal payment originally received is
recovered from such Lender through bankruptcy proceedings or otherwise), as
may be required so that all such payments of principal and interest with
respect to the Revolving Loan held by the Lenders shall be shared by the
Lenders pro rata in accordance with their respective Percentage Interests
in the Revolving Loan; provided, however, that this Section 11.5 shall not
impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise
to the payment of Indebtedness of any Obligor other than such Obligor's
Indebtedness with respect to the Revolving Loan. Each Lender that grants a
participation in the Credit Obligations to a Credit Participant shall
require as a condition to the granting of such participation that such
Credit Participant agree to share payments received in respect of the
Credit Obligations as provided in this Section 11.5. The provisions of this
Section 12.5 are for the sole and exclusive benefit of the Lenders and no
failure of any Lender to comply with the terms hereof shall be available to
any Obligor as a defense to the payment of the Credit Obligations.
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11.6. Amendments, Consents, Waivers, etc. Except as otherwise
set forth herein, the Agent may (and upon the written request of the
Required Lenders the Agent shall) take or refrain from taking any action
under this Agreement or any other Credit Document, including giving its
written consent to any modification of or amendment to and waiving in
writing compliance with any covenant or condition in this Agreement or any
other Credit Document or any Default or Event of Default, all of which
actions shall be binding upon all of the Lenders; provided, however, that:
(a) Without the written consent of Lenders owning at
least two thirds of the Percentage Interests (other than Delinquent
Lenders during the existence of a Delinquency Period so long as
such Delinquent Lender is treated the same as the other Lenders
with respect to any actions enumerated below), no written
modification of, amendment to, consent with respect to, waiver of
compliance with or waiver of a Default under any of the Credit
Documents, or under Sections 6.5 through 6.16, the related defined
terms or this Section 11.6 shall be made.
(b) Without the written consent of such Lenders as
own 100% of the Percentage Interests in the Revolving Loan (other
than Delinquent Lenders during the existence of a Delinquency
Period so long as such Delinquent Lender is treated the same as the
other Lenders with respect to any actions enumerated below):
(i) No reduction shall be made in (A) the
amount of principal of the Revolving Loan, (B) the
interest rate on the Revolving Loan or (C) the
commitment fees.
(ii) No change shall be made in the stated
time of payment of all or any portion of the Revolving
Loan or interest thereon or reimbursement of payments
made under Letters of Credit or fees relating to any of
the foregoing payable to all of the Lenders and no
waiver shall be made of any Default under Section 8.1.1.
(iii) No increase shall be made in the
amount, or extension of the term, of the Commitments
beyond that provided for under Section 2.
(iv) No alteration shall be made of the
Lenders' rights of set-off contained in Section 8.2.4.
(v) No release of any Guarantor shall be
made (except that the Agent may release particular
Guarantors in dispositions permitted by Section 6.12
without the written consent of the Lenders).
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(vi) No amendment to or modification of
this Section 11.6(b) or of the definition of Required
Lenders shall be made.
11.7. Agent's Resignation. The Agent may resign at any time by
giving at least 60 days' prior written notice of its intention to do so to
each other of the Lenders and the Borrowers. In such event, SunTrust
Bank/South Florida, National Association shall be appointed successor Agent
and shall accept such appointment within 45 days after the retiring Agent's
giving of such notice of resignation. In connection with the appointment of
a successor Agent, the Borrower's shall deliver to the Agent a processing
and recordation fee of $3,000. Upon the appointment of a new Agent
hereunder, the term "Agent" shall for all purposes of this Agreement
thereafter mean such successor. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Agreement shall continue to
inure to the benefit of such Agent as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
11.8. Concerning the Agent.
11.8.1. Action in Good Faith, etc. The Agent and its
officers, directors, employees and agents shall be under no
liability to any of the Lenders or to any future holder of any
interest in the Credit Obligations for any action or failure to act
taken or suffered in good faith, and any action or failure to act
in accordance with an opinion of its counsel shall conclusively be
deemed to be in good faith. The Agent shall in all cases be
entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the required holders of Credit
Obligations as provided in this Agreement.
11.8.2. No Implied Duties, etc. The Agent shall have
and may exercise such powers as are specifically delegated to the
Agent under this Agreement or any other Credit Document together
with all other powers incidental thereto. The Agent shall have no
implied duties to any Person or any obligation to take any action
under this Agreement or any other Credit Document except for action
specifically provided for in this Agreement or any other Credit
Document to be taken by the Agent. Before taking any action under
this Agreement or any other Credit Document, the Agent may request
an appropriate specific indemnity satisfactory to it from each
Lender in addition to the general indemnity provided for in Section
11.11. Until the Agent has received such specific indemnity, the
Agent shall not be obligated to take (although it may in its sole
discretion take) any such action under this Agreement or any other
Credit Document. Each Lender confirms that the Agent does not have
a fiduciary relationship to it under the Credit Documents. Each of
the Obligors party hereto confirms that neither the Agent nor any
other Lender has a fiduciary relationship to it under the Credit
Documents.
11.8.3. Validity, etc. The Agent shall not be
responsible to any Lender or any future holder of any interest in
the Credit Obligations (a) for the legality, validity,
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enforceability or effectiveness of this Agreement or any other
Credit Document, (b) for any recitals, reports, representations,
warranties or statements contained in or made in connection with
this Agreement or any other Credit Document, (c) for the existence
or value of any assets included in any security for the Credit
Obligations, or (d) for the effectiveness of any Lien purported to
be included in any security for the Credit Obligations.
11.8.4. Compliance. The Agent shall not be obligated
to ascertain or inquire as to the performance or observance of any
of the terms of this Agreement or any other Credit Document; and in
connection with any extension of credit under this Agreement or any
other Credit Document, the Agent shall be fully protected in
relying on a certificate of the Borrowers as to the fulfillment by
the Borrowers of any conditions to such extension of credit.
11.8.5. Employment of Agents and Counsel. The Agent
may execute any of its duties as Agent under this Agreement or any
other Credit Document by or through employees, agents and
attorneys-in-fact and shall not be responsible to any of the
Lenders, any Borrower or any other Obligor for the default or
misconduct of any such agents or attorneys-in-fact selected by the
Agent acting in good faith. The Agent shall be entitled to advice
of counsel concerning all matters pertaining to the agency hereby
created and its duties hereunder or under any other Credit
Document.
11.8.6. Reliance on Documents and Counsel. The Agent
shall be entitled to rely, and shall be fully protected in relying,
upon any affidavit, certificate, cablegram, consent, instrument,
letter, notice, order, document, statement, telecopy, telegram,
telex or teletype message or writing reasonably believed in good
faith by the Agent to be genuine and correct and to have been
signed, sent or made by the Person in question, including any
telephonic or oral statement made by such Person, and, with respect
to legal matters, upon an opinion or the advice of counsel selected
by the Agent.
11.8.7. Agent's Reimbursement. Each of the Lenders
severally agrees to reimburse the Agent, in the amount of such
Lender's Percentage Interest, for any reasonable expenses not
reimbursed by the Borrowers or the Guarantors (without limiting the
obligation of the Borrowers or the Guarantors to make such
reimbursement): (a) for which the Agent is entitled to
reimbursement by the Borrowers or the Guarantors under this
Agreement or any other Credit Document, and (b) after the
occurrence of a Default, for any other reasonable expenses incurred
by the Agent on the Lenders' behalf in connection with the
enforcement of the Lenders' rights under this Agreement or any
other Credit Document.
11.9. Rights as a Lender. With respect to any credit extended
by it hereunder, Bank of Boston shall have the same rights, obligations and
powers hereunder as any other
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Lender and may exercise such rights and powers as though it were not the
Agent, and unless the context otherwise specifies, Bank of Boston shall be
treated in its individual capacity as though it were not the Agent
hereunder. Without limiting the generality of the foregoing, the
Percentage Interest of Bank of Boston shall be included in any computations
of Percentage Interests. Bank of Boston and its Affiliates may accept
deposits from, lend money to, act as trustee for and generally engage in
any kind of banking or trust business with any Borrower, any of their
respective Subsidiaries or any Affiliate of any of them and any Person who
may do business with or own an equity interest in any Borrower, any of
their respective Subsidiaries or any Affiliate of any of them, all as if
Bank of Boston were not the Agent and without any duty to account therefor
to the other Lenders.
11.10. Independent Credit Decision. Each of the Lenders
acknowledges that it has independently and without reliance upon the Agent,
based on the financial statements and other documents referred to in
Section 7.2, on the other representations and warranties contained herein
and on such other information with respect to the Obligors as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to
enter into this Agreement and to make the extensions of credit provided for
hereunder. Each Lender represents to the Agent that such Lender will
continue to make its own independent credit and other decisions in taking
or not taking action under this Agreement or any other Credit Document.
Each Lender expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to such Lender, and no act by the
Agent taken under this Agreement or any other Credit Document, including
any review of the affairs of the Obligors, shall be deemed to constitute
any representation or warranty by the Agent. Except for notices, reports
and other documents expressly required to be furnished to each Lender by
the Agent under this Agreement or any other Credit Document, the Agent
shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
condition, financial or otherwise, or creditworthiness of any Obligor which
may come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
11.11. Indemnification. The holders of the Credit Obligations
shall indemnify the Agent and its officers, directors, employees and agents
(to the extent not reimbursed by the Obligors and without limiting the
obligation of any of the Obligors to do so), pro rata in accordance with
their respective Percentage Interests, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at
any time be imposed on, incurred by or asserted against the Agent or such
Persons relating to or arising out of this Agreement, any other Credit
Document, the transactions contemplated hereby or thereby, or any action
taken or omitted by the Agent in connection with any of the foregoing;
provided, however, that the foregoing shall not extend to actions or
omissions which are taken by the Agent with gross negligence or willful
misconduct.
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12. Successors and Assigns; Lender Assignments and Participations. Any
reference in this Agreement to any of the parties hereto shall be deemed to
include the successors and assigns of such party, and all covenants and
agreements by or on behalf of the Obligors, the Guarantors, the Agent or
the Lenders that are contained in this Agreement or any other Credit
Documents shall bind and inure to the benefit of their respective
successors and assigns; provided, however, that (a) the Obligors may not
assign their rights or obligations under this Agreement except for mergers
or liquidations permitted by Section 6.12, and (b) the Lenders shall be not
entitled to assign their respective Percentage Interests in the Revolving
Loan hereunder except as set forth below in this Section 12.
12.1. Assignments by Lenders.
12.1.1. Assignees and Assignment Procedures. Each
Lender may (a) without the consent of the Agent or the Borrowers if
the proposed assignee is already a Lender hereunder or a Wholly
Owned Subsidiary of the same corporate parent of which the
assigning Lender is a Related Entity, or (b) otherwise with the
consents of the Agent and (so long as no Event of Default has
occurred and is continuing) the Borrowers (which consents will not
be unreasonably withheld), in compliance with applicable laws in
connection with such assignment, assign to one or more commercial
banks or other financial institutions (each, an "Assignee") all or
a portion of its interests, rights and obligations under this
Agreement and the other Credit Documents, including all or a
portion, which need not be pro rata between the Revolving Loan and
the Mortgage Loan, of its Commitment, the portion of the Revolving
Loan and Mortgage Loan at the time owing to it and the Revolving
Notes held by it:
(i) the aggregate amount of the Commitment
of the assigning Lender subject to each such assignment
to any Assignee other than another Lender (determined as
of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Agent) shall be
not less than $5,000,000 and in increments of
$1,000,000;
(ii) the parties to each such assignment
shall execute and deliver to the Agent an Assignment and
Acceptance (the "Assignment and Acceptance")
substantially in the form of Exhibit 12.1.1, together
with the Note subject to such assignment and a
processing and recordation fee of $3,000 payable to the
Agent by the assigning Lender or the Assignee; and
(iii) no Lender shall assign all or any
portion of its Commitment to an Assignee that is not
incorporated or organized under the laws of the United
States of America or a state thereof.
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Upon acceptance and recording pursuant to Section 12.1.4, from and
after the effective date specified in each Assignment and
Acceptance (which effective date shall be at least five Banking
Days after the execution thereof unless waived by the Agent):
(A) the Assignee shall be a party hereto and, to
the extent provided in such Assignment and
Acceptance, have the rights and obligations of
a Lender under this Agreement and
(B) the assigning Lender shall, to the extent
provided in such assignment, be released from
its obligations under this Agreement (and, in
the case of an Assignment and Acceptance
covering all or the remaining portion of an
assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled
to the benefits of Sections 3.2.4, 3.6, 3.7,
3.8, 3.9 and 10, as well as to any fees accrued
for its account hereunder and not yet paid).
12.1.2. Terms of Assignment and Acceptance. By
executing and delivering an Assignment and Acceptance, the
assigning Lender and Assignee shall be deemed to confirm to and
agree with each other and the other parties hereto as follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being assigned
thereby free and clear of any adverse claim, such assigning Lender
makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made
in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Credit Document or any other instrument or
document furnished pursuant hereto;
(b) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Obligors or the performance or
observance by any Obligor of any of its obligations under this
Agreement, any other Credit Document or any other instrument or
document furnished pursuant hereto;
(c) such Assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 7.2 or Section
6.4 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance;
(d) such Assignee will independently and without
reliance upon the Agent, such assigning Lender or any other Lender,
and based on such documents and
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information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under
this Agreement;
(e) such Assignee appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably
incidental thereto; and
(f) such Assignee agrees that it will perform in
accordance with the terms of this Agreement all the obligations
which are required to be performed by it as a Lender.
12.1.3. Register. The Agent shall maintain at the
Boston Office a register (the "Register") for the recordation of
(a) the names and addresses of the Lenders and the Assignees which
assume rights and obligations pursuant to an assignment under
Section 12.1.1, (b) the Percentage Interest of each such Lender as
set forth in Section 11.1 and (c) the amount of the Revolving Loan
and Mortgage Loan owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrowers, the Agent and the Lenders may
treat each Person whose name is registered therein for all purposes
as a party to this Agreement. The Register shall be available for
inspection by any Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
12.1.4. Acceptance of Assignment and Assumption.
Upon its receipt of a completed Assignment and Acceptance executed
by an assigning Lender and an Assignee together with the Revolving
Notes subject to such assignment, and the processing and
recordation fee referred to in Section 12.1.1, the Agent shall (a)
accept such Assignment and Acceptance, (b) record the information
contained therein in the Register and (c) give prompt notice
thereof to the Borrower. Within five Banking Days after receipt of
notice, the Borrowers, at their own expense, shall execute and
deliver to the Agent, in exchange for the surrendered Revolving
Notes, new Revolving Notes to the order of such Assignee in a
principal amount equal to the applicable Commitment and Revolving
Loan assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Lender has retained a Commitment and Revolving
Loan, new Revolving Notes to the order of such assigning Lender in
a principal amount equal to the applicable Commitment and Revolving
Loan retained by it. Such new Revolving Notes shall be in an
aggregate principal amount equal to the aggregate principal amount
of such surrendered Revolving Notes, respectively, and shall be
dated the date of the surrendered Revolving Notes which they
replaces.
12.1.5. Federal Reserve Bank. Notwithstanding the
foregoing provisions of this Section 12, any Lender may at any time
pledge or assign all or any portion of such Lender's rights under
this Agreement and the other Credit Documents to a Federal
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Reserve Bank; provided, however, that no such pledge or assignment
shall release such Lender from such Lender's obligations hereunder
or under any other Credit Document.
12.1.6. Further Assurances. The Obligors shall sign
such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the
benefits of the rights created by the Credit Documents.
12.2. Credit Participants. Each Lender may, without the
consent of the Borrowers or the Agent, in compliance with applicable laws
in connection with such participation, sell to one or more commercial banks
or other financial institutions (each a "Credit Participant")
participations in all or a portion of its interests, rights and obligations
under this Agreement and the other Credit Documents (including all or a
portion of its Commitment, the Revolving Loan and Letter of Credit Exposure
owing to it and the Revolving Note held by it); provided, however, that:
(a) such Lender's obligations under this Agreement
shall remain unchanged;
(b) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the
benefit of the cost protection provisions contained in Sections
3.2.4, 3.6, 3.7, 3.8, 3.9 and 10, but shall not be entitled to
receive any greater payment thereunder than the selling Lender
would have been entitled to receive with respect to the interest so
sold if such interest had not been sold; and
(d) the Borrowers, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right as one of
the Lenders to vote with respect to the enforcement of the
obligations of the Borrowers relating to the Revolving Loan and
Letter of Credit Exposure and the approval of any amendment,
modification or waiver of any provision of this Agreement (other
than amendments, modifications, consents or waivers described in
clause (b) of the proviso to Section 11.6).
Each Obligor agrees, to the fullest extent permitted by applicable law,
that any Credit Participant and any Lender purchasing a participation from
another Lender pursuant to Section 12.5 may exercise all rights of payment
(including the right of set-off), with respect to its participation as
fully as if such Credit Participant or such Lender were the direct creditor
of the Obligors and a Lender hereunder in the amount of such participation.
12.3. Replacement of Lender. In the event that any Lender or,
to the extent applicable, any Credit Participant (the "Affected Lender"):
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(a) fails to perform its obligations to fund any
portion of the Revolving Loan or to issue any Letter of Credit on
any Closing Date when required to do so by the terms of the Credit
Documents, or fails to provide its portion of any Eurodollar
Pricing Option pursuant to Section 3.2.1 or on account of a Legal
Requirement as contemplated by Section 3.2.5;
(b) demands payment under the Reserve provisions of
Section 3.6, the Tax provisions of Section 3.7, the capital
adequacy provisions of Section 3.8 or the regulatory change
provisions in Section 3.9 in an amount the Company deems materially
in excess of the amounts with respect thereto demanded by the other
Lenders; or
(c) refuses to consent to a proposed amendment,
modification, waiver or other action requiring consent of the
holders of 100% of the Percentage Interests under Section 11.6(b)
that is consented to by the other Lenders;
then, so long as no Event of Default exists and is continuing, the
Borrowers shall have the right to seek a replacement lender which is
reasonably satisfactory to the Agent (the "Replacement Lender"). The
Replacement Lender shall purchase the interests of the Affected Lender in
the Revolving Loan, Letters of Credit and its Commitment and shall assume
the obligations of the Affected Lender hereunder and under the other Credit
Documents upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree,
a purchase price in the amount of the Affected Lender's Percentage Interest
in the Revolving Loan and Letter of Credit Exposure, or appropriate credit
support for contingent amounts included therein, and all other outstanding
Credit Obligations then owed to the Affected Lender). Such assignment by
the Affected Lender shall be deemed an early termination of any Eurodollar
Pricing Option to the extent of the Affected Lender's portion thereof, and
the Borrowers will pay to the Affected Lender any resulting amounts due
under Section 3.2.4. Upon consummation of such assignment, the Replacement
Lender shall become party to this Agreement as a signatory hereto and shall
have all the rights and obligations of the Affected Lender under this
Agreement and the other Credit Documents with a Percentage Interest equal
to the Percentage Interest of the Affected Lender, the Affected Lender
shall be released from its obligations hereunder and under the other Credit
Documents, and no further consent or action by any party shall be required.
Upon the consummation of such assignment, the Borrowers, the Agent and the
Affected Lender shall make appropriate arrangements so that a new Revolving
Note is issued to the Replacement Lender if it has acquired a portion of
the Revolving Loan. The Borrowers and the Guarantors shall sign such
documents and take such other actions reasonably requested by the
Replacement Lender to enable it to share in the benefits of the rights
created by the Credit Documents. Until the consummation of an assignment in
accordance with the foregoing provisions of this Section 12.3, the
Borrowers
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shall continue to pay to the Affected Lender any Credit Obligations as they
become due and payable.
13. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing.
Any notice, consent, approval, demand or other communication in connection
with this Agreement shall be deemed to be given if given in writing
(including telex, telecopy or similar teletransmission) addressed as
provided below (or to the addressee at such other address as the addressee
shall have specified by notice actually received by the addressor), and if
either (a) actually delivered in fully legible form to such address
(evidenced in the case of a telex by receipt of the correct answerback) or
(b) in the case of a letter, unless actual receipt of the notice is
required by any Credit Document five days shall have elapsed after the same
shall have been deposited in the United States mails, with first-class
postage prepaid and registered or certified.
If to any of the Borrowers or any of their respective Subsidiaries,
to them at their address set forth in Exhibit 7.1 (as supplemented pursuant
to Sections 6.4.1 and 6.4.2), to the attention of the chief financial
officer, with a copy to:
Summit Partners, L.P.
600 Atlantic Avenue, Suite 2800
Boston, MA 02110
Attn: Bruce R. Evans
If to any Lender or the Agent, to it at its address set forth on
the signature pages of this Agreement or in the Register, with a copy to
the Agent.
14. Course of Dealing; Amendments and Waivers. No course of dealing
between any Lender or the Agent, on one hand, and the Borrowers or any
other Obligor, on the other hand, shall operate as a waiver of any of the
Lenders' or the Agent's rights under this Agreement or any other Credit
Document or with respect to the Credit Obligations. Each of the Borrowers
and the Guarantors acknowledges that if the Lenders or the Agent, without
being required to do so by this Agreement or any other Credit Document,
give any notice or information to, or obtain any consent from, any Borrower
or any other Obligor, the Lenders and the Agent shall not by implication
have amended, waived or modified any provision of this Agreement or any
other Credit Document, or created any duty to give any such notice or
information or to obtain any such consent on any future occasion. No delay
or omission on the part of any Lender of the Agent in exercising any right
under this Agreement or any other Credit Document or with respect to the
Credit Obligations shall operate as a waiver of such right or any other
right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future
occasion. No waiver, consent or amendment with respect to this Agreement or
any other Credit Document shall be binding unless it is in writing and
signed by the Agent or the Required Lenders.
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<PAGE> 84
15. Defeasance. When all Credit Obligations have been paid, performed and
reasonably determined by the Lenders to have been indefeasibly discharged
in full, and if at the time no Lender continues to be committed to extend
any credit to the Borrowers hereunder or under any other Credit Document,
this Agreement shall terminate and, at the Borrowers' written request,
accompanied by such certificates and other items as the Agent shall
reasonably deem necessary, the Credit Security shall revert to the Obligors
and the right, title and interest of the Lenders therein shall terminate.
Thereupon, on the Obligor's demand and at their cost and expense, the Agent
shall execute proper instruments, acknowledging satisfaction of and
discharging this Agreement, and shall redeliver to the Obligors any Credit
Security then in its possession; provided, however, that Sections 3.2.4,
3.5, 3.6, 3.7, 3.8, 10 and 11.8.7 shall survive the termination of this
Agreement.
16. Venue; Service of Process. Each of the Borrowers and the other
Obligors:
(a) Irrevocably submits to the nonexclusive
jurisdiction of the state courts of The Commonwealth of
Massachusetts and to the nonexclusive jurisdiction of the United
States District Court for the District of Massachusetts for the
purpose of any suit, action or other proceeding arising out of or
based upon this Agreement or any other Credit Document or the
subject matter hereof or thereof.
(b) Waives to the extent not prohibited by
applicable law that cannot be waived, and agrees not to assert, by
way of motion, as a defense or otherwise, in any such proceeding
brought in any of the above-named courts, any claim that it is not
subject personally to the jurisdiction of such court, that its
property is exempt or immune from attachment or execution, that
such proceeding is brought in an inconvenient forum, that the venue
of such proceeding is improper, or that this Agreement or any other
Credit Document, or the subject matter hereof or thereof, may not
be enforced in or by such court.
Each of the Borrowers and the other Obligors consents to service of process
in any such proceeding in any manner at the time permitted by Chapter 223A
of the General Laws of The Commonwealth of Massachusetts and agrees that
service of process by registered or certified mail, return receipt
requested, at its address specified in or pursuant to Section 16 is
reasonably calculated to give actual notice.
17. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, EACH OF THE BORROWERS, THE OTHER OBLIGORS, THE AGENT
AND THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT
OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY
CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH
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<PAGE> 85
THE DEALINGS OF THE LENDERS, THE AGENT, THE BORROWERS OR ANY OTHER OBLIGOR
IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the
Borrowers and the other Obligors acknowledges that it has been informed by
the Agent that the provisions of this Section 18 constitute a material
inducement upon which each of the Lenders has relied and will rely in
entering into this Agreement and any other Credit Document, and that it has
reviewed the provisions of this Section 18 with its counsel. Any Lender,
the Agent, any Borrower or any other Obligor may file an original
counterpart or a copy of this Section 18 with any court as written evidence
of the consent of the Borrowers, the other Obligors, the Agent and the
Lenders to the waiver of their rights to trial by jury.
18. General. All covenants, agreements, representations and warranties
made in this Agreement or any other Credit Document or in certificates
delivered pursuant hereto or thereto shall be deemed to have been relied on
by each Lender, notwithstanding any investigation made by any Lender on its
behalf, and shall survive the execution and delivery to the Lenders hereof
and thereof. The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other provision
hereof. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. This
Agreement and the other Credit Documents (including any related fee
agreements with the Agent or the Lenders) constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous understandings and
agreements, whether written or oral. This Agreement may be executed in any
number of counterparts which together shall constitute one instrument. This
Agreement shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of The Commonwealth of
Massachusetts.
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<PAGE> 86
Each of the undersigned has caused this Agreement to be executed
and delivered by its duly authorized officer as an agreement under seal as
of the date first above written.
PEDIATRIX MEDICAL GROUP, INC.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF FLORIDA, INC.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP, P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP, P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP, S.P.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP, P.A.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF KANSAS, P.A.
By ______________________________________
Title:
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<PAGE> 87
PEDIATRIX MEDICAL GROUP NEONATOLOGY
AND PEDIATRIC INTENSIVE CARE SPECIALISTS
OF NEW YORK, P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF
CALIFORNIA, P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF ILLINOIS,
P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF MICHIGAN,
P.C.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF
PENNSYLVANIA, P.C.
By ______________________________________
Title:
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<PAGE> 88
PEDIATRIX MEDICAL GROUP OF TEXAS, P.A.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF OHIO CORP.
By ______________________________________
Title:
NEONATAL SPECIALISTS, LTD.
By ______________________________________
Title:
PEDIATRIX MEDICAL GROUP OF
COLORADO, P.C.
By ______________________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON
By ______________________________________
Gregory G. O'Brien
Managing Director
The First National Bank of Boston
New England Corporate Banking
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-1279
Telex: 940581
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<PAGE> 89
SUNTRUST BANK/SOUTH FLORIDA,
NATIONAL ASSOCIATION
By _____________________________________
Jeffrey R. Dickson
First Vice President
SunTrust Bank/South Florida, National
Association 501 E. Las Olas
Boulevard 7th Floor Fort
Lauderdale, Florida 33301
Telecopy (954) 765-7240
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<PAGE> 1
EXHIBIT 10.26
PREPARED BY AND RETURN TO:
Carl V. Romano, Esq.
Akerman, Senterfitt & Eidson, P.A.
Phillips Point-East Tower
Suite 900
777 S. Flagler Drive
West Palm Beach, FL 33401
MODIFICATION OF MORTGAGE
THIS AGREEMENT (the "Agreement") made as of this _____ day of June,
1996, by and between THE FIRST NATIONAL BANK OF BOSTON, a national banking
association (hereinafter referred to as "Mortgagee"), and PEDIATRIX MEDICAL
GROUP, INC., a Florida corporation (hereinafter referred to as "Mortgagor").
W I T N E S S E T H:
WHEREAS, Mortgagee is the owner and holder of that certain Mortgage,
Security Agreement and Assignment of Leases and Rents from Mortgagor dated
September 30, 1993, and recorded on October 5, 1993, in Official Records Book
21215, Page 380, and re-recorded in Official Records Book 21421, Page 520, of
the Public Records of Broward County, Florida (hereinafter referred to as the
"Existing Mortgage" and the Existing Mortgage as modified by this Agreement
shall be hereinafter referred to as the "Mortgage); and
WHEREAS, the Existing Mortgage encumbers certain real property in
Broward County, Florida (the "Mortgaged Property") more particularly described
in the Existing Mortgage; and
WHEREAS, the Existing Mortgage secures that certain promissory note
executed by Mortgagor in favor of Mortgagee, dated September 30, 1993, in the
original principal amount of Nine Hundred Sixty Thousand and no/100 Dollars
($960,000.00) (the "Existing Note") and other indebtedness owed by Mortgagor to
Mortgagee pursuant to that certain Credit Agreement dated September 30, 1993
(the "Credit Agreement"); and
WHEREAS, pursuant to the Credit Agreement, as amended by that certain
Amendment No. 1 of same date (the "First Amendment"), Mortgagee agreed to make
revolving credit loans to Mortgagor in an aggregate amount not to exceed Four
Million and no/100 Dollars ($4,000,000.00) and a mortgage loan not to exceed
Nine Hundred Sixty Thousand and no/100 Dollars ($960,000.00); and
WHEREAS, on September 26, 1994, Mortgagor and Mortgagee entered into
that certain Amendment No. 2 to the Credit Agreement (the "Second Amendment")
whereby Mortgagee agreed to increase the aggregate principal amount of the
revolving credit loans to Mortgagor to an amount equal to the lesser of (a)
Seven Million and no/100 Dollars ($7,000,000.00) or (b) such amount (in a
minimum amount of Fifty Thousand and no/100 Dollars ($50,000.00) and in
integral
<PAGE> 2
multiples of Ten Thousand and no/100 Dollars ($10,000.00)) specified by
irrevocable notice from the Mortgagor to the Mortgagee; and
WHEREAS, on June 19, 1995, Mortgagor and Mortgagee entered into that
certain Amendment No. 3 to the Credit Agreement (the "Third Amendment") which
amended the terms of the Credit Agreement as more particularly set forth and
described in the Third Amendment; and
WHEREAS, on December 30, 1995, Mortgagor and Mortgagee entered into
that certain Amendment No. 4 to the Credit Agreement (the "Fourth Amendment"),
which amended the terms of the Credit Agreement as more particularly set forth
and described in the Fourth Amendment; and
WHEREAS, on even date herewith Mortgagor and Mortgagee entered into
that certain Amended and Restated Credit Agreement (the "Restated Agreement")
whereby Mortgagee agreed to loan Mortgagor Two Million Two Hundred Thousand
Three Hundred Twenty and no/100 Dollars ($2,200,320.00) (the "New Loan"); and
WHEREAS, the First Amendment, Second Amendment, Third Amendment,
Fourth Amendment and Restated Agreement shall be hereinafter collectively
referred to as the "Credit Agreements"; and
WHEREAS, in order to evidenced the New Loan, on even date herewith,
Mortgagor executed and delivered to Mortgagee a Promissory Note, in the
outstanding principal amount of Two Million Two Hundred Thousand Three Hundred
Twenty and no/100 Dollars ($2,200,320.00)(hereinafter referred to as the "New
Note"); and
WHEREAS, pursuant to the Restated Agreement, Mortgagee, as a condition
to make the New Loan, has required that Mortgagor pledge additional collateral;
and
WHEREAS, Mortgagor desires that the real property more particularly
described on Exhibit "A" attached hereto and made a part hereof (the "New
Property") serve as additional collateral to secure the New Loan and that the
definition and description of "Property" as contained in paragraph 2 and
Exhibit "A" of the Existing Mortgage be modified to include the New Property;
and
WHEREAS, on even date herewith, Mortgagor executed and delivered to
Mortgagee a Consolidated Promissory Note in the outstanding principal amount of
Three Million and no/100 Dollars ($3,000,000.00) (hereinafter referred to as
the "Consolidated Note"), which consolidates the outstanding principal balances
of the Existing Note and the New Note (the Existing Note and the New Note, as
consolidated by the Consolidated Note, shall be hereinafter collectively
referred to as the "Notes"); and
WHEREAS, the Consolidated Note shall be secured by the Mortgage and
the New Note and Consolidated Note shall be payable at the time, in the manner
and at such interest rates as
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<PAGE> 3
more particularly described in the Restated Amendment, as modified by this
Agreement; and
WHEREAS, pursuant to paragraph 11.7 of the Existing Mortgage, the
maximum recovery under the Existing Mortgage is limited to One Million Five
Hundred Thousand and no/100 Dollars ($1,500,000.00); and
WHEREAS, it is also the intent and desire of Mortgagee to increase the
maximum recovery under the Existing Mortgage, as modified herein, to Three
Million and no/100 Dollars ($3,000,000.00) and to modify paragraph 11.7 of the
Existing Mortgage accordingly.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, as well as the payment of the sum of Ten and
no/100 Dollars ($10.00) from each to the other and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto for
themselves, their successors and assigns hereby mutually covenant and agree as
follows:
The foregoing recitations are true and correct and comprise a
part of this Agreement.
The Notes are secured by the Mortgage and any agreements given
by Mortgagor in connection with the loan from Mortgagee to Mortgagor
(collectively, with the Credit Agreements, the "Loan Documents").
The New Property shall serve as additional collateral for the
New Loan and the definition and description of "Property" as contained in
paragraph 2 and Exhibit "A" of the Existing Mortgage is hereby modified to
include the New Property.
The maximum recovery under the Existing Mortgage, as set forth
in paragraph 11.7 and on the first page of the Existing Mortgage is hereby
increased to the sum of Three Million and no/100 Dollars ($3,000,000.00).
Mortgagor acknowledges that the Loan Documents continue in
full force and effect and that they shall continue to secure payment of all
amounts due under and the performance of all obligations of Mortgagor under,
the Notes, the Mortgage and any other Loan Documents.
Mortgagor acknowledges and agrees that the principal sum of
debt evidenced by the Existing Note on the date hereof is Seven Hundred
Ninety-Nine Thousand Six Hundred Eighty and no/100 Dollars ($799,680.00), the
principal sum of debt evidenced by the New Note is Two Million Two Hundred
Thousand Three Hundred Twenty and no/100 Dollars ($2,200,320.00), for an
aggregate of Three Million and no/100 Dollars ($3,000,000.00), which is
evidenced by the Consolidated Note and secured by the Mortgage. This is the
just and true debt of Mortgagor owed to Mortgagee and Mortgagor claims no right
of offset, defense or counterclaim against Mortgagee or such debt.
Mortgagor agrees to pay any and all documentary stamp tax,
intangible tax or other similar taxes levied against the Notes, if any,
including, without limitation, any and all interest
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<PAGE> 4
or penalties assessed thereon, and further agrees to indemnify and
hold harmless Mortgagee from and against any and all loss, cost, expense or
liability, including, without limitation, attorneys' fees and costs, suffered
or incurred by Mortgagee by reason of the levy, assessment or assertion of such
taxes, penalties or interest.
Mortgagor further warrants and represents that the Notes and
the Mortgage are in good standing and free from default and that no event has
occurred or failed to occur which, with the giving of notice or the passage of
time or both, would comprise such a default.
A default in performance by Mortgagor of any of its
obligations under the Consolidated Note, or any instrument given to evidence or
secure any loans from Mortgagee to Mortgagor, shall constitute a default as to
all of said obligations and in the event of any such default, Mortgagee shall
have the right to immediately enforce any and all remedies provided in the
Consolidated Note or in the Mortgage or other Loan Documents given to evidence
or secure any such loans.
Mortgagee and Mortgagor hereby agree that, in consideration of
the recitals and mutual covenants contained herein, and for other good and
valuable consideration, as amended, the receipt and sufficiency of which are
hereby acknowledged, in the event Mortgagor shall (i) file with any bankruptcy
court of competent jurisdiction or be the subject of any petition under Title
11 of the U.S. Code, as amended, (ii) be the subject of any order for relief
issued under such Title 11 of the U.S. Code, as amended, (iii) file or be the
subject of any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future federal or state act or law relating to bankruptcy or insolvency, (iv)
have sought, consented to or acquiesced in the appointment of any trustee,
receiver, conservator, or liquidator, (v) be the subject of any order,
judgment, or decree entered by any court of competent jurisdiction approving a
petition filed against such party for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under
any present or future federal or state act or law relating to bankruptcy,
insolvency, or relief for debtors, Mortgagee shall thereupon be entitled to
relief from any automatic stay imposed by Section 362 of Title 11 of the U.S.
Code, as amended, or otherwise, on or against the exercise of the rights and
remedies otherwise available to Mortgagee as provided in the Mortgage, Notes or
any other documents given in connection with the Notes and as otherwise
provided by law against the Mortgaged Property and other assets on which
Mortgagee currently has a lien under the Mortgage and the other documents given
in connection with the Mortgage and this Agreement.
Except as provided herein, Mortgagee and Mortgagor hereby
agree and acknowledge that nothing herein contained shall in any manner affect,
alter, change, or impair the rights, remedies and security of the Mortgagee as
provided in the Mortgage or any of the Loan Documents. It is the intent of the
parties hereto that this Agreement shall not constitute a novation and shall,
in no way, adversely affect the lien of the Mortgage and in the event that this
Agreement, or any part hereof, shall be construed by a court of competent
jurisdiction as operating to affect the lien priority of the Mortgage over the
claims which would otherwise be subordinate thereto, and upon any such ruling
not being appealed or not being appealable, then to the extent that third
persons acquiring an interest in the Mortgaged Property between the time
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<PAGE> 5
of execution of the Mortgage and the execution hereof are prejudiced thereby,
this Agreement, or such portion hereof as shall be so construed to affect the
lien of the Mortgage shall be void and of no force or effect, as to that claim
only, and this Agreement, shall constitute, as to that claim only, a lien upon
the Mortgaged Property subordinate to such third person's interests,
incorporating by reference the terms of the Mortgage and the Mortgage shall
then be enforced pursuant to the terms therein contained, independent of this
Agreement; provided, however, that notwithstanding the foregoing, as between
themselves, Mortgagor and Mortgagee shall be bound by all terms and conditions
hereof until all indebtedness owing to the Mortgagee shall have been paid in
full.
No delay by Mortgagee in exercising any right or remedy under
the Mortgage, the Loan Documents, or otherwise afforded by law, shall operate
as a waiver thereof or preclude the exercise thereof during the continuance of
any default thereunder. No waiver by Mortgagee of any default shall constitute
a waiver of or consent to subsequent defaults. No failure of Mortgagee to
exercise any option to accelerate maturity of the debt secured by the Mortgage,
no forbearance by Mortgagee before or after the exercise of such option and no
withdrawal or abandonment of foreclosure proceedings by Mortgagee shall be
taken or construed as a waiver of its right to exercise such option or to
accelerate the maturity of the debt by reason of any past, present or future
default on the part of Mortgagor; and, in like manner, the procurement of
insurance or the payment of taxes or other liens or charges by Mortgagee shall
not be taken or construed as a waiver of its right to accelerate the maturity
of the debt by Mortgagee.
As a material inducement for Mortgagee to execute this
Mortgage, Mortgagor does hereby waive and release, acquit, satisfy and forever
discharge Mortgagee and its affiliates and assignees from any and all claims,
counterclaims, defenses, actions, causes of action, suits, controversies,
agreements, promises and demands whatsoever in law or in equity which the
Mortgagor ever had, now has, or which any personal representative, successor,
heir or assign of the Mortgagor hereafter can, shall or may have against
Mortgagee, or its affiliates and assignees, for, upon or by reason of any
matter, cause or thing whatsoever through the date hereof. In addition to, and
without limiting the generality of the foregoing, and in consideration of the
Mortgagee's execution of this Agreement, Mortgagor covenants with and warrants
unto Mortgagee, and its affiliates and assignees, that there exist no claims,
counterclaims, defenses, objections, offsets or claims of offsets against the
Mortgagee or the joint and several obligation of the Mortgagor to pay the
indebtedness evidenced by the Notes to the Mortgagee when and as the same
becomes due and payable.
Time is of the essence in all matters connected herewith.
At any time, and from time to time, upon request by the
Mortgagee, the Mortgagor will make, execute and deliver or cause to be made,
executed and delivered, to the Mortgagee and where appropriate, to cause to be
recorded and/or filed and from time to time thereafter to be re-recorded and/or
refiled at such time and in such offices or places as shall be deemed desirable
by the Mortgagee, any and all other such further mortgages, instruments of
further assurances, financing statements, certificates and other documents as
may, in the opinion of Mortgagee, be necessary or desirable in order to
effectuate, complete, perfect or to continue and preserve:
- 5 -
<PAGE> 6
( the obligation of the Mortgagor under the
Consolidated Note and this Mortgage; and
( the lien of this Mortgage as a valid lien upon all of
the Mortgaged Property. Upon any failure by Mortgagor to do so, the
Mortgagee may make, execute, record, file, re-record and/or refile any
and all such Mortgages, financing statements, instruments,
certificates and documents for and in the name of Mortgagor and the
Mortgagor hereby irrevocably appoints the Mortgagee the agent and
attorney in fact of Mortgagor so to do. The lien hereof will
automatically attach without further act, to all after acquired
property of Mortgagor that shall be attached to and/or used in the
operation of the Mortgaged Property or any part thereof.
The maturity date of the Consolidated Note is June 30, 2003,
which maturity date may be extended in the sole and absolute discretion of
Mortgagee without recording notice of such extension.
Any notice, demand or other writing authorized or required by
the Mortgage to be served on or given to Mortgagor shall be served on or given
to Mortgagor at the following address:
PEDIATRIX MEDICAL GROUP, INC.
1455 Northpark Drive
Fort Lauderdale, Florida 33320
or such other address as may have been furnished in writing to Mortgagee by
Mortgagor. Any notice, demand or other instrument authorized or required by
the Consolidated Note, Mortgage or other Loan Documents to be served on or
given to Mortgagee shall be served on or be given to Mortgagee at:
THE FIRST NATIONAL BANK OF BOSTON
100 Federal Street
Boston, Massachusetts 02110
or at such other address as may have been furnished in writing by Mortgagor to
Mortgagee.
Neither the Mortgage nor the Loan Documents, nor any term
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
Any disputes arising under the Mortgage or the Loan Documents
shall be governed by and construed in accordance with the law of the State of
Florida.
Except as modified herein, all of the terms, covenants and
conditions of the Mortgage are ratified, confirmed and approved and shall
remain in full force and effect.
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<PAGE> 7
MORTGAGOR AND MORTGAGEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CLAIMS MADE BETWEEN THEM WHETHER NOW EXISTING OR ARISING IN THE FUTURE,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL CLAIMS, DEFENSES, COUNTERCLAIMS,
THIRD PARTY CLAIMS AND INTERVENOR'S CLAIMS BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS MODIFICATION OF MORTGAGE OR ANY AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE MORTGAGEE ENTERING INTO
THIS MODIFICATION OF MORTGAGE AND ANY AGREEMENT MADE OR TO BE MADE IN
CONNECTION HEREWITH.
IN WITNESS WHEREOF, Mortgagee and Mortgagor have caused these presents
to be executed, as of the date and year first above written.
<TABLE>
<S> <C>
Signed, sealed and delivered MORTGAGEE:
in the presence of:
THE FIRST NATIONAL BANK OF
BOSTON, a national banking association
. . . . . . . . . . . . . . . . . . . . . . . . . By: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Print Name: . . . . . . . . . . . . . . . . . . . Print Name: . . . . . . . . . . . . . . . . . . . . . . . . .
Title: . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Print Name: . . . . . . . . . . . . . . . . . . .
MORTGAGOR:
PEDIATRIX MEDICAL GROUP, INC.,
a Florida corporation
. . . . . . . . . . . . . . . . . . . . . . . . . By:__________________________________________________________
Print Name: . . . . . . . . . . . . . . . . . . . Print Name: . . . . . . . . . . . . . . . . . . . . . . . . .
Title: . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Print Name: . . . . . . . . . . . . . . . . . . .
</TABLE>
COMMONWEALTH OF MASSACHUSETTS
- 7 -
<PAGE> 8
COUNTY OF SUFFOLK
The foregoing instrument was acknowledged before me this _______ day
of June, 1996, by __________________________, as ________________ of PEDIATRIX
MEDICAL GROUP, INC., a Florida corporation, on behalf of the corporation.
He/She is personally known to me or produced _________________________ as
identification.
Notary Public, Commonwealth of Massachusetts
Print Name:
My Commission expires:
STATE OF MASSACHUSETTS
COUNTY OF SUFFOLK
The foregoing instrument was acknowledged before me this _______ day
of June, 1996, by _________________________, as ________________ of THE FIRST
NATIONAL BANK OF BOSTON, a national banking association, on behalf of said
bank. He/She is personally known to me or produced ______________________ as
identification.
Notary Public, Commonwealth of Massachusetts
Print Name:
My Commission expires:
- 8 -
<PAGE> 9
EXHIBIT "A"
LEGAL DESCRIPTION-NEW PROPERTY
PORTIONS OF LOTS 1 AND 2, BLOCK 2, PARK OF COMMERCE, ACCORDING
TO THE PLAT THEREOF, AS RECORDED IN PLAT BOOK 110, PAGE 15, OF
THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA, DESCRIBED AS
FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID LOT 1, BLOCK 2;
THENCE NORTH 14 degrees 22'18" EAST, ALONG THE WEST BOUNDARY
OF SAID LOT 1, A DISTANCE OF 40.20 FEET TO THE POINT OF
BEGINNING; THENCE CONTINUE NORTH 14 degrees 22'18" EAST, ALONG
THE WEST BOUNDARY OF SAID LOT 1, A DISTANCE OF 405.80 FEET;
THENCE NORTH 39 degrees 00'00" EAST, A DISTANCE OF 83.00 FEET;
THENCE NORTH 12 degrees 35'00" EAST, A DISTANCE OF 125.71
FEET, THE LAST TWO (2) DESCRIBED COURSES BEING ALONG THE
WESTERLY BOUNDARY OF SAID LOT 2, BLOCK 2; THENCE SOUTH 82
degrees 44'50" EAST, A DISTANCE OF 176.12 FEET; THENCE SOUTH
07 degrees 15'18" WEST, A DISTANCE OF 598.94 FEET TO A POINT
OF INTERSECTION WITH THE NORTH LINE OF THE 80.00 FOOT WIDE
PRIVATE ACCESS AND UTILITY EASEMENT KNOWN AS ATLANTIC LOOP AS
SHOWN ON SAID PLAT OF PARK OF COMMERCE, SAID POINT BEING ON
THE ARC OF A CURVE CONCAVE SOUTHERLY, WHOSE RADIUS POINT BEARS
SOUTH 15 degrees 59'10" WEST FROM THE LAST DESCRIBED POINT;
THENCE WESTERLY, ALONG THE ARC OF SAID CURVE AND SAID NORTH
LINE, HAVING A RADIUS OF 455.55 FEET, A CENTRAL ANGLE OF 12
degrees 28'06", FOR AN ARC DISTANCE OF 98.87 FEET, TO A POINT
OF REVERSE CURVATURE OF A CURVE CONCAVE TO THE NORTH; THENCE
CONTINUE WESTERLY ALONG THE ARC OF SAID CURVE AND SAID NORTH
LINE, HAVING A RADIUS OF 2,090.00 FEET, A CENTRAL ANGLE OF 05
degrees 01'26", FOR AN ARC DISTANCE OF 183.26 FEET TO THE POINT
OF BEGINNING.
SAID LANDS SITUATE IN BROWARD COUNTY, FLORIDA, CONTAINING
140.454 SQUARE FEET, OR 3.224 ACRES MORE OR LESS.
- 9 -
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 29, 1996, on our audits of the financial statements and
financial statement schedules of Pediatrix Medical Group, Inc., our report dated
July 21, 1995, on our audit of the financial statements of Neonatal and
Pediatric Intensive Care Medical Group, Inc., and our report dated June 17,
1996, on our audit of the financial statements of Rocky Mountain Neonatology,
P.C. We also consent to the reference to our Firm under the caption "Selected
Consolidated Financial Data" and "Experts."
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
July 22, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 22, 1996, on our audit of the financial statements of
Neonatal Specialists, Ltd. We also consent to the reference to our Firm under
the caption "Experts."
JOHNSON & MOSER, LTD.
Scottsdale, Arizona
July 22, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANT
I consent to the inclusion in this registration statement on Form S-1 of my
report dated March 15, 1996, on my audit of the financial statements of
Pediatric and Newborn Consultants, PC. I also consent to the reference to my
firm under the caption "Experts."
DEON E. FITCH, CPA
Englewood, Colorado
July 22, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated June 10, 1996, on our audit of the financial statements of West
Texas Neonatal Associates, a Partnership. We also consent to the reference to
our firm under the caption "Experts."
LINDA G. MEDLOCK P.C.
El Paso, Texas
July 22, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated May 7, 1996, on our audit of the consolidated financial
statements of Infant Care Specialists Medical Group, Inc. and Subsidiary. We
also consent to the reference to our Firm under the caption "Experts."
HARLAN & BOETTGER
San Diego, California
July 22, 1996
<PAGE> 1
EXHIBIT 24.2
SECRETARY'S CERTIFICATE
The undersigned, Cathy J. Lerman, Secretary of Pediatrix Medical Group,
Inc., a Florida corporation (the "Company"), does hereby certify on behalf of
the Company, and in connection with the filing by the Company of a Registration
Statement on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, that the following resolution was duly
adopted by the Board of Directors of the Company on June 26, 1996, and that said
resolution has not been altered, amended, modified or rescinded and remains in
full force and effect on the date hereof:
FURTHER RESOLVED, that the execution and delivery by the officers
and directors of the Company who are required by the SEC to execute
the Registration Statement and a power-of-attorney severally
appointing Roger J. Medel, M.D., Lawrence M. Mullen and Cathy J.
Lerman and each of them to be Attorney-in-Fact and agent with full
power of substitution for each of such directors and officers and in
their name, place and stead, in any and all capacities to sign any
amendment(s) to the Registration Statement, including any
post-effective amendment(s), to file the same with the SEC and to
perform all other acts necessary in connection with any matter
relating to the Registration Statement and any amendments(s), or
post-effective amendment(s) thereto be, and it hereby is, ratified,
confirmed and approved.
IN WITNESS WHEREOF, the undersigned has executed this Certificate the
22nd day of July, 1996.
PEDIATRIX MEDICAL GROUP, INC.
By: /s/ Cathy J. Lerman
------------------------------
Cathy J. Lerman, Secretary
