UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
---- ----
******************************
Commission File Number 0-26260
SHERIDAN HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3252967
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
4651 Sheridan Street, Suite 400, Hollywood, Florida 33021
(Address of principal executive offices, including zip code)
954/987-5822
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of outstanding shares of the issuer's classes of common
stock as of the latest practicable date.
As of August 1, 1998, there were 7,954,580 shares of the Registrant's voting
Common Stock, $.01 par value, outstanding and 296,638 shares of the Registrant's
non-voting Class A Common Stock, $.01 par value, outstanding.
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
1998 1997
------------- -------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents..................................................... $ 1,203 $ 427
Accounts receivable, net of allowances........................................ 24,131 21,588
Income tax refunds receivable................................................. 645 1,280
Deferred income taxes......................................................... 323 1,417
Other current assets.......................................................... 2,405 2,814
------------- -------------
Total current assets........................................................ 28,707 27,526
Property and equipment, net of accumulated depreciation.......................... 3,358 3,538
Intangible assets net of accumulated amortization................................ 91,531 54,168
Other intangible assets, net of accumulated amortization......................... 1,557 1,803
Other assets..................................................................... 3,854 ---
------------- -------------
Total assets.............................................................. $ 129,007 $ 87,035
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 625 $ 591
Amounts due for acquisitions.................................................. 446 527
Accrued salaries and benefits................................................. 2,940 2,686
Self-insurance accruals....................................................... 4,158 3,973
Refunds payable............................................................... 3,507 2,674
Accrued physician incentives.................................................. 212 744
Other accrued expenses........................................................ 1,927 2,235
Current portion of long-term debt............................................. 445 446
------------- -------------
Total current liabilities................................................... 14,260 13,876
Long-term debt, net of current portion........................................... 47,913 29,833
Amounts due for acquisitions..................................................... 1,737 1,976
Stockholders' equity:
Preferred stock, par value $.01; 5,000 shares authorized, none issued......... --- ---
Common stock, par value $.01; 21,000 shares authorized:
Voting; 7,955 and 6,509 shares issued and outstanding....................... 79 66
Class A non-voting; 297 shares issued and outstanding...................... 3 3
Additional paid-in capital.................................................... 74,518 53,811
Accumulated deficit........................................................... (9,503) (12,530)
------------- -------------
Total stockholders' equity ................................................. 65,097 41,350
------------- -------------
Total liabilities and stockholders' equity................................ $ 129,007 $ 87,035
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
1998 1997
------------- -------------
Revenue:
<S> <C> <C>
Patient service revenue....................................................... $ 26,947 $ 23,371
Management fees............................................................... 870 882
------------- -------------
Total net revenue........................................................... 27,817 24,253
------------- -------------
Operating expenses:
Direct facility expenses...................................................... 18,405 17,010
Provision for bad debts....................................................... 1,401 950
Salaries and benefits......................................................... 1,867 1,893
General and administrative.................................................... 1,099 1,289
Amortization.................................................................. 894 475
Depreciation.................................................................. 188 153
------------- -------------
Total operating expenses.................................................... 23,854 21,770
------------- -------------
Operating income................................................................. 3,963 2,483
Interest expense................................................................. 1,029 583
------------- -------------
Income before income taxes....................................................... 2,934 1,900
Income tax expense............................................................... 1,306 668
------------- -------------
Net income....................................................................... $ 1,628 $ 1,232
============= =============
Net income per share
Basic......................................................................... $ .20 $ .18
Diluted....................................................................... .19 .18
Weighted average shares of common stock and
common stock equivalents outstanding
Basic......................................................................... 8,206 6,715
Diluted....................................................................... 8,605 6,932
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Six Months Ended
June 30,
1998 1997
------------- -------------
Revenue:
<S> <C> <C>
Patient service revenue....................................................... $ 53,804 $ 45,686
Management fees............................................................... 1,688 1,546
------------- -------------
Total net revenue........................................................... 55,492 47,232
------------- -------------
Operating expenses:
Direct facility expenses...................................................... 37,536 33,083
Provision for bad debts....................................................... 2,710 1,875
Salaries and benefits......................................................... 3,760 3,723
General and administrative.................................................... 2,076 2,409
Amortization.................................................................. 1,610 912
Depreciation.................................................................. 389 296
------------- -------------
Total operating expenses.................................................... 48,081 42,298
------------- -------------
Operating income................................................................. 7,411 4,934
Interest expense................................................................. 1,910 1,184
------------- -------------
Income before income taxes....................................................... 5,501 3,750
Income tax expense............................................................... 2,474 1,330
------------- -------------
Net income....................................................................... $ 3,027 $ 2,420
============= =============
Net income per share
Basic......................................................................... $ .39 $ .36
Diluted....................................................................... .37 .35
Weighted average shares of common stock and
common stock equivalents outstanding
Basic......................................................................... 7,825 6,715
Diluted....................................................................... 8,240 6,910
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
1998 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income.................................................................... $ 3,027 $ 2,420
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization................................................................ 1,610 912
Depreciation................................................................ 389 296
Provision for bad debts..................................................... 2,710 1,875
Deferred income taxes....................................................... 1,094 (414)
Changes in operating assets and liabilities:
Accounts receivable......................................................... (5,387) (4,622)
Other current assets........................................................ 734 258
Other assets................................................................ 106 (524)
Accounts payable............................................................ (46) 141
Other accrued expenses...................................................... (337) 1,265
------------- -------------
Net cash provided by operating activities................................. 3,900 1,607
------------- -------------
Cash flows from investing activities:
Investment in management agreements and
acquisitions of physician practices......................................... (20,709) (6,531)
Sale of physician practices................................................... 25 3,282
Capital expenditures.......................................................... (524) (382)
------------- -------------
Net cash (used) in investing activities................................... (21,208) (3,631)
------------- -------------
Cash flows from financing activities:
Borrowings on long-term debt.................................................. 18,300 3,018
Payments on long-term debt.................................................... (282) (994)
Exercise of employee stock options............................................ 66 ---
------------- -------------
Net cash provided by financing activities................................. 18,084 2,024
------------- -------------
Increase in cash and cash equivalents............................................ 776 ---
Cash and cash equivalents:
Beginning of period........................................................... 427 ---
------------- -------------
End of period................................................................. $ 1,203 $ ---
============= =============
</TABLE>
See accompanying notes.
5
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
(1) BASIS OF PRESENTATION
---------------------
The interim consolidated financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to SEC rules and
regulations; nevertheless, management believes that the disclosures herein are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the consolidated financial position of the Company at June 30,
1998, and the consolidated results of its operations and its consolidated cash
flows for the periods shown in the interim consolidated financial statements,
have been included herein. The results of operations for the interim periods are
not necessarily indicative of the results for the full years.
(2) PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries and other entities in which the Company has a
controlling financial interest.
In November 1997, the Emerging Issues Task Force ("EITF") reached a consensus on
when a physician practice management company ("PPM") has established a
controlling financial interest in a physician practice through a contractual
management service agreement ("MSA"). A controlling financial interest must
exist in order for a PPM to consolidate the operations of an affiliated
physician practice. The consensus is addressed in EITF Issue 97-2, "Application
of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities".
The Company is following the controlling financial interest provisions of EITF
Issue 97-2 in its determination of whether the operations of an affiliated
physician practice qualify for consolidation. The Company's controlling
financial interest is demonstrated by means other than direct record ownership
of voting stock based on the provisions of its purchase agreements, voting trust
agreements or management agreements with these entities.
In accordance with EITF Issue 97-2, the Company's consolidated financial
statements include three practices that are affiliates of the Company, (the
"Affiliates"), Sheridan Medical Healthcorp, P.C., Sheridan Healthcare of Texas,
P.A. and Sheridan Children's Healthcare Services of Pennsylvania, P.C. Each of
these affiliates is owned by Gilbert Drozdow, as a nominee shareholder, who is
an executive officer and stockholder of the Company. These entities have
long-term management agreements with the Company whose terms demonstrate a
controlling financial interest by the Company. The practices provide
hospital-based physician services to four hospitals and have been included in
the Company's consolidated financial statements since the date of their
inception.
In addition, the Company's consolidated financial statements also include nine
office-based practices and one hospital-based practice with which the Company
has long-term management agreements and purchase option agreements whose terms
also demonstrate a controlling financial interest, (the "Consolidating
Practices"). These agreements entered into during 1997 and 1998 have been
accounted for in the Company's consolidated financial statements in accordance
with EITF 97-2 and have been included in the Company's consolidated financial
statements since the date of their acquisition.
6
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company provides management services to a neonatology practice and a pain
management practice which entered into long-term management agreements with the
Company in December 1997 and February 1998, respectively. The Company also
provided management services to a primary care practice whose agreement was
terminated in December 1997 and to a primary care practice whose agreement was
terminated in April 1998, respectively. The Company does not have a controlling
financial interest in these practices. These management agreements are included
in the Company's consolidated financial statements only to the extent of
management fees earned and expenses incurred by the Company.
The table below sets forth the components of the Company's net revenue:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- -------------------------------------
1998 1997 1998 1997
----------------- ------------------ ---------------- -----------------
Total % Total % Total % Total %
--------- ------- --------- ------ -------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Company................. $ 18,088 65.0% $ 18,811 77.6% $ 40,251 72.5% $ 38,048 80.6%
Affiliates.................. 3,255 11.7 3,131 12.9 6,146 11.1 6,021 12.7
Consolidating Practices..... 5,604 20.1 1,429 5.9 7,407 13.3 1,617 3.4
--------- ------- --------- -------- -------- -------- --------- -------
Patient service revenue.. 26,947 96.8 23,371 96.4 53,804 96.9 45,686 96.7
--------- ------- --------- -------- -------- -------- --------- -------
Management fees............. 870 3.2 882 3.6 1,688 3.1 1,546 3.3
--------- ------- --------- -------- -------- -------- --------- -------
Total.................. $ 27,817 100.0% $ 24,253 100.0% $ 55,492 100.0% $ 47,232 100.0%
========= ======== ========= ======== ======== ========= ========= ========
</TABLE>
(3) INTANGIBLE ASSETS
-----------------
The Company acquires or affiliates with physician practices through the
acquisition of their net assets, the acquisition of their stock or the
acquisition of an option to acquire their stock concurrent with the execution of
a long-term management services agreement. In each of these transactions the
Company allocates the purchase price to the tangible assets acquired and
liabilities assumed. The excess of the purchase price over the fair value of
assets acquired and liabilities assumed is allocated to intangible assets as
goodwill when the Company acquires the net assets or outstanding stock of a
physician practice and to intangible assets as the cost of obtaining the
management services agreement when the Company enters into a long-term
management services agreement and purchases the option to acquire the
outstanding stock of a physician practice.
Approximately $28.2 million of the total amount of intangible assets, net of
accumulated amortization, at June 30, 1998, is related to the Company's
acquisition of Sheridan Healthcorp, Inc. (the "Predecessor") in November 1994.
Such goodwill represents the Company's market position and reputation, its
relationships with its customers and affiliated physicians, the relationships
between its affiliated physicians and their patients, and other similar
intangible assets and is being amortized on a straight-line basis over 40 years.
Approximately $14.3 million of the total amount of intangible assets is
goodwill, net of accumulated amortization, at June 30, 1998, related to several
acquisitions of physician practices by the Company and its Predecessor. Such
goodwill represents the general reputation of the practices in the communities
they serve, the collective experience of the management and other employees of
the practices, contracts with health maintenance organizations, relationships
between the physicians and their patients, patient lists, and other similar
intangible assets. The Company evaluates the underlying facts and circumstances
related to each acquisition and establishes an appropriate amortization period
for the related goodwill. The goodwill related to these physician practice
acquisitions is being amortized on a straight-line basis over periods ranging
from 10 to 25 years.
7
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Approximately $49.0 million of the total amount of intangible assets represents
the cost of obtaining management services agreements, net of accumulated
amortization, at June 30, 1998. The cost of obtaining management services
agreements with practices is related to the general reputation of the practices
in the communities they serve, contracts with third-party payors, relationships
between the physicians and their patients, patient lists, the Company's ability
to integrate the practice into its existing network of hospital-based and
office-based practices and the term and enforceability of the management
services agreement. The Company evaluates the underlying facts and circumstances
related to each agreement and establishes an appropriate amortization period
related to the cost of obtaining the agreement The cost of obtaining management
services agreements entered into during 1997 is being amortized over the term of
the agreements which range from 20 to 40 years. The cost of obtaining management
services agreements entered into during 1998 is being amortized over the shorter
of the term of the agreement or 25 years.
The Components of the Company's intangible assets segregated by amortization
period are as follows:
PHYSICIAN PRACTICE ACQUISITIONS AND AFFILIATIONS:
<TABLE>
<CAPTION>
Amortization Original Balance
Period Amount June 30, 1998
------------ ---------------- ----------------
<S> <C> <C>
10 years $ 1,319 $ 1,060
20 years 3,016 2,318
25 years 52,355 51,522
30 years 2,844 2,717
40 years 5,875 5,727
---------------- ----------------
Sub-Total 65,409 63,344
---------------- ----------------
PREDECESSOR ACQUISITION:
40 years 30,960 28,187
---------------- ----------------
Total $ 96,369 $ 91,531
================ ================
</TABLE>
The weighted average amortization period of the Company's intangible assets is
approximately 26 years, excluding the goodwill which arose from the acquisition
of the Predecessor by the Company, and approximately 31 years for all intangible
assets of the Company.
The Securities and Exchange Commission (the "SEC"), has recently provided
guidance in regards to the appropriate amortization periods to be used in
connection with the amortization of intangible assets within the physician
practice management industry. The guidance provided has caused several companies
within the industry that were amortizing intangible assets over periods in
excess of 25 years to prospectively change the amortization period of their
intangible assets to 25 years. This change in estimate has resulted in an
increase in the amortization expense reported by those companies. The Company
has entered into discussions with the SEC regarding the amortization periods of
its intangible assets. A significant change in the estimated useful lives of
certain intangible assets of the Company could have an adverse impact on its
future net income and reported earnings per share. Such an accounting change, if
made, would have no impact on the Company's cash flow or operations nor would it
reflect a change in management's estimate of the value and expected duration of
such intangible assets.
8
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) OTHER INTANGIBLE ASSETS
-----------------------
Other intangible assets consist primarily of the physician employee workforce,
non-physician employee workforce, management team and computer software acquired
in the Company's acquisition of the Predecessor, identified intangible assets
acquired concurrent with transactions with physician practices and deferred loan
costs. These other intangible assets are being amortized over the lives of the
underlying assets or agreements, which range from three to seven years.
(5) OTHER ASSETS
------------
Other assets consist primarily of notes receivable entered into in connection
with the sale of certain physician practices during 1997 and 1998. The notes
receivable have maturity dates ranging from December 1999 to April 2003 and bear
interest at annual rates that range from 7.5% to 9.0%.
(6) AMOUNTS DUE FOR ACQUISITIONS
----------------------------
Amounts due for acquisitions include obligations to the former stockholders of
certain physician practices acquired by the Company. The obligations to former
stockholders arose at the time of acquisition as a result of negotiation between
the Company and the former stockholders who desired ongoing compensation in
excess of a reasonable market rate for their physician services. These payments
are being made to former stockholders who are employed by the Company over the
terms of their employment agreements with the Company which range from three to
five years. These payments cease upon termination of the physician's employment
with the Company. Amounts due for acquisitions also includes termination
benefits payable to the former stockholders of an acquired practice, which are
payable beginning in 2001 or upon termination of their employment by the
Company, whichever is later. These termination benefits were an obligation of
the practice prior to acquisition by the Company and were included as part of
the purchase price allocation at the time of acquisition.
(7) ACQUISITIONS AND DIVESTITURES
-----------------------------
During the period from March 1997 to December 1997, the Company purchased
options to acquire five office-based physician practices and one hospital-based
physician practice for an aggregate of $10.8 million in cash and approximately
14,000 shares of the Company's common stock which had a value of approximately
$170,000 on the date of acquisition. During the period from January 1998 to June
1998 the Company completed nine transactions with physician practices for
aggregate consideration of approximately $41.4 million of which approximately
$20.7 million was paid in cash and approximately $20.7 million was paid through
the issuance of approximately 1,428,000 shares of the Company's common stock.
The table below summarizes the components of consideration paid in connection
with the transactions completed in 1998 (in thousands):
<TABLE>
<CAPTION>
Cash Shares Value of Total
Date Paid Issued Shares Consideration
-------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
January 1998 $ 5,750 173 $ 2,525 $ 8,275
February 1998 5,936 287 3,878 9,814
March 1998 1,650 39 566 2,216
March 1998 4,195 885 13,167 17,362
May-June 1998 3,175 44 519 3,694
--------------- --------------- ---------------- ---------------
$ 20,706 1,428 $ 20,655 $ 41,361
=============== =============== ================ ===============
</TABLE>
9
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each of these transactions was completed as an acquisition of a practice's net
assets, an acquisition of a practice's stock or through the acquisition of an
option to acquire the practice's stock concurrent with the execution of a
long-term management services agreement. Acquisitions and transactions with
practices in which the Company established a controlling financial interest are
accounted for as purchases and accordingly, the operations of each acquired or
managed practice are included in the Company's consolidated financial statements
beginning on each respective date of acquisition, or the effective date of the
management agreement, as applicable. The operations under management agreements
entered into with the practices in which the Company does not have a controlling
financial interest are included in the Company's consolidated financial
statements beginning on the date of each agreement. In each transaction, the
consideration was allocated to the net assets acquired based on their estimated
fair market values. As a result of these allocations, $38.9 million of the
aggregate consideration was allocated to the cost of management services
agreements which is being amortized over 25 years and $2.6 million was allocated
to goodwill which is also being amortized over 25 years.
The value of the Company's common stock issued in connection with each
transaction is based on the closing market price for the Company's common stock
on the date each transaction is completed. In connection with the issuance of
the Company's common stock as consideration for the acquisition of certain
physician practices, the Company is obligated to make additional payments to the
sellers of the practices which are contingent on the market price of the
Company's common stock upon a specified date following the date of the
transaction. In most cases, the Company has the option to satisfy the contingent
obligation by either making an additional cash payment or by the issuance of
additional shares of the Company's common stock. If required, additional
payments would be accounted for as additional purchase price and increase
recorded goodwill. Such shares have been excluded from the calculation of
diluted earnings per share because of management's ability to fund the
additional purchase price, if any, through cash payments rather the issuance of
additional shares.
The following table summarizes the pro forma consolidated results of operations
of the Company as though the transactions with physician practices that were
accounted for as purchases, as discussed above, had occurred at the beginning of
the period presented. The pro forma consolidated results of operations shown
below do not necessarily represent what the consolidated results of operations
of the Company would have been if these acquisitions had actually occurred at
the beginning of the period presented, nor do they represent a forecast of the
consolidated results of operations of the Company for any future period.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
PRO FORMA RESULTS OF OPERATIONS:
Net revenue of the Company................ $ 28,608 $ 30,509 $ 58,345 $ 59,289
Income before income taxes................ 3,044 2,720 6,022 5,654
Net income................................ 1,689 1,530 3,326 3,453
Net income per share - basic.............. .20 .19 .41 .44
Net income per share - diluted............ .20 .18 .39 .43
</TABLE>
During the period from February 1997 through December 1997 the Company sold two
primary care office locations and two rheumatology practices. Effective April 1,
1998 the Company completed the sale of a primary care practice with two office
locations. The office-based practices sold during 1997 and 1998 generated
approximately $1.9 million and $5.7 million in net revenue for the six months
ended June 30, 1998 and 1997, respectively and $2.4 million for the three months
ended June 30, 1997. The practices sold did not generate significant operating
income for those periods.
10
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Revolving credit facility, maturing in April 2001,
secured by substantially all assets of the Company.................... $ 47,300 $ 29,000
Capital lease obligations payable in various monthly
installments, maturing at various dates through 2001.................. 1,058 1,279
----------- ------------
Total................................................................ 48,358 30,279
Less current portion.................................................... (445) (446)
----------- ------------
Long-term debt...................................................... $ 47,913 $ 29,833
=========== ============
</TABLE>
On March 12, 1997, the Company established a new $35 million revolving credit
facility, which was used to pay the outstanding balance under the previous
credit facility. On December 17, 1997 the Company amended its existing revolving
credit facility which increased the amount available from $35 million to $50
million. On April 30, 1998 the Company further amended its revolving credit
facility which increased the amount available from $50 million to $75 million.
This amendment included the syndication of the credit facility with a group of
banks led by NationsBank, N.A. There are no principal payments due under the new
credit facility until the maturity date of April 30, 2001. The new revolving
credit facility contains various restrictive covenants that include, among other
requirements, the maintenance of certain financial ratios, various restrictions
regarding acquisitions, sales of assets, liens and dividends, and limitations
regarding investments, additional indebtedness and guarantees. The Company was
in compliance with the loan covenants in the new credit facility as of June 30,
1998. The additional amount that could be borrowed under the credit facility is
potentially restricted by a leverage ratio defined in the credit agreement.
Based on the value of this leverage ratio at June 30, 1998, the Company had the
ability to borrow the entire unused portion of the credit facility, which was
$27.7 million at June 30, 1998.
(9) INCOME TAXES
------------
The Company's income tax expense was reduced by a loss carryforward from the
prior year for the three months and six months ended June 30, 1997. Without the
loss carryforward, income tax expense for the three months and six months ended
June 30, 1997 would have been approximately $875,000 and $1,750,000,
respectively. The Company had an unused loss carryforward of approximately $1.1
million for book purposes as of June 30, 1997. The tax effect of the loss
carryforward from 1996 was allocated evenly among all four quarters in the year
ending December 31, 1997. The Company had net deferred tax assets at June 30,
1998, which represent the tax effect of differences between the tax basis and
the financial reporting basis of assets and liabilities on the Company's balance
sheet.
(10) LITIGATION
----------
In October 1996, the Company and certain of its directors, officers and legal
advisors were named as defendants in a lawsuit filed in the Circuit Court of the
Seventeenth Judicial Circuit in and for Broward County, Florida by certain
former physician stockholders of the predecessor, which was formerly named
Southeastern Anesthesia Management Associates, Inc. The claim alleges that the
defendants engaged in a conspiracy of fraud and deception for personal gain in
connection with inducing the plaintiffs to sell their stock in the predecessor
to the Company, as well as legal malpractice and violations of Florida
securities laws. The claim seeks damages of at least $10 million and the
imposition of a constructive trust and disgorgement of stock and options held by
certain members of the Company's management. The litigants are presently engaged
in the course of discovery. The Company intends to continue to vigorously defend
against the lawsuit and also believes the lawsuit's ultimate resolution and
ongoing fees incurred as defense costs will not have a material adverse impact
on the financial position, operations and cash flow of the Company.
11
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) RECENT ACCOUNTING DEVELOPMENTS
------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS
No. 130"), which was adopted in the first quarter of fiscal 1998. This statement
established standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of statements of financial
position. Comprehensive income is defined as the change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources. The Company currently does not have other comprehensive income and
therefore does not believe the adoption of SFAS No. 130 will have a significant
impact on its financial statement presentation as comprehensive income is equal
to net income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("SFAS No. 131"), which is required to be
adopted in fiscal 1998. This statement requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. The
Company does not believe the adoption of SFAS No. 131 will have a significant
impact on its financial statement presentation.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits", ("SFAS No. 132") which is effective for
fiscal years ending after December 15, 1997. SFAS No. 132 revises employers'
disclosures about pension and other postretirement obligations of those plans.
The Company does not believe the adoption of SFAS No. 132 will have a
significant impact on its financial statement disclosures.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 ("SOP 98-5"). SOP 98-5 requires all
non-governmental entities to expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. The Company does not believe the adoption of SOP 98-5 will have a
significant impact on the Consolidated Statements of Operations.
(12) EARNINGS PER SHARE
------------------
Reconciliation of Basic EPS Factors to Diluted EPS Factors:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Weighted average commons shares
outstanding for basic earnings per
share .................................. 8,206 6,715 7,825 6,715
Impact of dilutive employee stock
options................................. 399 217 415 195
----------- ----------- ----------- -----------
Weighted average of shares of
common stock equivalents for
diluted earnings per share.............. 8,605 6,932 8,240 6,910
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(13) STOCK OPTIONS
-------------
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") in 1996. The Company
has elected to continue using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for employee stock
options. Each stock option has an exercise price equal to the market price on
the date of grant and, accordingly, no compensation expense has been recorded
for any stock option grants.
Stock option activity during the six months ended June 30, 1998 was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
------------ ---------
<S> <C> <C>
Balance, December 31, 1997................................................. 937,084 $ 7.91
Exercised.................................................................. (18,247) 3.59
Granted during period...................................................... 497,675 14.80
Forfeited during period.................................................... (14,300) 7.72
------------ --------
Balance, June 30, 1998..................................................... 1,402,212 $ 10.42
============ ========
</TABLE>
13
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors, in addition to other information
set forth herein and identified in the Company's Form 10-K for fiscal 1997 under
"Business" and elsewhere therein, that might cause such a difference include the
following: fluctuation in the volume of services delivered by the Company's
affiliated physicians, changes in reimbursement rates for those services from
third party payors including government sponsored healthcare programs,
uncertainty about the ability to collect the appropriate fees for those
services, the loss of significant hospital or third-party payer relationships,
the ability to recruit and retain qualified physicians, changes in the number of
patients using the Company's physician services and legislated changes to the
Company's structural relationships with its physicians and practices.
GENERAL
The Company provides physician services to hospitals, ambulatory surgical
facilities and in office-based settings in a variety of medical specialties
including anesthesia, emergency medicine, general surgery, gynecology,
infertility, neonatology, obstetrics, pediatrics, perinatology and primary care.
The Company also provides management services to physician practices that employ
physicians practicing in generally the same medical specialties as the Company's
physicians. The Company derives its revenue from the medical services provided
by the physicians who are employed by the Company and from management fees
earned from the managed practices. For the six months ended June 30, 1998,
approximately 97% of the Company's net revenue was derived from physician
services and approximately 3% of the Company's net revenue was generated under
management services agreements. References to physician services provided by the
Company include services performed by physicians employed by the Company and
services provided by physicians in whose practices the Company has a controlling
financial interest (the "Consolidated Practices"). The financial results of the
Consolidated Practices are presented on a consolidated basis with those of the
Company because the Company has a controlling financial interest in these
practices based on the provisions of its purchase agreements, voting trust
agreements or management agreements with these entities.
Three of the Consolidated Practices are affiliates of the Company, Sheridan
Medical Healthcorp, P.C. ("Sheridan NY"), Sheridan Healthcare of Texas, P.A.
("Sheridan TX"), and Sheridan Children's Healthcare Services of Pennsylvania,
P.C. ("Sheridan PA"). Each of these affiliates has entered into a long-term
management agreement with the Company and is owned by Gilbert Drozdow, M.D. who
is an executive officer and a stockholder of the Company. In addition, the
Consolidated Practices include ten practices with which the Company executed
long-term management agreements and purchase option agreements from March 1997
through June 1998. One of these practices is located in Texas, the remainder are
located in Florida.
The Company generates revenue from its physician services by directly billing
third-party payors or patients on a fee-for-service or discounted
fee-for-service basis, through subsidies paid by hospitals to supplement billing
from third party payors and pursuant to capitation arrangements, which included
shared-risk capitation arrangements with managed care organizations until April
1, 1998. The Company generates management services revenue from managed
practices through a variety of reimbursement arrangements. Reimbursement terms
under management agreements in place with unconsolidated practices during the
first half of 1998 required the practice to pay the Company a management fee
that was either based on a percentage of net revenues or based on expenses
incurred by the Company plus a flat fee that does not fluctuate based on
performance. Management fees that are based on a percentage of net revenue range
from 35% to 65% and are not subject to adjustment.
14
<PAGE>
In most of its arrangements with hospitals and ambulatory surgkical facilities,
the Company is responsible for recruiting and employing physicians and other
healthcare professionals who provide healthcare services at the facility. In
addition, the Company provides a comprehensive range of support services,
including contracting with third-party payors, billing and collections,
malpractice risk management, quality assurance, and physician recruiting and
credentialling. By entering into a contract with the Company, a hospital
substantially reduces its responsibilities related to the contracted specialty,
and eliminates the administrative burdens related to providing physician
coverage, since the Company provides contracted services on a 24-hour a day,
365-day a year basis.
The Company provides management services to a neonatology practice and a pain
management practice which entered into long-term management agreements with the
Company in December 1997 and February 1998, respectively. The Company also
provided management services to a primary care practice whose agreement was
terminated in December 1997 and to a primary care practice whose agreement was
terminated in April 1998.
In connection with a management services agreement, the Company typically
manages all aspects of the practice other than the provision of medical
services, which is controlled by the practice. The Company typically is
responsible for all leases for office space and equipment, hires all
non-clinical office personnel and provides comprehensive management services,
including physician recruiting and credentialling, managed care contracting,
malpractice risk management, utilization review, billing and collections, and
management information systems. In exchange for these services, the practice
pays the Company a management fee.
Transactions with acquired physician practices are accounted for as purchases.
Transactions with managed physician practices whose agreements with the Company
have terms that demonstrate a controlling financial interest by the Company are
also accounted for as purchases. The operations of acquired and managed
practices whose transactions are accounted for as purchases are included in the
Company's financial statements beginning on each respective transaction date.
From January 1, 1997 to November 4, 1997 the Company entered into long-term
management agreements with, and purchased options to acquire, four obstetrical
practices and one general surgical practice at an aggregate cost of
approximately $11 million in cash and 14,000 shares of the Company's common
stock which had a value of approximately $170,000 on the date of closing.
In January 1998 and June 1998 the Company entered into long-term management
agreements with, and purchased options to acquire, a hospital-based anesthesia
practice and a neonatology practice, respectively, for approximately $6.9
million in cash and approximately 204,000 shares of the Company's common stock
which had a value on the date of closing of approximately $2.9 million. During
the period from January 6, 1998 through June 27, 1998 the Company completed two
acquisitions of obstetrical practices and entered into long-term management
agreements with and purchased options to acquire a perinatology practice, a
gynecology-oncology practice, an infertility practice and a general surgical
practice at an aggregate cost of $7.9 million in cash and 937,000 shares of the
Company's common stock which had a value of approximately $13.9 million on the
date of closing. The Company's consolidated financial statements include the
operations of these practices from the date of their respective transaction.
In December 1997, the Company entered into a twenty-year management agreement
with a hospital-based neonatology practice at a cost of $435,000. In addition,
in February 1998 the Company executed a forty-year management agreement with a
pain management practice at a cost of $5.9 million in cash and approximately
287,000 shares of the Company's common stock which had a value on the date of
closing of approximately $3.9 million. The operations under management
agreements entered into with the practices in which the Company does not have a
controlling financial interest are included in the Company's consolidated
financial statements beginning on the date of each agreement.
On November 4, 1996, the Company announced a change in its strategic direction,
which was to place more emphasis on its hospital-based business and to reduce
its emphasis on the primary care business, and its intent to dispose of
non-strategic office-based physician practices. Due to this change in strategic
direction, the Company wrote down certain assets related to its office-based
operations to their estimated realizable values, and accrued certain liabilities
for commitments that no longer have value to the Company's future operations.
These adjustments resulted in a $17.4 million charge to earnings in 1996.
15
<PAGE>
The Company sold one primary care office location in December 1996 and one in
February 1997, four rheumatology office locations in April 1997 and one primary
care location in December 1997. The Company consolidated the remaining practices
to be sold from five office locations into three office locations, which employ
five primary care physicians. Two of these primary care office locations were
sold in April 1998. In addition, as noted above, the Company has terminated two
long-term management agreements with primary care practices entered into during
1996 that included five office locations and four physicians. The office-based
practices which have been sold, and which the Company currently intends to sell,
include the four-facility practice acquired on September 1, 1994, two primary
care practices acquired in February 1995, a three-facility primary care practice
acquired in June 1995 and two rheumatology practices acquired in 1996. The
office-based practices sold during 1997 and 1998 generated approximately $ 1.9
million and $5.7 million in net revenue for the six months ended June 30, 1998
and 1997, respectively and $2.4 million for the three months ended June 30,
1997. The practices sold did not generate significant operating income for those
periods.
As a result of its change in strategic direction the Company has experienced a
shift in the composition of its patient service revenue away from capitation
arrangements. The primary care practices sold generated a substantial majority
of the Company's capitation revenue during 1997 and the six months ended June
30, 1998.
Revenue under shared-risk capitation arrangements accounted for approximately
3.5% and 9.1% for six months ended June 30, 1998 and 1997, respectively, of the
Company's net revenue. Under shared-risk capitation the Company receives a fixed
monthly amount from a managed care organization in exchange for providing, or
arranging the provision of, substantially all of the health care services
required by members of the managed care organization. The Company generally
provides all of the primary care services required under such arrangements, and
refers its patients to unaffiliated specialist physicians, hospitals, and other
health care providers which deliver the remainder of the required health care
services. The Company's profitability under such arrangements is dependent upon
its ability to effectively manage the use of specialist physician, hospital and
other health care services by its patients. In each of the above fiscal periods
amounts received from managed care organizations under shared-risk capitation
arrangements exceeded the cost of services provided to patients under such
arrangements. However, the profitability of the Company's shared-risk capitation
arrangements had declined each year as a result of a decline in patients
enrolled with the managed care organization and assigned to the Company's
practices. The Company completed the sale of a two facility primary care
practice on April 1, 1998 which eliminated all of the Company's shared-risk
capitation revenue.
As a result of the 1994 Acquisition and several transactions with physician
practices completed by the Company and its Predecessor, intangible assets
constitute a substantial percentage of the total assets of the Company, and the
Company's results of operations include substantial expenses for amortization of
these intangible assets. Intangible assets are the excess of the purchase price
of acquired businesses or cost of management services agreements over the fair
value of the net assets acquired (which net assets include any other separately
identifiable intangible assets). As of June 30, 1998, the Company's total assets
were approximately $129.0 million, of which approximately $91.5 million, or
71.0%, were intangible assets. Of the total intangible assets at June 30, 1998,
$28.2 million is related to the 1994 Acquisition, and $63.3 million is related
to several transactions with physician practices completed by the Predecessor
and the Company.
The goodwill included in intangible assets that is related to the 1994
Acquisition represents the going concern value of the Company, which consists of
the Company's market position and reputation, its relationships with its
customers and affiliated physicians, the relationships between its affiliated
physicians and their patients, and other similar intangible assets. Since these
assets are believed by the Company to have useful lives of an indefinite length,
and the Company is not aware of any facts or circumstances that would limit the
useful lives of these assets, this goodwill is being amortized over 40 years.
The Company also acquired other intangible assets as part of the 1994
Acquisition, including the value of the Company's physician employee workforce,
management team, non-physician employee workforce and computer software. These
other intangible assets have been capitalized separately from goodwill and are
being amortized over their estimated useful lives, which range from five to
seven years.
16
<PAGE>
The goodwill included in intangible assets that is related to the acquisitions
of physician practices also represents the going concern value of those
practices. However, since the going concern value of an individual physician
practice, or a small group practice, is subject to a higher degree of risk than
the Company as a whole and may be more adversely affected by changes in the
health care industry, this goodwill is being amortized over shorter periods
ranging from 10 to 25 years.
The cost of long-term management services agreements included in intangible
assets that is related to the acquisition of options to acquire physician
practices and the simultaneous execution of management agreements with the
practices represents the going concern value of those management agreements. The
going concern value of these long-term management services agreements is related
to the general reputation of the practices in the communities they serve,
contracts with third-party payors, relationships between the physicians and
their patients, patient lists, the Company's ability to integrate the practice
into its existing network of hospital-based and office-based practices and the
term and enforceability of the management services agreement. This cost of
management services agreements which were entered into during 1997 is being
amortized over the terms of the management agreements which range from 20 to 40
years. The cost of management services agreements which were entered into during
1998 is being amortized over the shorter of the term of the management agreement
or 25 years.
The Company continuously evaluates all components of goodwill and other
intangible assets to determine whether there has been any impairment of the
carrying value of goodwill or such other intangible assets or their useful
lives. The Company is not aware of any such impairment at the current time,
except for the impairment included in the $17.4 million write-down of
office-based net assets in 1996 discussed above, which resulted primarily from
the Company's change in strategic direction.
The Securities and Exchange Commission (the "SEC"), has recently provided
guidance in regards to the appropriate amortization periods to be used in
connection with the amortization of intangible assets within the physician
practice management industry. The guidance provided has caused several companies
within the industry that were amortizing intangible assets over periods in
excess of 25 years to prospectively change the amortization period of their
intangible assets to 25 years. This change in estimate has resulted in an
increase in the amortization expense reported by those companies. The Company
has entered into discussions with the SEC regarding the amortization periods of
its intangible assets. A significant change in the estimated useful lives of
certain intangible assets of the Company could have an adverse impact on its
future net income and reported earnings per share. Such an accounting change, if
made, would have no impact on the Company's cash flow or operations nor would it
reflect a change in management's estimate of the value and expected duration of
such intangible assets.
RESULTS OF OPERATIONS
The following table shows certain statement of operations data expressed as
percentage of net revenue:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- --------
(in thousands)
Revenue:
<S> <C> <C> <C> <C>
Patient services revenue.......................... 96.9% 96.4% 97.0% 96.7%
Management fees................................... 3.1 3.6 3.0 3.3
---------- ---------- --------- --------
Total net revenue.................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct facility expenses.......................... 66.2 70.2 67.6 70.1
Provision for bad debts........................... 5.0 3.9 4.9 4.0
Salaries and benefits............................. 6.7 7.8 6.8 7.9
General and administrative........................ 4.0 5.3 3.7 5.1
Amortization...................................... 3.2 2.0 2.9 1.9
Depreciation...................................... 0.7 0.6 0.7 0.6
--------- --------- --------- --------
Total operating expenses..................... 85.8 89.8 86.6 89.6
--------- --------- --------- --------
Operating income..................................... 14.2% 10.2% 13.4% 10.4%
========= ========= ========= ========
</TABLE>
17
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Patient service revenue was $26.9 million in 1998 compared to $23.4 million in
1997, an increase of $3.5 million or 15.0%. Of this increase, $1.5 million was
due to the acquisition of a hospital-based physician practice during the first
quarter of 1998, $900,000 was due to the acquisition of several office-based
practices during the past year, $600,000 was due to the addition of new
contracts for hospital-based services during the past year and $500,000 was due
to same-store growth in revenue from the Company's hospital-based contracts.
Management fees generated from management agreements with two hospital-based
practices entered into in December 1997 and February 1998 offset management fees
earned from two primary care practices whose agreements were terminated in
December 1997 and April 1998.
Direct facility expenses increased $1.4 million, or 8.3%, from $17.0 million in
1997 to $18.4 million in 1998. Direct facility expenses include all operating
expenses that are incurred at the location of the physician practice, including
salaries, employee benefits, referral claims (in the case of shared-risk
capitation business), office expenses, medical supplies, insurance and other
expenses. The increase in direct facility expenses corresponds to the increase
in net revenue as noted above. Direct facility expenses as a percentage of net
revenue decreased from 70.2% in 1997 to 66.2% in 1998. The decrease in the
direct facility expense percentage is attributable to the Company's divestiture
of its remaining shared risk capitation business which historically incurs a
higher percentage of direct facility expenses compared to the Company's
fee-for-service practices.
The provision for bad debts increased $451,000, or 47.5%, from $950,000 in 1997
to $1,401,000 in 1998. This increase was due to a 15.0% increase in net revenue,
as discussed above, and an increase in the Company's overall bad debt percentage
which increased from 3.9% in 1997 to 5.0% in 1998. The increase in the Company's
bad debt percentage is due to an increase in the Company's net revenue derived
from office-based practices with a concentration of fee-for-service revenue
rather than capitation revenue, which was substantially eliminated with the
divestiture of two primary care locations in April 1998. Capitated practices do
not incur bad debt expense.
Salaries and benefits decreased $26,000, or 1.4%. Salaries and benefits includes
salaries, payroll taxes and employee benefits related to employees located at
the Company's central office, including employees related to hospital-based
operations, office-based operations and general corporate functions. The
decrease in salaries and benefits was due to a decrease in accrued incentive
compensation. As a percentage of net revenue, salaries and benefits decreased
from 7.8% in 1997 to 6.7% in 1998.
General and administrative expense decreased $190,000, or 14.6%, from $1.3
million in 1997 to $1.1 million in 1998. General and administrative expense
includes expenses incurred at the Company's central office, including office
expenses, accounting and legal fees, insurance, travel and other similar
expenses. The decrease in general and administrative expense was due to a
decrease in legal fees incurred in connection with malpractice cases which are
now reflected as a direct facility expense and a decrease in rent expense at the
corporate office. As a percentage of net revenue, general and administrative
expense decreased from 5.3% in 1997 to 4.0% in 1998.
Amortization expense increased $419,000, or 88.2%, from $475,000 in 1997 to
$894,000 in 1998. This increase was related to several acquisitions of physician
practices and management agreements with physician practices, completed from
March 1997 to June 1998, which are included in the transactions discussed in
Note 6 to the accompanying consolidated financial statements.
Operating income increased approximately $1.5 million, or 60.0%, from $2.5
million in 1997 to $4.0 million in 1998. This increase was due to growth from
acquisitions and new contracts. As a percentage of net revenue, operating income
increased from 10.2% in 1997 to 14.2% in 1998. This increase was due to the fact
that net revenue increased at a greater rate than salaries and benefits or
general and administrative expense and the reduction in the direct facility
expense percentage from 70.2% in 1997 to 66.2% in 1998 as noted above.
18
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Patient service revenue was $53.8 million in 1998 compared to $45.7 million in
1997, an increase of $8.1 million or 17.8%. Of this increase, $2.8 million was
due to the acquisition of a hospital-based physician practice during the first
quarter of 1998, $3.2 million was due to the acquisition of several office-based
practices during the past year, $1.5 million was due to the addition of new
contracts for hospital-based services during the past year and $600,000 was due
to growth in revenue from the Company's same-store hospital-based contracts.
Management fees increased from $1.55 million in 1997 to $1.7 million in 1998, an
increase of approximately $150,000 or 9.7%. This increase was attributable to
the execution of long-term management agreements with two hospital-based
practices in December 1997 and February 1998, respectively, offset by the
termination of management services agreements with two primary care practices in
December 1997 and April 1998.
Direct facility expenses increased $4.4 million, or 13.3%, from $33.1 million in
1997 to $37.5 million in 1998. Direct facility expenses include all operating
expenses that are incurred at the location of the physician practice, including
salaries, employee benefits, referral claims (in the case of shared-risk
capitation business), office expenses, medical supplies, insurance and other
expenses. The increase in direct facility expenses corresponds to the increase
in net revenue as noted above. Direct facility expenses as a percentage of net
revenue decreased from 70.1% in 1997 to 67.6% in 1998. The decrease in the
direct facility expense percentage is attributable to the Company's divestiture
of its remaining shared risk capitation business which historically incurs a
higher percentage of direct facility expenses compared to the Company's
fee-for-service practices.
The provision for bad debts increased $835,000, or 43.9%, from $1.9 million in
1997 to $2.7 million in 1998. This increase was due to a 17.8% increase in net
revenue, as discussed above, and an increase in the Company's overall bad debt
percentage which increased from 4.0% in 1997 to 4.9% in 1998. The increase in
the Company's bad debt percentage is due to an increase in the Company's net
revenue derived from office-based practices with a concentration of
fee-for-service revenue rather than capitation revenue. Capitated practices do
not incur bad debt expense.
Salaries and benefits increased $37,000, or 1%, in 1998. Salaries and benefits
include salaries, payroll taxes and employee benefits related to employees
located at the Company's central office, including employees related to
hospital-based operations, office-based operations and general corporate
functions. The increase in salaries and benefits was due to an increase in
personnel used to support the growth in the Company's hospital-based contracts.
As a percentage of net revenue, salaries and benefits decreased from 7.9% in
1997 to 6.8% in 1998.
General and administrative expense decreased $333,000, or 13.9%, from $2.4
million in 1997 to $2.1 million in 1998. General and administrative expense
includes expenses incurred at the Company's central office, including office
expenses, accounting and legal fees, insurance, travel and other similar
expenses. The decrease in general and administrative expense was due to a
decrease in legal fees incurred in connection with malpractice cases which are
now reflected as a direct facility expense and a decrease in rent expense at the
Company's corporate office. As a percentage of net revenue, general and
administrative expense decreased from 5.1% in 1997 to 3.7% in 1998.
Amortization expense increased $698,000, or 76.5%, from $912,000 in 1997 to
$1,610,000 in 1998. This increase was related to several acquisitions of
physician practices and management agreements with physician practices,
completed from March 1997 to June 1998, which are included in the transactions
discussed in Note 6 to the accompanying consolidated financial statements.
Operating income increased $2.5 million, or 50.2%, from $4.9 million in 1997 to
$7.4 million in 1998. This increase was due to growth from acquisitions and new
contracts. As a percentage of net revenue, operating income increased from 10.4%
in 1997 to 13.4% in 1998. This increase was due to the fact net revenue
increased at a greater rate than salaries and benefits or general and
administrative expense and the reduction in the direct facility expense
percentage from 70.1% in 1997 to 67.6% in 1998.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of cash during the six months ended June 30, 1998
were to finance acquisitions of physician practices and the cost of investments
in management agreements with practices ($20.7 million) and to finance increases
in accounts receivable ($2.7 million). The Company met its cash needs during
this period primarily from its net income plus non-cash expenses (amortization,
depreciation and deferred income taxes) ($6.1 million), and net borrowings on
long-term debt ($18.3 million).
On March 12, 1997, the Company established a new $35 million revolving credit
facility with NationsBank, National Association ("NationsBank"), which was used
to repay the outstanding balance under the previous facility, which was $25.2
million. On December 17, 1997, the Company amended its existing revolving credit
facility with NationsBank, which increased the total revolving credit commitment
from $35 million to $50 million which was further amended on April 30, 1998 to
increase the total revolving credit commitment from $50 million to $75 million.
This amendment included the syndication of the revolving credit facility with a
group of seven banks led by NationsBank. The credit facility bears interest at
the London interbank offered rate plus an applicable margin which is subject to
quarterly adjustment based on a leverage ratio defined in the credit agreement.
As of August 1, 1998, the applicable margin was 1.88%. The Company is also
required to pay a commitment fee on a quarterly basis based on the unused
portion of the total commitment. The fee ranges from 0.25% to 0.50% and is
subject to quarterly adjustments based on a leverage ratio defined in the credit
agreement. There are no principal payments due under the amended credit facility
until the maturity date of April 30, 2001.
The outstanding balance under the credit facility increased from $29.0 million
at December 31, 1997 to $47.3 million at June 30, 1998 primarily due to
acquisitions of, and investments in management agreements with, physician
practices in 1998, as discussed above. The amount that can be borrowed under the
new credit facility is potentially restricted by a leverage ratio defined in the
credit agreement. Based on the value of this leverage ratio at June 30, 1998,
the Company had the ability to borrow the entire unused portion of the credit
facility, which was $27.7 million at June 30, 1998. Certain conditions must be
met, including the maintenance of certain financial ratios, and in certain
circumstances, the approval of the Company's lenders must be obtained, in order
to use the credit facility to finance acquisitions of physician practices or
investments in management agreements. There can be no assurance that the Company
will be able to satisfy such conditions in order to use its credit facility to
finance any future acquisitions or investments in management agreements.
In November 1997, the Company issued approximately 14,000 shares of its common
stock as partial consideration for an acquisition of an office-based general
surgical practice completed in November 1997. During the period from January
1998 to June 1998 the Company completed nine transactions with physician
practices for consideration of approximately $20.7 million in cash and the
issuance of approximately 1,428,000 shares of the Company's common stock.
In order to provide funds necessary for the Company's future expansion
strategies, it will be necessary for the Company to incur, from time to time,
additional long-term bank indebtedness and/or issue equity or debt securities,
depending on market and other conditions.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Net cash provided by operating activities increased by $2.3 million from 1997 to
1998. This increase was due to several factors, the largest of which was an
increase of net income plus non-cash expenses (amortization, depreciation and
deferred income taxes) which increased from $3.2 million in 1997 to $6.1 million
in 1998.
Net cash used by investing activities increased from $3.6 million in 1997 to
$21.2 million in 1998. This increase was primarily due to an increase in cash
used for physician practice acquisitions and investments in management
agreements from $6.5 million in 1997 to $20.7 million in 1998.
20
<PAGE>
Net cash provided by financing activities increased from $2.0 million in 1997 to
$18.1 million in 1998. This increase was primarily due to an increase in net
borrowings under the Company's revolving credit facility from $3.0 million in
1997 to $18.3 million in 1998, which is related to the increase in cash used for
physician practice acquisitions and investments in management agreements.
YEAR 2000 ISSUES
The Company has conducted a review of its computer systems to identify those
systems that may be affected by the Year 2000 issue and has developed a plan to
address the issue. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar business activities.
The Company's information systems have been internally developed and maintained
for its hospital-based operations and developed and maintained by third-party
vendors for its office-based operations and administrative support departments.
Beginning in 1997 the Company's personnel began reprogramming the Company's
internal systems for Year 2000 compliance. These modifications are expected to
be complete by December 31, 1998. The Company has begun the process of
standardizing the information systems used by its office-based practices. A
single third-party product that is Year 2000 compliant has been selected for
implementation in the Company's office-based practices throughout 1998 and 1999.
Information systems used by the Company's administrative support departments are
being upgraded during 1998 and 1999 to be Year 2000 compliant. The Company does
not presently have a contingency plan to respond to the year 2000 issue if
future events prevent it from completing its Year 2000 project on a timely
basis.
The Company has employed additional personnel to support the Year 2000 project
and incurred additional expense for software and hardware. The Company estimates
that it will incur approximately $100,000 to $150,000 per year for the next two
years in operating expenses and total capital expenditures of between $500,000
and $700,000 for the Year 2000 project. These expenditures will be funded
through the Company's operating cash flow and its credit facility and are not
expected to have a material adverse effect on the Company's results of
operations or cash flow.
The costs of this effort and the date on which the Company believes it will
complete its Year 2000 project are based on management's best estimate, which
was derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. There can be no assurance that those estimates will be achieved
and actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained and resources utilized in
this area, the ability to locate and correct all relevant computer codes,
reliance on third party payors to modify their systems to be Year 2000
compliant, and similar uncertainties.
21
<PAGE>
Part II. Other Information
-----------------
Item 1: Legal Proceedings
From time to time, the Company is party to various claims,
suits, and complaints. Currently, there are no such claims,
suits or complaints which, in the opinion of management, would
have a material adverse effect on the Company's financial
position, liquidity or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Sales of Unregistered Securities
--------------------------------
During the period from April 1, 1998 to June 30, 1998, the Company
issued unregistered securities to a limited number of persons, as described
below. No underwriters or underwriting discounts or commissions were involved.
There was no public offering in any such transaction, and the Company believes
that each transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Section
4(2) thereof, based on the private nature of the transactions and the financial
sophistication of the purchasers, all of whom had access to complete information
concerning the Company and acquired the securities for investment and not with a
view to the distribution thereof.
(1) On June 16, 1998, the Company issued 4,017 shares of
common stock to the former stockholder of a physician practice in
consideration for the assignment of provider agreements of such
practice to the Company.
(2) On June 23, 1998, the Company issued 8,316 shares of
common stock to the former stockholder of a physician practice in
consideration for the acquisition of such practice by the Company.
(3) On June 26, 1998, the Company issued an aggregate of
31,536 shares of common stock to the former stockholders of a physician
practice in consideration for the acquisition of such practice by the
Company.
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 24,
1998. At the Annual Meeting, the Company's stockholders voted
(i) to re-elect Mitchell Eisenberg, M.D. and Neil A. Natkow,
D.O. to serve as Class III Directors of the Company until the
2001 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified; (ii) to approve the
potential issuance of shares of the Company's Common Stock in
connection with the acquisition by the Company of an
office-based perinatology physician practice (the"Perinatology
Transaction"); and (iii) to approve an amendment to the
Company's Second Amended and Restated 1995 Stock Option Plan to
increase the total number of shares of common stock of the
Company that may be issued thereunder from 1,350,000 to
1,750,000, each as described in the Company's Proxy Statement
distributed to stockholders in connection with the Annual
Meeting. Set forth below are the results of the stockholder
votes at the Annual Meeting on the foregoing matters.
22
<PAGE>
Part II. Other Information (cont'd)
--------------------------
Item 4: Submission of Matters to a Vote of Security Holders (cont'd)
<TABLE>
<CAPTION>
ELECTION OF CLASS III DIRECTORS
Nominee Votes in Favor Votes Withheld Broker Non-Votes
------- -------------- -------------- ----------------
<S> <C> <C> <C>
Mitchell Eisenberg, M.D. 6,683,808 123,000 N/A
Neil A. Natkow, D.O. 6,683,808 123,000 N/A
</TABLE>
<TABLE>
<CAPTION>
APPROVAL OF POTENTIAL ISSUANCE OF
THE COMPANY'S COMMON STOCK
IN CONNECTION WITH THE PERINATOLOGY TRANSACTION
Votes in Favor Votes Against Abstentions Broker Non-Votes
-------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
5,396,926 5,120 2,800 1,401,962
</TABLE>
<TABLE>
<CAPTION>
APPROVAL OF AMENDMENT TO THE COMPANY'S SECOND
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
Votes in Favor Votes Against Abstentions Broker Non-Votes
-------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
4,530,931 861,113 12,802 1,401,962
</TABLE>
Item 6: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
- ------ -----------
10.1 Investment and Stockholders' Agreement, by and among the Company and
Odalis Sijin Engel, M.D., dated as of June 16, 1998.
10.2 Investment and Stockholders' Agreement, by and among the Company and
Santiago H. Triana, M.D., dated as of June 23, 1998.
10.3 Investment and Stockholers' Agreement, by and among the Company and
Felix Estrada, M.D., Jan Jeffries, M.D., and Andrew Kairalla, M.D. as
of June 26, 1998.
27 Financial Data Schedule (for SEC use only).
(b) A report on Form 8-K/A was filed on April 16, 1998 to amend a
report on Form 8-K which was filed on March 19, 1998 to report
a material acquisition completed on March 4, 1998. The Form
8-K/A includes Item 7.(a), the financial statements of
businesses acquired, and Item 7.(b), the pro forma financial
information, both of which were not included in the Form 8-K.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHERIDAN HEALTHCARE, INC.
(Registrant)
Date: August 14, 1998 By: /s/ Michael F. Schundler
-------------------------- ------------------------
Michael F. Schundler
Chief Financial Officer
(principal financial officer)
24
<PAGE>
INVESTMENT AND STOCKHOLDERS' AGREEMENT
THIS INVESTMENT AND STOCKHOLDERS' AGREEMENT (the "Agreement") is made
as of June 16, 1998, by and among Sheridan Healthcare, Inc., a Delaware
corporation ("SHCR"), and the Stockholder identified on Schedule A attached
to this Agreement (the "Stockholder").
PRELIMINARY STATEMENTS
Reference is made to: (i) the Assignment and Assumption of Provider
Agreements, dated as of June 16, 1998 by and among West Broward OB-GYN
Associates, P.A., a Florida professional association (the "Company"), the
Stockholder, and Sheridan Healthcorp, Inc., a Florida corporation ("Sheridan")
(the "Assignment Agreement"); (ii) the Restrictive Covenant Agreement, dated as
of June 16, 1998 by and between Sheridan and the Stockholder; (iii) the
Restrictive Covenant Agreement, dated as of June 16, 1998 by and among the
Company and the Stockholder; and (iv) the Physician Employment Agreement, dated
as of June 16, 1998 by and between the Company and the Stockholder
(collectively, the "Related Documents"). Capitalized terms not defined in this
Agreement shall have the meanings given them in the Related Documents.
The parties to this Agreement desire to set forth the terms of their
interest in the securities of SHCR.
In consideration of the foregoing and the mutual covenants and
agreements contained in this Agreement, the parties to this Agreement agree as
follows:
ARTICLE I ACQUISITION OF SECURITIES
- --------- -------------------------
Section 1 Acquisition of SHCR Common Stock by Stockholder. Pursuant
to the Restrictive Covenant Agreements and the Assignment Agreement, the
Stockholder has been issued by SHCR the respective number of shares of SHCR
Common Stock (as defined in the Assignment Agreement), set forth opposite the
name of the Stockholder on Schedule A to this Agreement.
ARTICLE II THE CLOSING
- ---------- -----------
Section 1 Closing. The delivery and acceptance of the shares of SHCR
Common Stock being acquired by the Stockholder pursuant to the Assignment
Agreement (the "Closing Shares"), shall take place at the offices of Sheridan
concurrently with the Closing of the transactions contemplated by the Related
Documents, or at a later date as agreed to in writing by the parties and subject
to satisfaction or waiver of all of the conditions set forth in the Related
Documents and in this Agreement. For the purposes of this Agreement, the term
"Closing Shares" shall mean: (a) any shares of SHCR Common Stock issued at
Closing or at a later date as agreed to in writing by the parties, pursuant to
the Related Documents; and, (b) any securities of SHCR issued or issuable with
respect to any of the shares described in clause (a) above by way of a stock
dividend or stock split or in connection with a combination of shares,
<PAGE>
recapitalization, merger, consolidation or other reorganization (it being
understood that for purposes of this Agreement, a person will be deemed to be a
holder of Closing Shares whenever that person has the right to then acquire or
obtain from SHCR any Closing Shares, whether or not that acquisition has
actually been effected).
ARTICLE III RESTRICTIONS ON TRANSFER
- ----------- ------------------------
Section 1. Restrictions on Transfer of Closing Shares.
---------- -------------------------------------------
(a) The Stockholder agrees not to offer, transfer, donate,
sell, assign, pledge, hypothecate or otherwise dispose of (collectively
"Transfer" and the result of any of these actions is a "Transfer") any Closing
Shares now or hereafter acquired or other rights in respect to those Closing
Shares or rights pursuant to this Agreement, whether occurring voluntarily or
involuntarily, directly or indirectly, or by operation of law or otherwise,
except that the Stockholder may Transfer Closing Shares in accordance with the
provisions of Article III, Section 1(b).
(b) Notwithstanding anything in this Agreement, the
following transactions shall be exempt from the prohibition on Transfers in
Section 1 of this Article III:
(i) Transfers between a Stockholder and
the trustees of a trust revocable by that Stockholder alone
and the sole beneficiary of which is that Stockholder;
(ii) Transfers by gift by a Stockholder to
that Stockholder's spouse or issue or to the trustees of a
trust for the benefit of that spouse and/or issue;
(iii) Transfers between a Stockholder and
that Stockholder's guardian or conservator; and,
(iv) Transfers upon the death of a
Stockholder by will, intestacy laws or the laws of
survivorship to that Stockholder's personal representatives,
heirs or delegatees.
provided, however, that the transferee agrees in writing for the
benefit of the Stockholder and SHCR, as a condition to that Transfer, to be
bound by all of the provisions of this Agreement to the same extent as was the
transferor prior to that Transfer; and provided, further, that any of these
transferees shall take all Closing Shares and rights so transferred subject to
all the provisions of this Agreement as if those Closing Shares or rights were
still held by the Stockholder who made the Transfer. If any Transfer is effected
in accordance with the provisions of this Article III, Section 1(b)(i), (ii),
(iii) or (iv), then the transferee shall be referred to as a "Permitted
Transferee," and for all purposes of this Agreement unless expressly indicated
to the contrary, the Permitted Transferee shall be deemed to be a "Stockholder,"
but only to the extent that the transferor was included within that definition
prior to the transfer.
<PAGE>
(c) If any Transfer by a Stockholder is made or attempted
contrary to the provisions of this Agreement, that purported Transfer shall be
void ab initio; SHCR and the other Stockholder (and their transferees) shall
have, in addition to any other legal or equitable remedies which they may have,
the right to enforce the provisions of this Agreement by actions for specific
performance (to the extent permitted by law); and SHCR shall have the right to
refuse to recognize any Transferee of a Stockholder pursuant to any Transfer
that is made or attempted contrary to the provisions of this Agreement as one of
its Stockholder for any purpose.
Section 2 Termination of Restrictions on Transfer of Closing Shares.
The provisions of this Article III, as they relate to certain Closing Shares,
shall terminate and be of no further force and effect as of July 1, 1999.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
- ---------- --------------------------------------------------
By execution of this Agreement, the Stockholder at the time of
execution makes the following representations and warranties to SHCR, these
representations and warranties being made in connection with the issuance of the
Closing Shares:
1. This Agreement is made in reliance on each Stockholder's
representations to SHCR that all Closing Shares acquired by that
Stockholder will be acquired for investment for that Stockholder's own
account, not as a nominee or agent, and not with a view toward
distribution of any part thereof, and that Stockholder has, except as
otherwise contemplated in the Related Documents, no present intention
of selling, granting participation in, or otherwise distributing those
Closing Shares.
2. Each Stockholder understands that the Closing Shares will not be
registered under the Securities Act, on the ground that the sale and
issuance of the same are exempt from registration under Section 4(2) of
the Securities Act, and that SHCR's reliance on that exemption is
predicated on the representations of each Stockholder set forth in this
Agreement.
3. Each Stockholder understands that the Closing Shares may not be
sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence
of an effective registration statement covering the Closing Shares or
an available exemption from registration under the Securities Act, the
Closing Shares must be held indefinitely. Each Stockholder agrees that,
in addition to any other applicable limitations on the transfer of the
Closing Shares, in no event will it make a transfer, pledge or other
disposition of any of the Closing Shares other than pursuant to an
effective registration statement under the Securities Act, unless and
until: (i) that Stockholder shall have notified SHCR of the proposed
disposition and shall have furnished to SHCR a statement of the
circumstances surrounding the disposition; and, (ii) at the expense of
the Stockholder or its transferee, it shall have furnished to SHCR an
opinion of counsel reasonably satisfactory to SHCR and its counsel to
the effect that the proposed transfer, pledge or other disposition may
be made without registration under the Securities Act.
<PAGE>
4. The Stockholder: (i) by reason of his or her business and
financial experience, has that knowledge, sophistication and experience
in business and financial matters as to be capable of evaluating the
merits and risks of his or her investment in the Closing Shares; and,
(ii) believes his or her financial condition and investments enable him
or her to bear the economic risk of a complete loss of the Closing
Shares. The Stockholder has consulted with his or her own advisers with
respect to their proposed investment in SHCR. The Stockholder has had
the opportunity to ask questions and to receive answers concerning the
financial condition, operations and prospects of SHCR and the terms and
conditions of the Stockholder's investment, as well as the opportunity
to obtain any additional information necessary to verify the accuracy
of information furnished in connection therewith that SHCR possesses or
can acquire without unreasonable effort or expense. In addition, the
Stockholder acknowledges that he or she has received prior to the
execution of this Agreement the following documentation: (i) a
prospectus for SHCR, dated as of October 31, 1995 (ii) annual reports
for 1996 and 1997; (iii) 10Ks for 1996 and 1997; and, (iv) SHCR's Form
10-Q for the time period ended March 31, 1998. Each Stockholder has
carefully reviewed that documentation and has had the opportunity to
review that documentation with his or her own advisers and SHCR.
5. The Stockholder is an individual who either (i) has an individual
net worth, or joint net worth with the Stockholder's spouse as of the
date hereof which exceeds One Million Dollars ($1,000,000.00); or (ii)
has had income in excess of Two Hundred Thousand Dollars ($200,000.00)
in each of the two (2) most recent years or joint income with the
Stockholder's spouse in excess of Three Hundred Thousand Dollars
($300,000.00) in each of those years and has a reasonable expectation
of reaching the same income level in the current year.
6. The Stockholder's legal domicile for purposes of the applicable
securities laws is as set forth on Schedule A attached to this
Agreement executed by the Stockholder.
7. This Agreement and each agreement, instrument and document to be
executed and delivered by the Stockholder pursuant to or as
contemplated by this Agreement constitute, or when executed and
delivered by the Stockholder will constitute, valid and binding
obligations of the Stockholder enforceable in accordance with their
respective terms.
8. The execution, delivery and performance by the Stockholder of this
Agreement and each agreement, document and instrument:
(a) do not and will not violate any laws, rules or
regulations of the United States or any state or other
jurisdiction applicable to the Stockholder, or require the
Stockholder to obtain any approval, consent or waiver of, or
to make any filing with, any person that has not been obtained
or made; and
(b) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to
a right of termination of any indenture or loan agreement or
<PAGE>
any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to
which the Stockholder is a party or by which the property of
the Stockholder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets
or properties of the Stockholder.
ARTICLE V MISCELLANEOUS PROVISIONS
- --------- ------------------------
Section 1 Survival of Representations and Warranties. The
Stockholder agrees that each representation, warranty, covenant and agreement
made by him or her in this Agreement or in any certificate, instrument or other
document delivered pursuant to this Agreement is material, shall be deemed to
have been relied upon by SHCR, shall remain operative and in full force and
effect after the date of this Agreement regardless of any investigation or the
acceptance of securities hereunder and payment therefor.
This Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and their
respective successors and permitted assigns.
Section 2 Legend on Securities. SHCR and the Stockholder acknowledge
and agree that substantially the following legend shall be typed on each
certificate evidencing any of the securities issued under the Related Documents
or held at any time by the Stockholder (and his or her transferees):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO: (1) A
REGISTRATION STATEMENT WITH RESPECT TO THESE SECURITIES WHICH IS EFFECTIVE UNDER
THAT ACT; OR, (2) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THAT ACT
RELATING TO THE DISPOSITION OF SECURITIES. THESE SECURITIES ARE ALSO SUBJECT TO
THE PROVISIONS OF A CERTAIN INVESTMENT AND STOCKHOLDERS' AGREEMENT, DATED AS OF
JUNE 16, 1998, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT
AGREEMENT. A COMPLETE AND CORRECT COPY OF THAT AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF SHERIDAN AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
SHCR IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. SHCR WILL
FURNISH TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE RIGHTS AND LIMITATIONS OF EACH OUTSTANDING CLASS OF
STOCK OF SHCR.
Section 3 Amendment and Waiver. Any party may waive any provision of
this Agreement intended for its benefit in writing. Except as specifically set
forth in this Agreement to the contrary, no failure or delay on the part of any
<PAGE>
party to this Agreement in exercising any right, power or remedy under this
Agreement shall operate as a waiver. The remedies in this Agreement are
cumulative and are not exclusive of any remedies that may be available to any
party to this Agreement at law or in equity or otherwise. This Agreement may be
amended with the prior written consent of all parties.
Section 4 Notices. Whenever any notice, request, information or
other document is required or permitted to be given under this Agreement, that
notice, demand or request shall be in writing and shall be either hand
delivered, sent by United States certified mail, postage prepaid or delivered
via overnight courier to the addresses below or to any other address that any
party may specify by notice to the other parties. No party shall be obligated to
send more than one notice to each of the other parties and no notice of a change
of address shall be effective until received by the other parties. A notice
shall be deemed received upon hand delivery, two days after posting in the
United States mail or one day after dispatch by overnight courier.
SHCR: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Mitchell Eisenberg, M.D., President
with a copy to: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Jay A. Martus, Esq.
To Stockholder: At the Addresses listed on Schedule A attached to this Agreement
with a copy to: Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33484
Attn: Jeffrey L. Cohen, Esq.
or to any other address of which any party may notify the other parties as
provided above.
Section 5 Headings. The Article and Section headings used or
contained in this Agreement are for convenience of the reference only and shall
not affect the construction of this Agreement.
Section 6 Counterparts. This Agreement may be executed in one or
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 7 Remedies; Severability. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any person subject
to this Agreement will result in irreparable injury to the other parties to this
<PAGE>
Agreement, that the remedy at law alone will be an inadequate remedy for that
breach, and that, in addition to any other legal or equitable remedies which
they may have, those other parties may enforce their respective rights by
actions for specific performance (to the extent permitted by law) and SHCR may
refuse to recognize any unauthorized transferee as one of its stockholders for
any purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. In the event that any one or more of the
provisions contained in this Agreement, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of that provision in every
other respect and of the remaining provisions contained in this Agreement shall
not be in any way impaired thereby, it being intended that all of the rights and
privileges of the parties to this Agreement shall be enforceable to the fullest
extent permitted by law.
Section 8 Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be complete and
exclusive statement of the agreement and understanding of the parties to this
Agreement in respect of the subject matter contained in this Agreement and their
agreement and understanding. This Agreement supersedes all prior agreements and
understandings between the parties with respect to that subject matter.
Section 9 Adjustments. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of SHCR.
Section 10 Law Governing. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the state of Delaware
(without giving effect to principles of conflicts of law).
Section 11. Construction. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted, including any presumption of superior
knowledge or responsibility based upon a party's business or profession or any
professional training, experience, education or degrees of any member, agent,
officer or employee of any party. If any words in this Agreement have been
stricken out or otherwise eliminated (whether or not any other words or phrases
have been added) and the stricken words initialed by the party against whom the
words are construed, then this Agreement shall be construed as if the words so
stricken out or otherwise eliminated were never included in this Agreement and
no implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
Section 12. Prevailing Party. Except as otherwise required by
applicable law or as expressly provided in this Agreement, in the event of any
litigation, including appeals, with regard to this Agreement, the prevailing
<PAGE>
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trail, trial and appellate levels).
Section 13. Jury Trial. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY
JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHCR:
SHERIDAN HEALTHCARE, INC.
By:
-----------------------------
Jay A. Martus, Vice President
STOCKHOLDER:
----------------------------
Odalis Sijin Engel, M.D.
Q:\LEGAL\Edgar\SijinISA.wpd
<PAGE>
SCHEDULE A
<PAGE>
Name and Address Consideration Paid
of Stockholder in SHCR Stock
Odalis Sijin Engel, M.D.
661 N.W. 101 Terrace
Plantation, Florida 33324 $50,000
INVESTMENT AND STOCKHOLDERS' AGREEMENT
THIS INVESTMENT AND STOCKHOLDERS' AGREEMENT (the "Agreement") is made
as of June 23, 1998, by and among Sheridan Healthcare, Inc., a Delaware
corporation ("SHCR"), and the individuals who are identified as Stockholders on
Schedule A attached to this Agreement (each a "Stockholder", and collectively,
the "Stockholders").
PRELIMINARY STATEMENTS
Reference is made to: (i) the Management Services Agreement, dated as
of June 23, 1998 by and among Santiago H. Triana, M.D., Inc., a Florida
corporation (the "Company"), the Stockholders, and Sheridan Healthcorp, Inc., a
Florida corporation ("Sheridan"); (ii) the Restrictive Covenant Agreement, dated
as of June 23, 1998 by and between Sheridan and the Stockholders; (iii) the
Purchase Option Agreement, dated as of June 23, 1998 by and among SHCR, the
Company and the Stockholders; (iv) the Physician Employment Agreement, dated as
of June 23, 1998 by and between the Company and each of the Stockholders; and
(v) a Voting Trust Agreement (the "VTA") dated as of June 23, 1998 by and among
SHCR, the Company, the Stockholders and the Trustee designated pursuant to the
VTA (collectively, the "Related Documents"). Capitalized terms not defined in
this Agreement shall have the meanings given them in the Related Documents.
The parties to this Agreement desire to set forth the terms of their
interest in the securities of SHCR.
In consideration of the foregoing and the mutual covenants and
agreements contained in this Agreement, the parties to this Agreement agree as
follows:
ARTICLE I ACQUISITION OF SECURITIES
--------- -------------------------
Section 1. Acquisition of SHCR Common Stock by Stockholders. Pursuant
to the Purchase Option Agreement, each Stockholder has been issued by SHCR the
respective number of shares of SHCR Common Stock (as defined in the Purchase
Option Agreement), set forth opposite the name of that Stockholder on Schedule A
to this Agreement.
ARTICLE II THE CLOSING
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Section 1 Closing. The delivery and acceptance of the shares of SHCR
Common Stock being acquired by the Stockholders pursuant to the Purchase Option
Agreement (the "Closing Shares"), shall take place at the offices of Sheridan
concurrently with the Closing of the transactions contemplated by the Related
Documents, or at a later date as agreed to in writing by the parties and subject
to satisfaction or waiver of all of the conditions set forth in the Related
Documents and in this Agreement. For the purposes of this Agreement, the term
"Closing Shares" shall mean: (a) any shares of SHCR Common Stock issued at
Closing or at a later date as agreed to in writing by the parties, pursuant to
the Related Documents; and, (b) any securities of SHCR issued or issuable with
<PAGE>
respect to any of the shares described in clause (a) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization (it being
understood that for purposes of this Agreement, a person will be deemed to be a
holder of Closing Shares whenever that person has the right to then acquire or
obtain from SHCR any Closing Shares, whether or not that acquisition has
actually been effected).
ARTICLE III RESTRICTIONS ON TRANSFER
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Section 1 Restrictions on Transfer of Closing Shares.
--------- -------------------------------------------
(a) Each Stockholder agrees not to offer, transfer, donate,
sell, assign, pledge, hypothecate or otherwise dispose of (collectively
"Transfer" and the result of any of these actions is a "Transfer") any Closing
Shares now or hereafter acquired or other rights in respect to those Closing
Shares or rights pursuant to this Agreement, whether occurring voluntarily or
involuntarily, directly or indirectly, or by operation of law or otherwise,
except that a Stockholder may Transfer Closing Shares in accordance with the
provisions of Article III, Section 1(b).
(b) Notwithstanding anything in this Agreement, the
following transactions shall be exempt from the prohibition on Transfers in
Section 1 of this Article III:
(i) Transfers between a Stockholder and
the trustees of a trust revocable by that Stockholder alone
and the sole beneficiary of which is that Stockholder;
(ii) Transfers by gift by a Stockholder to
that Stockholder's spouse or issue or to the trustees of a
trust for the benefit of that spouse and/or issue;
(iii) Transfers between a Stockholder and
that Stockholder's guardian or conservator; and,
(iv) Transfers upon the death of a
Stockholder by will, intestacy laws or the laws of
survivorship to that Stockholder's personal representatives,
heirs or delegatees.
provided, however, that the transferee agrees in writing for the
benefit of the other Stockholders and SHCR, as a condition to that Transfer, to
be bound by all of the provisions of this Agreement to the same extent as was
the transferor prior to that Transfer; and provided, further, that any of these
transferees shall take all Closing Shares and rights so transferred subject to
all the provisions of this Agreement as if those Closing Shares or rights were
still held by the Stockholder who made the Transfer. If any Transfer is effected
in accordance with the provisions of this Article III, Section 1(b)(i), (ii),
(iii) or (iv), then the transferee shall be referred to as a "Permitted
Transferee," and for all purposes of this Agreement unless expressly indicated
to the contrary, the Permitted Transferee shall be deemed to be a "Stockholder,"
but only to the extent that the transferor was included within that definition
prior to the transfer.
<PAGE>
(c) If any Transfer by a Stockholder is made or attempted
contrary to the provisions of this Agreement, that purported Transfer shall be
void ab initio; SHCR and the other Stockholders (and their transferees) shall
have, in addition to any other legal or equitable remedies which they may have,
the right to enforce the provisions of this Agreement by actions for specific
performance (to the extent permitted by law); and SHCR shall have the right to
refuse to recognize any Transferee of a Stockholder pursuant to any Transfer
that is made or attempted contrary to the provisions of this Agreement as one of
its stockholders for any purpose.
Section 2 Termination of Restrictions on Transfer of Closing Shares.
The provisions of this Article III, as they relate to certain Closing Shares,
shall terminate and be of no further force and effect as of June 22, 1999.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
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By execution of a counterpart of this Agreement, any Stockholder at the
time of that execution makes the following representations and warranties to
SHCR, these representations and warranties being made in connection with the
issuance of the Closing Shares:
1. This Agreement is made in reliance on each Stockholder's
representations to SHCR that all Closing Shares acquired by that
Stockholder will be acquired for investment for that Stockholder's own
account, not as a nominee or agent, and not with a view toward
distribution of any part thereof, and that Stockholder has, except as
otherwise contemplated in the Related Documents, no present intention
of selling, granting participation in, or otherwise distributing those
Closing Shares.
2. Each Stockholder understands that the Closing Shares will not be
registered under the Securities Act, on the ground that the sale and
issuance of the same are exempt from registration under Section 4(2) of
the Securities Act, and that SHCR's reliance on that exemption is
predicated on the representations of each Stockholder set forth in this
Agreement.
3. Each Stockholder understands that the Closing Shares may not be
sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence
of an effective registration statement covering the Closing Shares or
an available exemption from registration under the Securities Act, the
Closing Shares must be held indefinitely. Each Stockholder agrees that,
in addition to any other applicable limitations on the transfer of the
Closing Shares, in no event will it make a transfer, pledge or other
disposition of any of the Closing Shares other than pursuant to an
effective registration statement under the Securities Act, unless and
until: (i) that Stockholder shall have notified SHCR of the proposed
disposition and shall have furnished to SHCR a statement of the
circumstances surrounding the disposition; and, (ii) at the expense of
the Stockholder or its transferee, it shall have furnished to SHCR an
opinion of counsel reasonably satisfactory to SHCR and its counsel to
the effect that the proposed transfer, pledge or other disposition may
be made without registration under the Securities Act.
<PAGE>
4. Each Stockholder: (i) by reason of his or her business and
financial experience, has that knowledge, sophistication and experience
in business and financial matters as to be capable of evaluating the
merits and risks of his or her investment in the Closing Shares; and,
(ii) believes his or her financial condition and investments enable him
or her to bear the economic risk of a complete loss of the Closing
Shares. Each Stockholder has consulted with its own advisers with
respect to their proposed investment in SHCR. Each Stockholder has had
the opportunity to ask questions and to receive answers concerning the
financial condition, operations and prospects of SHCR and the terms and
conditions of the Stockholder's investment, as well as the opportunity
to obtain any additional information necessary to verify the accuracy
of information furnished in connection therewith that SHCR possesses or
can acquire without unreasonable effort or expense. In addition, the
Stockholder acknowledges that he or she has received prior to the
execution of this Agreement the following documentation: (i) a
prospectus for SHCR, dated as of October 31, 1995 (ii) annual reports
for 1995, 1996, and 1997; (iii) 10Ks for 1995, 1996, and 1997; and,
(iv) SHCR's Form 10-Q for the time period ended March 31, 1998. Each
Stockholder has carefully reviewed that documentation and has had the
opportunity to review that documentation with his or her own advisers
and SHCR.
5. Each Stockholder is an individual who either (i) has an individual
net worth, or joint net worth with that Stockholder's spouse as of the
date hereof which exceeds One Million Dollars ($1,000,000.00); or (ii)
has had income in excess of Two Hundred Thousand Dollars ($200,000.00)
in each of the two (2) most recent years or joint income with that
Stockholder's spouse in excess of Three Hundred Thousand Dollars
($300,000.00) in each of those years and has a reasonable expectation
of reaching the same income level in the current year.
6. Each Stockholder's legal domicile for purposes of the applicable
securities laws is as set forth on Schedule A attached to this
Agreement executed by that Stockholder.
7. This Agreement and each agreement, instrument and document to be
executed and delivered by each Stockholder pursuant to or as
contemplated by this Agreement constitute, or when executed and
delivered by that Stockholder will constitute, valid and binding
obligations of that Stockholder enforceable in accordance with their
respective terms.
8. The execution, delivery and performance by each Stockholder of
this Agreement and each agreement, document and instrument:
(a) do not and will not violate any laws, rules or
regulations of the United States or any state or other
jurisdiction applicable to that Stockholder, or require that
Stockholder to obtain any approval, consent or waiver of, or
to make any filing with, any person that has not been obtained
or made; and
(b) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to
<PAGE>
a right of termination of any indenture or loan agreement or
any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to
which that Stockholder is a party or by which the property of
that Stockholder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets
or properties of that Stockholder.
ARTICLE V MISCELLANEOUS PROVISIONS
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Section 1. Survival of Representations and Warranties. The
Stockholders agree that each representation, warranty, covenant and agreement
made by them in this Agreement or in any certificate, instrument or other
document delivered pursuant to this Agreement is material, shall be deemed to
have been relied upon by SHCR, shall remain operative and in full force and
effect after the date of this Agreement regardless of any investigation or the
acceptance of securities hereunder and payment therefor.
This Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and their
respective successors and permitted assigns.
Section 2. Legend on Securities. SHCR and the Stockholders
acknowledge and agree that substantially the following legend shall be typed on
each certificate evidencing any of the securities issued under the Related
Documents or held at any time by the Stockholders (and their transferees):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO: (1) A
REGISTRATION STATEMENT WITH RESPECT TO THESE SECURITIES WHICH IS EFFECTIVE UNDER
THAT ACT; OR, (2) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THAT ACT
RELATING TO THE DISPOSITION OF SECURITIES. THESE SECURITIES ARE ALSO SUBJECT TO
THE PROVISIONS OF A CERTAIN INVESTMENT AND STOCKHOLDERS' AGREEMENT, DATED AS OF
JUNE 23, 1998, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT
AGREEMENT. A COMPLETE AND CORRECT COPY OF THAT AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF SHERIDAN AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
SHCR IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. SHCR WILL
FURNISH TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE RIGHTS AND LIMITATIONS OF EACH OUTSTANDING CLASS OF
STOCK OF SHCR.
Section 3. Amendment and Waiver. Any party may waive any provision of
this Agreement intended for its benefit in writing. Except as specifically set
<PAGE>
forth in this Agreement to the contrary, no failure or delay on the part of any
party to this Agreement in exercising any right, power or remedy under this
Agreement shall operate as a waiver. The remedies in this Agreement are
cumulative and are not exclusive of any remedies that may be available to any
party to this Agreement at law or in equity or otherwise. This Agreement may be
amended with the prior written consent of all parties.
Section 4. Notices. Whenever any notice, request, information or
other document is required or permitted to be given under this Agreement, that
notice, demand or request shall be in writing and shall be either hand
delivered, sent by United States certified mail, postage prepaid or delivered
via overnight courier to the addresses below or to any other address that any
party may specify by notice to the other parties. No party shall be obligated to
send more than one notice to each of the other parties and no notice of a change
of address shall be effective until received by the other parties. A notice
shall be deemed received upon hand delivery, two days after posting in the
United States mail or one day after dispatch by overnight courier.
SHCR: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Mitchell Eisenberg, M.D., President
with a copy to: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Jay A. Martus, Esq.
To Stockholders: At the Addresses listed on Schedule A attached to this
Agreement
with a copy to: Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33484
Attn: Jeffrey L. Cohen, Esq.
or to any other address of which any party may notify the other parties as
provided above.
Section 5. Headings. The Article and Section headings used or
contained in this Agreement are for convenience of the reference only and shall
not affect the construction of this Agreement.
Section 6. Counterparts. This Agreement may be executed in one or
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 7. Remedies; Severability. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any person subject
<PAGE>
to this Agreement will result in irreparable injury to the other parties to this
Agreement, that the remedy at law alone will be an inadequate remedy for that
breach, and that, in addition to any other legal or equitable remedies which
they may have, those other parties may enforce their respective rights by
actions for specific performance (to the extent permitted by law) and SHCR may
refuse to recognize any unauthorized transferee as one of its stockholders for
any purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. In the event that any one or more of the
provisions contained in this Agreement, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of that provision in every
other respect and of the remaining provisions contained in this Agreement shall
not be in any way impaired thereby, it being intended that all of the rights and
privileges of the parties to this Agreement shall be enforceable to the fullest
extent permitted by law.
Section 8. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be complete and
exclusive statement of the agreement and understanding of the parties to this
Agreement in respect of the subject matter contained in this Agreement and their
agreement and understanding. This Agreement supersedes all prior agreements and
understandings between the parties with respect to that subject matter.
Section 9. Adjustments. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of SHCR.
Section 10. Law Governing. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the state of Delaware
(without giving effect to principles of conflicts of law).
Section 11. Construction. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted, including any presumption of superior
knowledge or responsibility based upon a party's business or profession or any
professional training, experience, education or degrees of any member, agent,
officer or employee of any party. If any words in this Agreement have been
stricken out or otherwise eliminated (whether or not any other words or phrases
have been added) and the stricken words initialed by the party against whom the
words are construed, then this Agreement shall be construed as if the words so
stricken out or otherwise eliminated were never included in this Agreement and
no implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
Section 12. Prevailing Party. Except as otherwise required by
applicable law or as expressly provided in this Agreement, in the event of any
litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trail, trial and appellate levels).
<PAGE>
Section 13. Jury Trial. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY
JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHCR:
SHERIDAN HEALTHCARE, INC.
By:
-----------------------------
Jay A. Martus, Vice President
STOCKHOLDERS:
-----------------------------------
Santiago H. Triana, M.D.
<PAGE>
SCHEDULE A
Name and Address Consideration Paid
of Stockholder in SHCR Stock
Santiago H. Triana, M.D.
357 Jacaranda Drive
Plantation, Florida 33324 $100,000.00
INVESTMENT AND STOCKHOLDERS' AGREEMENT
THIS INVESTMENT AND STOCKHOLDERS' AGREEMENT (the "Agreement") is made
as of June 26, 1998, by and among Sheridan Healthcare, Inc., a Delaware
corporation ("Sheridan"), and the individuals who are identified as Stockholders
on Schedule A attached to this Agreement (the "Stockholders").
PRELIMINARY STATEMENTS
Reference is made to: (i) the Stock Purchase Agreement, dated as of
June 26, 1998 by and among Dr. Ian Jeffries Neonatology Associates, M.D., Inc.,
a Florida corporation ("IJNA"), Ian P. Jeffries, M.B., and Sheridan; (ii) the
Stock Purchase Agreement, dated as of June 26, 1998 by and among Andrew B.
Kairalla, M.D., Inc., a Florida corporation ("ABK"), Andrew B. Kairalla, M.D.,
and Sheridan; (iii) a Stock Purchase Agreement, dated as of June 26, 1998 by and
among Felix A. Estrada, M.D., Inc., a Florida corporation (the "FAE"), Felix A.
Estrada, and Sheridan;(ii) each of the Restrictive Covenant Agreements, dated as
of June 26, 1998 by and between Sheridan and each of the Stockholders; and (iii)
each of the Physician Employment Agreements, dated as of June 26, 1998 by and
between Sheridan Children's Healthcare Services, Inc., a Florida corporation and
each of the Stockholders (collectively, the "Related Documents"). Capitalized
terms not defined in this Agreement shall have the meanings given them in the
Related Documents.
The parties to this Agreement desire to set forth the terms of their
interest in the securities of Sheridan.
In consideration of the foregoing and the mutual covenants and
agreements contained in this Agreement, the parties to this Agreement agree as
follows:
ARTICLE I ACQUISITION OF SECURITIES
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Section 1. Acquisition of Sheridan Common Stock by Stockholders.
Pursuant to the Stock Purchase Agreement, each Stockholder has been issued by
Sheridan the respective number of shares of Sheridan Common Stock (as defined in
the Stock Purchase Agreement), set forth opposite the name of that Stockholder
on Schedule A to this Agreement.
ARTICLE II THE CLOSING
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Section 1. Closing. The delivery and acceptance of the shares of
Sheridan Common Stock being acquired by the Stockholders pursuant to the Stock
Purchase Agreement (the "Closing Shares"), shall take place at the offices of
Sheridan concurrently with the Closing of the transactions contemplated by the
Related Documents, or at a later date as agreed to in writing by the parties and
subject to satisfaction or waiver of all of the conditions set forth in the
Related Documents and in this Agreement. For the purposes of this Agreement, the
term "Closing Shares" shall mean: (a) any shares of Sheridan Common Stock issued
at Closing or at a later date as agreed to in writing by the parties, pursuant
to the Related Documents; and, (b) any securities of Sheridan issued or issuable
<PAGE>
with respect to any of the shares described in clause (a) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization (it being
understood that for purposes of this Agreement, a person will be deemed to be a
holder of Closing Shares whenever that person has the right to then acquire or
obtain from Sheridan any Closing Shares, whether or not that acquisition has
actually been effected).
ARTICLE III RESTRICTIONS ON TRANSFER
----------- ------------------------
Section 1. Restrictions on Transfer of Closing Shares.
(a)ab Each Stockholder agrees not to offer, transfer, donate,
sell, assign, pledge, hypothecate or otherwise dispose of (collectively
"Transfer" and the result of any of these actions is a "Transfer") any Closing
Shares now or hereafter acquired or other rights in respect to those Closing
Shares or rights pursuant to this Agreement, whether occurring voluntarily or
involuntarily, directly or indirectly, or by operation of law or otherwise,
except that a Stockholder may Transfer Closing Shares in accordance with the
provisions of Article III, Section 1(b).
(b) Notwithstanding anything in this Agreement, the
following transactions shall be exempt from the prohibition on Transfers in
Section 1 of this Article III:
(i) Transfers between a Stockholder and
the trustees of a trust revocable by that Stockholder alone
and the sole beneficiary of which is that Stockholder;
(ii) Transfers by gift by a Stockholder to
that Stockholder's spouse or issue or to the trustees of a
trust for the benefit of that spouse and/or issue;
(iii) Transfers between a Stockholder and
that Stockholder's guardian or conservator; and,
(iv) Transfers upon the death of a
Stockholder by will, intestacy laws or the laws of
survivorship to that Stockholder's personal representatives,
heirs or delegatees.
provided, however, that the transferee agrees in writing for the
benefit of the other Stockholders and Sheridan, as a condition to that Transfer,
to be bound by all of the provisions of this Agreement to the same extent as was
the transferor prior to that Transfer; and provided, further, that any of these
transferees shall take all Closing Shares and rights so transferred subject to
all the provisions of this Agreement as if those Closing Shares or rights were
<PAGE>
still held by the Stockholder who made the Transfer. If any Transfer is effected
in accordance with the provisions of this Article III, Section 1(b)(i), (ii),
(iii) or (iv), then the transferee shall be referred to as a "Permitted
Transferee," and for all purposes of this Agreement unless expressly indicated
to the contrary, the Permitted Transferee shall be deemed to be a "Stockholder,"
but only to the extent that the transferor was included within that definition
prior to the transfer.
(c) If any Transfer by a Stockholder is made or attempted
contrary to the provisions of this Agreement, that purported Transfer shall be
void ab initio; Sheridan and the other Stockholders (and their transferees)
shall have, in addition to any other legal or equitable remedies which they may
have, the right to enforce the provisions of this Agreement by actions for
specific performance (to the extent permitted by law); and Sheridan shall have
the right to refuse to recognize any Transferee of a Stockholder pursuant to any
Transfer that is made or attempted contrary to the provisions of this Agreement
as one of its stockholders for any purpose.
Section 2. Termination of Restrictions on Transfer of Closing Shares.
The provisions of this Article III, as they relate to certain Closing Shares,
shall terminate and be of no further force and effect as of June 26, 1999.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
---------- --------------------------------------------------
By execution of a counterpart of this Agreement, any Stockholder at the
time of that execution makes the following representations and warranties to
Sheridan, these representations and warranties being made in connection with the
issuance of the Closing Shares:
1. This Agreement is made in reliance on each Stockholder's
representations to Sheridan that all Closing Shares acquired by that
Stockholder will be acquired for investment for that Stockholder's own
account, not as a nominee or agent, and not with a view toward
distribution of any part thereof, and that Stockholder has, except as
otherwise contemplated in the Related Documents, no present intention
of selling, granting participation in, or otherwise distributing those
Closing Shares.
2. Each Stockholder understands that the Closing Shares will not be
registered under the Securities Act, on the ground that the sale and
issuance of the same are exempt from registration under Section 4(2) of
the Securities Act, and that Sheridan's reliance on that exemption is
predicated on the representations of each Stockholder set forth in this
Agreement.
3. Each Stockholder understands that the Closing Shares may not be
sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence
of an effective registration statement covering the Closing Shares or
an available exemption from registration under the Securities Act, the
Closing Shares must be held indefinitely. Each Stockholder agrees that,
in addition to any other applicable limitations on the transfer of the
Closing Shares, in no event will it make a transfer, pledge or other
disposition of any of the Closing Shares other than pursuant to an
effective registration statement under the Securities Act, unless and
until: (i) that Stockholder shall have notified Sheridan of the
proposed disposition and shall have furnished to Sheridan a statement
of the circumstances surrounding the disposition; and, (ii) at the
<PAGE>
expense of the Stockholder or its transferee, it shall have furnished
to Sheridan an opinion of counsel reasonably satisfactory to Sheridan
and its counsel to the effect that the proposed transfer, pledge or
other disposition may be made without registration under the Securities
Act.
4. Each Stockholder: (i) by reason of his or her business and
financial experience, has that knowledge, sophistication and experience
in business and financial matters as to be capable of evaluating the
merits and risks of his or her investment in the Closing Shares; and,
(ii) believes his or her financial condition and investments enable him
or her to bear the economic risk of a complete loss of the Closing
Shares. Each Stockholder has consulted with its own advisers with
respect to their proposed investment in Sheridan. Each Stockholder has
had the opportunity to ask questions and to receive answers concerning
the financial condition, operations and prospects of Sheridan and the
terms and conditions of the Stockholder's investment, as well as the
opportunity to obtain any additional information necessary to verify
the accuracy of information furnished in connection therewith that
Sheridan possesses or can acquire without unreasonable effort or
expense. In addition, the Stockholder acknowledges that he or she has
received prior to the execution of this Agreement the following
documentation: (i) a prospectus for Sheridan, dated as of October 31,
1995 (ii) annual reports for 1996 and 1997; (iii) 10Ks for 1996 and
1997; and, (iv) Sheridan's Form 10-Q for the time period ended March
31, 1998. Each Stockholder has carefully reviewed that documentation
and has had the opportunity to review that documentation with his or
her own advisers and Sheridan.
5. Each Stockholder is an individual who either (i) has an individual
net worth, or joint net worth with that Stockholder's spouse as of the
date hereof which exceeds One Million Dollars ($1,000,000.00); or (ii)
has had income in excess of Two Hundred Thousand Dollars ($200,000.00)
in each of the two (2) most recent years or joint income with that
Stockholder's spouse in excess of Three Hundred Thousand Dollars
($300,000.00) in each of those years and has a reasonable expectation
of reaching the same income level in the current year.
6. Each Stockholder's legal domicile for purposes of the applicable
securities laws is as set forth on Schedule A attached to this
Agreement executed by that Stockholder.
7. This Agreement and each agreement, instrument and document to be
executed and delivered by each Stockholder pursuant to or as
contemplated by this Agreement constitute, or when executed and
delivered by that Stockholder will constitute, valid and binding
obligations of that Stockholder enforceable in accordance with their
respective terms.
8. The execution, delivery and performance by each Stockholder of
this Agreement and each agreement, document and instrument:
(a) do not and will not violate any laws, rules or
regulations of the United States or any state or other
jurisdiction applicable to that Stockholder, or require that
<PAGE>
Stockholder to obtain any approval, consent or waiver of, or
to make any filing with, any person that has not been obtained
or made; and
(b) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to
a right of termination of any indenture or loan agreement or
any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to
which that Stockholder is a party or by which the property of
that Stockholder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets
or properties of that Stockholder.
ARTICLE V MISCELLANEOUS PROVISIONS
--------- ------------------------
Section 1. Survival of Representations and Warranties. The
Stockholders agree that each representation, warranty, covenant and agreement
made by them in this Agreement or in any certificate, instrument or other
document delivered pursuant to this Agreement is material, shall be deemed to
have been relied upon by Sheridan, shall remain operative and in full force and
effect after the date of this Agreement regardless of any investigation or the
acceptance of securities hereunder and payment therefor.
This Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and their
respective successors and permitted assigns.
Section 2. Legend on Securities. Sheridan and the Stockholders
acknowledge and agree that substantially the following legend shall be typed on
each certificate evidencing any of the securities issued under the Related
Documents or held at any time by the Stockholders (and their transferees):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO: (1) A
REGISTRATION STATEMENT WITH RESPECT TO THESE SECURITIES WHICH IS EFFECTIVE UNDER
THAT ACT; OR, (2) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THAT ACT
RELATING TO THE DISPOSITION OF SECURITIES. THESE SECURITIES ARE ALSO SUBJECT TO
THE PROVISIONS OF A CERTAIN INVESTMENT AND STOCKHOLDERS' AGREEMENT, DATED AS OF
JUNE 26, 1998, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT
AGREEMENT. A COMPLETE AND CORRECT COPY OF THAT AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF SHERIDAN AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
SHERIDAN IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. SHERIDAN
WILL FURNISH TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE RIGHTS AND LIMITATIONS OF EACH
OUTSTANDING CLASS OF STOCK OF SHERIDAN.
<PAGE>
Section 3. Amendment and Waiver. Any party may waive any provision of
this Agreement intended for its benefit in writing. Except as specifically set
forth in this Agreement to the contrary, no failure or delay on the part of any
party to this Agreement in exercising any right, power or remedy under this
Agreement shall operate as a waiver. The remedies in this Agreement are
cumulative and are not exclusive of any remedies that may be available to any
party to this Agreement at law or in equity or otherwise. This Agreement may be
amended with the prior written consent of all parties.
Section 4. Notices. Whenever any notice, request, information or
other document is required or permitted to be given under this Agreement, that
notice, demand or request shall be in writing and shall be either hand
delivered, sent by United States certified mail, postage prepaid or delivered
via overnight courier to the addresses below or to any other address that any
party may specify by notice to the other parties. No party shall be obligated to
send more than one notice to each of the other parties and no notice of a change
of address shall be effective until received by the other parties. A notice
shall be deemed received upon hand delivery, two days after posting in the
United States mail or one day after dispatch by overnight courier.
Sheridan: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Mitchell Eisenberg, M.D., President
with a copy to: Sheridan Healthcare, Inc.
4651 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Jay A. Martus, Esq.
To Stockholders: At the Addresses listed on Schedule A attached to this
Agreement
with a copy to: Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, Florida 33131
Attn: Lee Lasris, Esq.
or to any other address of which any party may notify the other parties as
provided above.
Section 5. Headings. The Article and Section headings used or
contained in this Agreement are for convenience of the reference only and shall
not affect the construction of this Agreement.
Section 6. Counterparts. This Agreement may be executed in one or
more counterparts and by the parties hereto in separate counterparts, each of
<PAGE>
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 7. Remedies; Severability. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any person subject
to this Agreement will result in irreparable injury to the other parties to this
Agreement, that the remedy at law alone will be an inadequate remedy for that
breach, and that, in addition to any other legal or equitable remedies which
they may have, those other parties may enforce their respective rights by
actions for specific performance (to the extent permitted by law) and Sheridan
may refuse to recognize any unauthorized transferee as one of its stockholders
for any purpose, including, without limitation, for purposes of dividend and
voting rights, until the relevant party or parties have complied with all
applicable provisions of this Agreement. In the event that any one or more of
the provisions contained in this Agreement, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of that provision in every
other respect and of the remaining provisions contained in this Agreement shall
not be in any way impaired thereby, it being intended that all of the rights and
privileges of the parties to this Agreement shall be enforceable to the fullest
extent permitted by law.
Section 8. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be complete and
exclusive statement of the agreement and understanding of the parties to this
Agreement in respect of the subject matter contained in this Agreement and their
agreement and understanding. This Agreement supersedes all prior agreements and
understandings between the parties with respect to that subject matter.
Section 9. Adjustments. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of Sheridan.
Section 10. Law Governing. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the state of Delaware
(without giving effect to principles of conflicts of law).
Section 11. Litigation; Prevailing Party. Except as otherwise required
by applicable law or as expressly provided in this Agreement, in the event of
any litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trial, trial and appellate levels).
Section 12. Construction. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted, including any presumption of superior
knowledge or responsibility based upon a party's business or profession or any
professional training, experience, education or degrees of any member, agent,
officer or employee of any party. If any words in this Agreement have been
stricken out or otherwise eliminated (whether or not any other words or phrases
<PAGE>
have been added) and the stricken words initialed by the party against whom the
words are construed, then this Agreement shall be construed as if the words so
stricken out or otherwise eliminated were never included in this Agreement and
no implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
Section 13. Jury Trial. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL
BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHERIDAN:
SHERIDAN HEALTHCARE, INC.
By:
----------------------------------
Jay A. Martus, Vice President
STOCKHOLDERS:
----------------------------------
Felix A. Estrada, M.D.
----------------------------------
Ian P. Jeffries, M.B.
----------------------------------
Andrew B. Kairalla, M.D.
<PAGE>
SCHEDULE A
Name and Address Consideration Paid
of Stockholder in Sheridan Stock
Felix A. Estrada, M.D.
9901 N.E. 13th Avenue
Miami Shores, Florida 33136 $125,000.00
Ian P. Jeffries, M.B.
10118 S.W. 125th Street
Miami, Florida 33176 $125,000.00
Andrew B. Kairalla, M.D.
9820 S.W. 60th Street
Miami, Florida 33173 $125,000.00
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHERIDAN HEALTHCARE, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000946489
<NAME> SHERIDAN HEALTHCARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,203
<SECURITIES> 0
<RECEIVABLES> 26,144
<ALLOWANCES> 2,013
<INVENTORY> 0
<CURRENT-ASSETS> 28,707
<PP&E> 6,217
<DEPRECIATION> 2,859
<TOTAL-ASSETS> 129,007
<CURRENT-LIABILITIES> 14,260
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 65,015
<TOTAL-LIABILITY-AND-EQUITY> 129,007
<SALES> 0
<TOTAL-REVENUES> 55,492
<CGS> 0
<TOTAL-COSTS> 37,536
<OTHER-EXPENSES> 7,835
<LOSS-PROVISION> 2,710
<INTEREST-EXPENSE> 1,910
<INCOME-PRETAX> 5,501
<INCOME-TAX> 2,474
<INCOME-CONTINUING> 3,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,027
<EPS-PRIMARY> .39
<EPS-DILUTED> .37
</TABLE>
