SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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Commission File Number 0-26806
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)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $ .01
(Title of Class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $22.9 million as of March 16, 1999. For purposes of
this determination, shares held by non-affiliates includes all outstanding
shares except for shares of non-voting Class A common stock and shares held by
officers, directors and shareholders beneficially owning 10% or more of the
Registrant's outstanding common stock. The aggregate market value was computed
based on the closing sale price of the Registrant's common stock on March 16,
1999, as reported on the NASDAQ National Market.
As of March 16, 1999, there were 6,290,178 shares of the Registrant's voting
common stock, $.01 par value per share outstanding and 296,638 shares of the
Registrant's non-voting Class A common stock, $.01 par value per share
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the Registrant's 1999
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K.
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Index to Financial Statements
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Page
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Item 1. Business............................................................ 3
Item 2. Properties.......................................................... 15
Item 3. Legal and Administrative Proceedings................................ 16
Item 4. Submission of Matters to a Vote of Security Holders................. 16
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 16-17
Item 6. Selected Financial Data............................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 19-29
Item 8. Financial Statements and Supplementary Data......................... 30-59
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 60
Item 10. Directors and Executive Officers of the Registrant.................. 60
Item 11. Executive Compensation.............................................. 60
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................................. 60
Item 13. Certain Relationships and Related Transactions...................... 60
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 60-65
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PART I
This Form 10-K 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. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Risk Factors"
under Item 1 of this Form 10-K and "Certain Factors Affecting Future Operating
Results" under Item 7 of this Form 10-K.
ITEM 1. BUSINESS
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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,
gynecology-oncology, 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 year
ended December 31, 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.
Four of the Consolidated Practices, Sheridan Medical Healthcorp, P.C. ("Sheridan
NY"), Sheridan Healthcare of Texas, P.A. ("Sheridan TX"), Sheridan Healthcare of
California Medical Group, Inc. ("Sheridan CA") and Sheridan Children's
Healthcare Services of Pennsylvania, P.C. ("Sheridan PA") have entered into
long-term management agreements with the Company and are owned by Gilbert
Drozdow, M.D. who is an executive officer and a stockholder of the Company. In
addition, the Consolidated Practices include twelve practices with which the
Company executed long-term management agreements and purchase option agreements
from March 1997 through September 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 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.
The Company's objective is to expand its business by increasing the number of
hospitals and other health care facilities at which it provides physician
services, providing physician services in additional specialties to existing
hospital customers, acquiring additional physician practices, adding physicians
to existing practices and entering into additional management agreements. One of
the Company's key strategies is to create integrated multi-specialty group
physician practices providing women's and children's healthcare services,
consisting of both hospital-based and office-based physicians in various
complementary specialties that support the Company's hospital customers. As of
March 12, 1999, the Company employed, or managed the practices of, approximately
237 full-time equivalent physicians practicing under 55 specialty service
contracts with 38 health care facilities and at 28 office locations.
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OPERATIONS
The Company and its predecessors have been providing hospital-based physician
services for more than 40 years. All of the Company's physician services were in
the area of anesthesia until 1994, when the Company began to deliver emergency
physician services (see "Hospital Outsourcing"). In March 1996 the Company
further expanded its hospital-based services through the acquisition of a
43-physician neonatology practice that delivered physician services at 11
hospitals in Florida and Virginia. The Company also commenced its office-based
services business in 1994 by acquiring a four-location primary care practice and
completed an additional eleven acquisitions of office-based primary care,
obstetrical and rheumatology practices during the period from December 1994 to
October 1996. All of these practices were located in South Florida. In November
1996, the Company announced a change in its strategic direction and its intent
to sell non-strategic office-based primary care and rheumatology physician
practices. At that time the Company believed obstetrical, and other practices
with a focus on women's health services, provided the greatest opportunity for
integration of patients served by these practices with the Company's
hospital-based physician services which in turn supports our hospital-based
customers.
As a result of its change in strategic direction and the desire to further focus
on women's health the Company entered into long-term management agreements with
and purchased options to acquire, four obstetrical practices and one general
surgical practice from January 1997 through November 1997. In addition, from
January 1998 through September 1998 the Company completed four acquisitions of
obstetrical practices and entered into long-term management agreements with and
purchased options to acquire, two obstetrical practices, a gynecology-oncology
practice, an infertility practice and a general surgical practice all providing
office-based services. In January 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. Each of these
practices is located in South Florida. In March 1998 the Company also entered
into a long term management agreement with, and purchased an option to acquire a
perinatology practice located in Dallas, Texas which is intended to be the
Company's next area of development of a multi-specialty group of practices. In
addition to acquisitions, the Company also expands internally by being awarded
new contracts for its services and the addition of new physicians to existing
office-based practices. Substantially all of the Company's office-based revenue
has been derived from the acquired physician practices.
In most of its arrangements with hospitals and ambulatory surgery facilities,
the Company is responsible for recruiting and employing physicians and other
health care professionals who provide health care services at the facility. 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, because the
Company provides the contracted services on a 24-hour a day, 365-day a year
basis. Office-based physicians seek affiliation with the Company to access the
Company's management expertise, capital resources and managed care contracting
assistance. The Company provides a comprehensive range of support services to
its hospital-based physicians and office-based practices that include
contracting with third-party payors, billing and collections, malpractice risk
management, quality assurance, and physician recruiting and credentialling.
For each hospital, ambulatory surgical facility, or office-based practice the
Company appoints a supervising physician who assumes an on-site leadership role
with respect to all aspects of the services provided by the Company. In addition
to providing physician services, this physician supervises the other physicians
and other health care professionals at the facility, participates in the
recruitment, promotion and compensation of physicians and other health care
professionals employed by the Company, and serves as a coordinator between the
Company and other personnel at the facility.
Since its inception, and unlike many of its competitors, the Company has
directly employed most of its physicians and other health care professionals.
The Company currently has employment agreements with most of its hospital-based
physicians, which generally provide for terms of between one and seven years and
include non-competition provisions. The Company also employs advanced registered
nurse practitioners, certified nurse midwives and physician assistants. The
compensation structure for physicians and other health care professionals is
intended to be competitive within the geographic market in which they are
employed.
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As a result of its change in its strategic direction, 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 remaining practices to be sold had been consolidated 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.
MULTI-SPECIALTY INTEGRATED GROUP PRACTICES. The Company's principal business
strategy is to develop multi-specialty group physician practices around key
hospitals to meet women and children's health care needs in select geographic
areas. The Company's multi-specialty group physician practices currently provide
a range of services including hospital-based anesthesia, neonatology,
pediatrics, and obstetrics, and office-based obstetrics, general surgery,
gynecology, gynecology oncology, perinatology and infertility. The Company's
multi-specialty group physician practices in South Florida provide services to
15 hospitals and 5 ambulatory surgical facilities and operate 25 office
locations. These services are provided by approximately 151 physicians. Of these
physicians 67 are anesthesiologists, 38 are neonatologists or pediatricians, 3
are in-house obstetricians, 31 are obstetricians, 3 are perinatologists, 4 are
general surgeons, 4 are gynecologists-oncologists and 1 is an infertility
specialist. The Company has also begun the development of a multi-specialty
group physician practice in the Dallas area through its affiliation with a
perinatology practice in March 1998 which presently employs 3 perinatologists
providing services at 3 office locations.
Hospital Outsourcing. The Company provides hospital-based physician services in
the areas of anesthesia, neonatology, pediatrics, emergency medicine and
obstetrics to hospitals and ambulatory surgical facilities in markets where the
Company has not established multi-specialty group practices. Many markets are
not suitable for the development of multi-specialty group physician practices
due to the significant amount of capital and management expertise that is
required to construct and manage these practices. In addition, the Company also
provides emergency services within markets that the Company has established
multi-specialty group practices. Emergency services in these markets are
excluded from the Company's multi-specialty group practice because they are not
focused on the area of women's health. The Company provides hospital-based
physician services to 10 hospitals located in Florida, New York, Texas,
Virginia, West Virginia and Pennsylvania. These services are provided by
approximately 70 physicians employed by the Company. Of these physicians, 22 are
anesthesiologists, 13 are neonatologists or pediatricians and 35 are emergency
room physicians. The Company also provides management services to a practice
with one neonatologist providing physician services to three hospitals in Ohio
and a practice with eight physicians providing anesthesia and pain management
services to five ambulatory surgical facilities in Florida. The Company also has
entered into an agreement to provide management services relating to the
operation of anesthesia departments at six hospitals located in California.
The Company began providing hospital-based services outside the South Florida
market in 1993 and has expanded those services by being awarded new contracts
for its services, through the acquisition in March 1996 of a neonatology and
pediatric practice which delivered physician services in Virginia and through
the execution of long term management agreements in December 1997 with a
hospital-based neonatology practice and in January 1998 through the execution of
a long-term management agreement with, and an option to acquire, a pain
management practice providing physician services to 5 surgical facilities in
Florida.
The Company provides the same support services to hospital-based physicians
providing services under its hospital outsourcing contracts as those that are a
part of its multi-specialty group practices. 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
that is 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.
Acquisitions And Management Agreements. The Company typically acquires a
physician practice by paying the owners of the practice a multiple of the
earnings of the practice, and entering into long-term employment agreements with
the former physician owners of the practice. These employment agreements range
from three to ten years in length and typically provide for base compensation
and employee benefits, contain non-competition provisions and may contain
incentive compensation provisions based on increases in productivity and
efficiency.
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In some cases, as an alternative to acquiring a physician practice, the Company
enters into a long-term management agreement with the practice. Concurrent with
the execution of a management agreement the Company may purchase the accounts
receivable, furniture and equipment of the practice and may pay for additional
intangible rights, including restrictive covenant agreements with the practice's
affiliated physicians. In addition, the Company may also purchase an option to
acquire the outstanding stock of the physician practice by paying the owner of
the practice a multiple of expected earnings under the management agreement. The
practice will typically be required to enter into long term employment
agreements with the physicians of the practice which typically range from five
to seven years and typically provide for base compensation and employee
benefits, contain non-competition provisions and may contain incentive
compensation provisions based on increases in productivity and efficiency.
Those practices whose management agreements include terms that demonstrate a
controlling financial interest by the Company for accounting purposes are
included in the Company's consolidated financial statements, and the related
management fees are eliminated. These practices are referred to as Consolidated
Practices and the transactions with these practices are treated as business
combinations and the financial results of the Consolidated Practices are
presented on a consolidated basis with those of the Company. Those practices
whose management agreements do not demonstrate a controlling financial interest
by the Company are included in the Company's consolidated financial statements
only to the extent of management fees received and expenses incurred by the
Company under the respective agreement.
Divestitures. Pursuant to the Company's announced intention to divest of its
non-strategic office-based physician practices 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. 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 a four-facility primary care 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 $9.9 million in net
revenue for the year ended December 31, 1998 and 1997, respectively. The
practices sold did not generate significant operating income for those periods.
MANAGED CARE
Approximately 55.1% of the Company's patient service revenue is derived from
third-party payors under various managed care arrangements. Such arrangements
include negotiated discounted fee-for-service arrangements which are based on a
percentage of the Company's billed charges or a percentage of Medicare and
Medicaid allowables, as well as capitation arrangements which are based on a
flat fee or a fixed fee per managed care member. The composition of net revenue
of practices managed by the Company is substantially similar to that of the
Company.
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 year ended December 31,
1998.
Revenue under shared-risk capitation arrangements accounted for approximately
1.6% and 7.8% for year ended December 31, 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.
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INFORMATION SYSTEMS
The Company has developed and continues to develop sophisticated management
information systems to support both its current level of operations and its
growth strategy. The Company has physician billing and collection systems it
utilizes in connection with its hospital-based physician services. These billing
and collection systems, which have been tailored to the Company's requirements,
enable the Company to accommodate numerous and diverse payment arrangements with
third-party payors.
The office-based practices owned and managed by the Company presently utilize a
variety of information systems for billing and collections which vary depending
on the size and medical specialty of the practice. These systems are primarily
supported through contractual arrangements with third party vendors. The Company
has selected a single third-party product for implementation in its office-based
practices which began in September 1998.
The Company's Year 2000 preparedness plan for its systems is scheduled to be
completed by the fourth quarter of 1999.
See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Year 2000" for a complete discussion of the Company's
preparedness for the Year 2000.
CONTRACTUAL ARRANGEMENTS
The Company uses a variety of contractual arrangements with respect to the
physicians which it employs, manages, or with which it is otherwise affiliated.
The particular contractual arrangement used in each case is influenced by a
number of factors including the desires of physicians, the type of practice in
which the physicians are engaged, financial considerations, statutory
limitations on the corporate practice of medicine and other regulatory concerns,
and, with respect to newly-affiliated practices, the terms of any pre-existing
contracts.
The Company has structured its acquisitions of, or affiliations with, physician
practices as asset purchases, mergers, stock purchases and management
agreements. In connection with any of these transactions, the Company typically
pays the owners of the practice a multiple of earnings of the practice, or a
multiple of expected earnings from a management agreement, as applicable. In the
case of some management agreements, the Company acquires the accounts
receivable, furniture, fixtures and equipment of the practice and pays the owner
of the practice the estimated fair market value of these assets. In connection
with certain management agreements, the Company purchases an option to acquire
the practice being managed that may be exercised for a nominal amount.
In connection with the acquisition of a physician practice, the Company
typically enters into employment agreements with the physician owners and other
key management personnel. These agreements typically provide for a base salary,
incentive compensation, terms of between one and ten years, and non-competition
provisions. The compensation structure for physicians is intended to be
competitive within the geographic market in which each physician is employed.
The Company also has employment agreements with nearly all of the hospital-based
and office-based physicians which it employs outside the context of an
acquisition of a practice.
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 physician. 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.
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The Company has management services agreements with four practices considered
Consolidated Practices, Sheridan NY, Sheridan TX, Sheridan CA and Sheridan PA
that are owned by Gilbert Drozdow, M.D., who is an executive officer and a
stockholder of the Company. The Company also has management services agreements
with four obstetrical practices, and a general surgery practice entered into
during 1997 and an anesthesia practice, gynecologic-oncology practice, general
surgery practice, infertility practice, two obstetrical practices and
perinatology practice entered into during 1998 that are also considered
Consolidated Practices. Concurrent with the execution of these management
agreements the Company also purchased an option to acquire the outstanding stock
of these practices. The terms of the management services agreements with each of
these Consolidated Practices demonstrate a controlling financial interest by the
Company for accounting purposes and these Consolidated Practices are included in
the Company's consolidated financial statements, and the related management fees
are eliminated. Factors which demonstrate a controlling financial interest
include the fluctuation of the Company's management fee together with the
performance of the practice and the exercise of control by the Company over the
administrative operations, recruitment and physician compensation of the
practice. See Note 1(b) to the Company's consolidated financial statements for
more information. The Company typically requires Consolidated Practices to enter
into employment agreements with the physicians providing medical services. These
employment agreements provide for compensation based on a guaranteed base
salary. These agreements are typically for terms of five to seven years, contain
non-competition provisions and may provide for incentive compensation.
The Company also entered into long-term management agreements with a neonatology
practice in December 1997 and a pain management practice in February 1998. The
terms of these agreements, as well as two management agreements entered into in
1996 and terminated in December 1997 and April 1998, respectively, do not
demonstrate a controlling financial interest by the Company either because the
Company's management fee does not fluctuate together with the performance of the
practice or because the Company's interest is not unilaterally saleable or
transferable. Therefore, the Company's consolidated financial statements reflect
only the management fees earned and expenses incurred by the Company under the
management agreement. These practices pay the Company a management fee that is
based on expenses incurred by the Company plus either a percentage fee based on
net revenues or a flat fee, depending upon local laws or regulations, subject to
a limitation that the fee not exceed the amount that would be charged for
similar services by an unaffiliated third party. The Company exercised its
option to acquire the pain management practice to which it had been providing
management services on December 31, 1998. Therefore, the Company's consolidated
balance sheet as of December 31, 1998 includes the balance sheet of this
practice.
The responsibility for the provision of physician services by physician
practices with which the Company has long-term management agreements remains
with the physician practice regardless of whether the Company has a controlling
financial interest.
The Company has contractual arrangements with hospitals and ambulatory surgery
centers which govern its delivery of hospital-based physician services. The
agreements governing such operations are generally for terms of between one and
five years and provide for termination upon 60 to 180 days notice, although the
Company has some agreements which have terms of at least five years and are
terminable only for cause. These agreements generally grant the Company the
exclusive right to provide certain physician services at the particular health
care facility and directly bill third-party payors for its services, subject to
a requirement that the Company's fees be approved by the health care facility.
The Company has agreed with certain facilities to charge third-party payors the
same rates for services delivered at such facilities as the Company charges
those third-party payors for services delivered at other facilities within
designated geographic areas. A number of these contractual arrangements are not
in writing, were established either through a course of conduct or through oral
understandings, and are terminable by either party at will.
In addition to contracts pursuant to which the Company is responsible for the
provision of medical services, the Company has a five-year contract with a
hospital company to provide consulting and management services relating to the
operation of anesthesia departments at six hospitals located in California. The
Company is paid a fixed monthly fee for these services.
The Company is paid for its physician services by third-party payors pursuant to
a number of arrangements, including discounted fee-for-service and global fee or
per diem arrangements. In addition, the Company has arrangements with several
hospitals under which the Company receives a contractual subsidy or income
guarantee from the hospital to supplement revenue from billings to third-party
payors.
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CORPORATE LIABILITY AND INSURANCE
The risk of physician malpractice liability is inherent in the Company's
business. In order to mitigate this risk, the Company maintains professional
liability insurance on a claims-made basis. The Company has a primary
malpractice insurance policy which covers losses incurred by the Company up to a
limit of $1.0 million per individual claim. In addition, the Company has a
secondary malpractice insurance policy which covers losses in excess of the
primary policy limits, up to a limit of $5.0 million per individual claim and a
limit of $5.0 million per calendar year for all claims combined. Under the
primary policy, the Company is required to pay a self-insured retention amount
equal to the first $250,000 of losses for each individual claim up to a maximum
aggregate self-insured retention amount of $1,000,000 for all claims in one
calendar year. Defense costs in excess of these self-insured retention amounts
are paid by the Company's insurer. The Company also maintains directors' and
officers' liability insurance and general liability insurance on a claims-made
basis.
TRADEMARKS
The Company has rights to a trademark and a service mark for "Sheridan
Healthcare, Inc." and "Sheridan Healthcorp, Inc." registered with the U.S.
Patent and Trademark Office. The Company also has a pending application for a
trademark and a service mark for "Sheridan Children's Healthcare Services, Inc."
EMPLOYEES
As of March 16, 1999, the Company had approximately 920 employees, of which 760
were full-time. Of the total number of employees, approximately 310 were
physicians and approximately 610 were non-physician clinical and administrative
support personnel. Of the total physicians employed by the Company, 64 were
physicians employed by the Consolidated Practices. The Company believes its
relationship with its employees is favorable.
RECENT DEVELOPMENTS
On March 25, 1999 the Company announced the signing of a definitive merger
agreement between the Company and an investor group led by Vestar Capital
Partners and the Company's senior management.
Under the terms of the agreement, the investor group will offer Sheridan
Healthcare, Inc. shareholders $9.25 per share in cash for all outstanding common
shares in a tender offer. Including debt and other obligations of the Company,
and costs expected to be incurred in connection with the acquisition, the total
value of the transaction is approximately $155 million. NationsBank, N.A. and
its affiliates, the Company's existing lender, have committed to provide $75
million in bank financing to fund the acquisition. Through Vestar Capital
Partners III, L.P., Vestar has committed to provide the remaining funds
necessary to complete the transaction. NationsBank has also committed to provide
a $50 million credit facility to fund the Company's long-term future growth and
expansion.
The Company entered into the merger agreement following a unanimous
recommendation by the Company's Board of Directors. The Board received fairness
opinions from Bowles Hollowell Conner, a division of First Union Capital Markets
Corp., and Salomon Smith Barney Inc., which, as previously announced, had been
retained to assist the Company in exploring strategic alternatives. Following
completion of the tender offer, Vestar will be entitled to designate a majority
of the Board of Directors of Sheridan Healthcare, Inc. The parties will complete
a second-step cash merger at $9.25 per share as promptly as practicable
following completion of the tender offer. The transaction is subject to a
variety of conditions, including receipt of at least a majority of the voting
stock in the tender offer, shareholder approval of the second-step cash merger,
financing and regulatory approvals.
9
<PAGE>
RISK FACTORS
Risks Associated With the Company's Growth Strategy
A key element of the Company's strategy involves growth through acquisition of
physician practices. The Company is subject to various risks associated with
this strategy, including the risk that the Company will be unable to identify
and recruit suitable acquisition candidates in the future. The growth and
profitability of the Company is also largely dependent on the Company's ability
to effectively integrate the acquired practices to maintain or increase
reimbursement levels, to manage and control costs, and to realize economies of
scale. Any failure of the Company to consummate economically feasible
acquisitions, effectively integrate acquired practices or price its services
appropriately could have a material adverse effect on the Company's financial
condition or results of operations.
Risks From Concentration of Revenue
A significant portion of the Company's revenue is derived from delivering or
managing hospital-based physician services from hospitals that are under common
ownership by a limited number of entities. Of the Company's total net revenue in
1998, approximately $22.9 million, or 20.3%, was derived from anesthesia,
obstetrics and neonatology services delivered at three hospitals owned and
operated by the South Broward Hospital District. In addition, approximately
$28.9 million, or 25.6% of the Company's total net revenue in 1998, was derived
from anesthesia, neonatology, pediatric and emergency services delivered at 13
hospitals and two ambulatory surgical facilities owned and operated by
Columbia/HCA Healthcare Corp. The loss of either of these arrangements or
relationships would have a material adverse effect on the Company's financial
condition or results of operations.
Risks Related to Limitations On Reimbursement
Substantially all of the Company's revenues are derived from third party payors,
such as governmental programs (primarily Medicare and Medicaid), private
insurance plans and managed care organizations. Reflecting current trends in the
health care industry, these third party payors increasingly are negotiating with
health care providers such as the Company concerning the prices charged for
medical services by its owned and managed practices, with the goal of lowering
reimbursement and utilization rates. The profitability of the Company may be
adversely affected by changes in Medicare and Medicaid reimbursement, cost
containment decisions of third party payors and other payment factors over which
the Company has no control.
A significant portion of the Company's revenue is derived from delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs. Approximately 10.4% of the Company's total net revenue in
1998 was derived from the assignment of Medicare and Medicaid benefits to the
Company by patients of the Company's affiliated physicians. In addition,
approximately 4.4% of the Company's total net revenue in 1998 was derived from
capitation payments from health maintenance organizations for patients who had
assigned their Medicare or Medicaid benefits to the health maintenance
organizations. Medicare and Medicaid reimbursement policies are subject to
sweeping change and those programs are under significant pressure to reduce the
costs of providing health care services.
The federal Medicare program adopted a system of reimbursement of physician
services, known as the resource based relative value scale ("RBRVS"), which took
effect in 1992 and was implemented on December 31, 1996. The Company expects
that the RBRVS fee schedule and other future changes in Medicare reimbursement,
for the services it provides, will increase at or above the overall rate of
inflation throughout the U.S. economy, though there can be no assurance that
these increases will occur.
On August 5, 1997, the President signed into law a number of Medicare provisions
as part of the Balanced Budget Act of 1997. When compared with projected
Medicare levels under current law, the legislation could reduce Medicare
spending by $115 billion over 5 years. The vast majority of these savings would
come from reductions in payments for services of healthcare facilities,
practitioners and other providers. The legislation eliminated disparities in
payment rates for similar services by physicians in different specialties
effective January 1, 1998. Beginning in 1998, inflation increases will be
adjusted based on a "sustainable growth rate" defined with reference to the
change in (i) the number of Medicare beneficiaries, (ii) the gross domestic
product per capita, and (iii) the level of expenditures for physician services.
The Company has experienced a reduction in reimbursement for certain medical
services provided by its physicians with a specialty in surgery due to this
legislation. This reduction has not been significant. The legislation will also
revise Medicare payments for practice expense costs and change payments to
10
<PAGE>
managed care plans from the current rate of 95% of fee-for-service rates in the
area, to a nationwide average per capita fee for service spending, with an
adjustment factor for local area wage rates. Any further reductions in payment
for the services offered by the Company could have an adverse effect on the
Company's financial condition or results of operations.
Some private insurance plans and managed care organizations with which the
company has contracts or to whose members it provides medical services have
limited operating histories. A default of a third-party payor and non-payment
for the Company's medical services could have an adverse effect on the Company's
financial condition or results of operations.
Risks From Exposure to Professional Liability
Due to the nature of its business, the Company from time to time becomes
involved as a defendant in medical malpractice lawsuits, some of which are
currently ongoing, and is subject to the attendant risk of substantial damage
awards. The most significant source of potential liability in this regard is the
negligence of physicians employed or contracted by the Company or the practices
it manages. To the extent such physicians are employees of the Company or were
regarded as agents of the Company in the practice of medicine, the Company could
be held liable for their negligence. In addition, the Company could be found in
certain instances to have been negligent in performing its management services
under contractual arrangements even if no agency relationship with the physician
were found to exist. The Company's contracts with hospitals and third party
payors generally require the Company to indemnify such other parties for losses
resulting from the negligence of physicians who were employed or managed by or
affiliated with the Company. The Company maintains professional and general
liability insurance on a claims made basis in amounts deemed appropriate by
management, based upon historical claims and the nature and risk of its
business. There can be no assurance, however, that an existing or future claim
or claims will not exceed the limits of available insurance coverage, that any
insurer will remain solvent and able to meet its obligations to provide coverage
for any such claim or claims or that such coverage will continue to be available
or available with sufficient limits and at reasonable cost to adequately and
economically insure the Company's operations in the future. A judgement against
the Company in excess of such coverage could have a material adverse effect on
the Company's financial condition or results of operations.
Risks Associated With Government Regulation
Because the Company is a participant in the health care industry, its operations
and relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal, state and local levels. The Company is
also subject to laws and regulations relating to business corporations in
general. The Company believes its operations are in material compliance with
applicable laws. Nevertheless, because the Company is involved in many aspects
of the health care industry, much of the Company's business operations have not
been the subject of state or federal regulatory interpretation and there can be
no assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or their
expansion.
A significant portion of the Company's revenue is derived from delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs. Approximately 10.4% of the Company's total net revenue in
1998 was derived from the assignment of Medicare and Medicaid benefits to the
Company by patients of the Company's affiliated physicians. In addition,
approximately 4.4% of the Company's total net revenue in 1998 was derived from
capitation payments from health maintenance organizations for patients who had
assigned their Medicare or Medicaid benefits to the health maintenance
organizations. As a result, any change in reimbursement regulations, policies,
practices, interpretations or statutes could adversely affect the operations of
the Company.
The laws of many states prohibit business corporations such as the Company from
practicing medicine and employing physicians to practice medicine and certain
self-referral laws and regulations restrict the activities of physicians who are
employed by entities in which they have ownership interests. The structure of
the Company's operations in certain states is influenced by the laws prohibiting
business corporations from practicing medicine and the structure of the
Company's arrangements with physicians, who may be restricted by self-referral
laws, is influenced by those self-referral laws and regulations.
11
<PAGE>
Sheridan NY, Sheridan TX, Sheridan CA and Sheridan PA, are each wholly-owned by
Gilbert Drozdow, M.D., who is an executive officer and a stockholder of the
Company. The Company has a management services arrangement with each of Sheridan
NY, Sheridan TX, Sheridan CA and Sheridan PA, under which each of those
companies delegates to the Company responsibility for the provision to them of
all management services, personnel, bookkeeping and accounting services, and
billing and collection services, to the extent permitted by law. In exchange,
the Company receives a management fee. This management services agreement is
terminable by a party (i) if the other party fails to perform in any material
respect any material obligation, which failure is not cured within 60 days after
notice or (ii) upon the application for, or consent to, the appointment of a
receiver, trustee or liquidator of all or a substantial part of the other
party's assets, the filing of a petition in bankruptcy or consent to an
involuntary petition in bankruptcy by the other party and certain other events.
Expansion of the operations of the Company to certain other jurisdictions could
require additional structural and organizational modifications of the Company's
form of relationship with hospitals or physician practices. Those changes, if
any, could have an adverse effect on the Company. The laws in most states
regarding the corporate practice of medicine and the laws relating to
self-referral have been subject to limited judicial and regulatory
interpretation and, therefore, no assurances can be given that if the Company's
activities are challenged that they will be found to be in compliance with all
applicable laws and regulations.
In addition to prohibiting the practice of medicine, numerous states prohibit
entities like the Company from engaging in certain health care related
activities such as fee-splitting with physicians. Florida, for instance, enacted
in April 1992 a Patient Self-Referral Act that severely restricts patient
referrals for certain services, prohibits mark-ups of certain procedures,
requires disclosure of ownership in businesses to which patients are referred
and places other regulations on health care providers. The Company believes that
its Florida practices fit within the group practice exemption contained in the
Patient Self-Referral Act. However, investments or contractual relationships
with businesses not specifically operated by the Company would, in some cases,
be prohibited. The Company believes that it is likely that other states will
adopt similar legislation. Accordingly, expansion of the operations of the
Company to certain jurisdictions may require it to comply with such
jurisdictions' regulations which could lead to structural and organizational
modifications of the Company's form of relationship with hospitals or physician
practices in those states. Those changes, if any, could have an adverse effect
on the Company.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute," prohibit the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease, or order of items or services that
are covered by Medicare or state health programs. The Anti-kickback Statute is
broad in scope and has been broadly interpreted by courts in many jurisdictions.
Read literally, the statute places at risk many business arrangements,
potentially subjecting such arrangements to lengthy, expensive investigations
and prosecutions initiated by federal and state governmental officials. Many
states have adopted similar prohibitions against payments intended to induce
referrals of Medicaid and other third-party payor patients. The Company believes
that it has not violated the Anti-kickback Statute. Violation of the
Anti-kickback Statute is a felony, punishable by fines up to $25,000 per
violation and imprisonment for up to five years. In addition, the Department of
Health and Human Services may impose civil penalties excluding violators from
participation in Medicare or state health programs.
The federal government has published regulations that provide exceptions, or
"safe harbors," for transactions that will be deemed not to violate the
Anti-kickback Statute. Among the safe harbors included in the regulations were
provisions relating to the sale of practitioner practices, management and
personal services agreements, and employee relationships. Although the Company
believes that it is not in violation of the Anti-kickback Statute, some of its
operations do not fit within any of the existing or proposed safe harbors, and,
accordingly, there can be no assurance that the Company's practices will not be
found to be in violation of the statute, and any such finding could have a
material adverse effect on the Company.
12
<PAGE>
Significant prohibitions against physician referrals were enacted by Congress in
the Omnibus Budget Reconciliation Act of 1993. These prohibitions, commonly
known as "Stark II," amended prior physician self-referral legislation known as
"Stark I" by dramatically enlarging the field of physician-owned or
physician-interested entities to which the referral prohibitions apply. Stark II
prohibits, subject to certain exemptions, a physician or a member of his
immediate family from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which the physician has an ownership
or investment interest, or with which the physician has entered into a
compensation arrangement including the physician's own group practice. The
designated health services include radiology and other diagnostic services,
radiation therapy services, physical and occupational therapy services, durable
medical equipment, parenteral and enteral nutrients, equipment, supplies,
prosthetics, orthotics, outpatient prescription drugs, home health services, and
inpatient and outpatient hospital services. The penalties for violating Stark II
include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." While the Company believes it is in
compliance with the Stark legislation, there can be no assurance this is the
case. Moreover, the violation of Stark I or II by the Company could result in
significant fines or penalties and exclusion from participation in the Medicare
and Medicaid programs. Such penalties or exclusion, if applied to the Company,
could result in significant loss of reimbursement which would adversely affect
the Company.
On March 27, 1996, the United States Department of Health and Human Services
promulgated regulations pursuant to the requirements of the Omnibus Budget
Reconciliation Act of 1990 concerning physician incentive plans. The regulations
provide that physician incentive plans may operate only if no specific payment
is made directly or indirectly under the plan as an inducement to reduce or
limit medically necessary services furnished to a specific enrollee. These
regulations only apply to enrollees who are entitled to Medicare or Medicaid
benefits under a prepaid health plan. The Company does not believe these
regulations will have a material effect on the Company's current operations,
including its contractual arrangements with its physicians and prepaid health
plans.
Because the Company intends to maintain certain of the health care practices
that it acquires as separate legal entities, they may be deemed competitors
subject to a range of antitrust laws which prohibit anti-competitive conduct,
including price fixing, concerted refusals to deal and division of market. The
Company intends to comply with such state and federal laws as may affect its
operations, but there is no assurance that the review of the Company's business
by courts or regulatory authorities will not result in a determination that
could adversely affect the operation of the Company.
There are also state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
health care providers which fraudulently or wrongfully bill governmental or
other third-party payors for health care services. The federal law prohibiting
false billings allows a private person to bring a civil action in the name of
the United States government for violations of its provisions. The Company
believes it is in material compliance with such laws, but there is no assurance
that the Company's activities will not be challenged or scrutinized by
governmental authorities. Moreover, technical Medicare and other reimbursement
rules affect the structure of physician billing arrangements. The Company
believes it is in material compliance with such regulations, but regulatory
authorities may differ and in such event the Company may have to modify its
physician billing arrangements. Noncompliance with such regulations may
adversely affect the operation of the Company and subject it to penalties and
additional costs.
Laws in all states regulate the business of insurance and the operation of HMOs.
Many states also regulate the establishment and operation of networks of health
care providers. While these laws do not generally apply to the hiring and
contracting of physicians by other health care providers or to companies which
participate in capitated arrangements, there can be no assurance that regulatory
authorities of the states in which the Company operates would not apply these
laws to require licensure of the Company's operations as an insurer, as an HMO
or as a provider network. The Company believes that it is in compliance with
these laws in the states in which it does business, but there can be no
assurance that future interpretations of insurance laws and health care network
laws by the regulatory authorities in these states or in the states into which
the Company may expand will not require licensure or a restructuring of some or
all of the Company's operations.
13
<PAGE>
Risks Relating to the Year 2000
The Company uses computer software and related technologies throughout its
business that are likely to be affected by the date change in the Year 2000. The
Company's personnel may not discover and remediate all potential problems with
our systems in a timely manner. Presently, the Company's Year 2000 preparedness
plan for its systems is scheduled to be completed by the fourth quarters of
1999. In addition, computer software and related technologies used by
third-party payors and vendors are also likely to be affected by the Year 2000
date change. Failure of any of these parties to properly process dates for the
Year 2000 and thereafter could result in unanticipated expenses and delays to
the Company, including delays in the payment for services provided and delays in
our ability to conduct normal banking operations. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Year
2000."
Risks Associated With Growth From New Contracts and Physician Services
The Company's growth strategy is also based on obtaining new contracts for the
provision of hospital-based physician services and adding physicians to its
existing office-based practices. There is substantial competition for
hospital-based contracts and the Company is increasingly involved in a
competitive bidding process that requires the Company to accurately project
revenues and expenses on a forward basis with limited information. The
integration of new contracts, as well as the maintenance of existing contracts,
is made more difficult by increasing pressures from health care payors to reduce
reimbursement rates at a time when the cost of providing medical services
continues to increase. Significant competition for new patients and managed care
contracts also exists among office-based practices within the Company's market.
Any failure of the Company to identify opportunities for new contracts and
services, effectively integrate new contracts, price its services appropriately
and increase patient volume for new physicians could have a material adverse
effect on the Company's financial condition or results of operations.
Risks Relating to Capital Requirements
The Company's acquisition of physician practices requires substantial capital
investment. Capital is typically needed not only for the acquisition of the
physician practices, but also for the effective integration, operation and
expansion of the practices as well as the start-up of new contracts for
hospital-based physician services and start-up of new physicians in its
office-based practices. The practices may require capital for renovation and
expansion and for the addition of medical equipment and technology. Therefore,
the Company may need to raise capital through the issuance of long-term or
short-term indebtedness or the issuance of its equity securities in private or
public transactions in order to complete further acquisitions and expansion.
This could result in dilution of existing equity positions and increased
interest expense. There can be no assurance that acceptable financing for future
acquisitions or for the integration and expansion of existing physician
practices can be obtained on suitable terms, if at all.
Risks From Dependence On Key Management
The Company is highly dependent on its senior and middle management. The Company
has entered into employment agreements with senior management that includes Dr.
Mitchell Eisenberg, President and Chief Executive Officer, Dr. Lewis Gold,
Executive Vice President of Business Development, Dr. Gilbert Drozdow, Vice
President of Hospital Based Services, Jay Martus, Vice President, Secretary and
General Counsel and Michael Schundler, Chief Operating Officer and Chief
Financial Officer. The employment agreements with Dr. Eisenberg, Dr. Gold, Mr.
Martus and Mr. Schundler end on July 31, 2003 and the employment agreement with
Dr. Drozdow ends on December 31, 1999. The loss of key management personnel or
inability to attract, retain and motivate sufficient number of qualified
management personnel could adversely affect the Company's business. In addition,
the Company may enter into employment agreements with key physicians and
administrative personnel of acquired practices. The loss of these key personnel
could adversely affect the performance of the acquired practice and the Company.
14
<PAGE>
Risks Associated With Expansion Into New Geographic Markets
In pursuing its growth strategy, the Company intends to expand its presence into
new geographic markets. Expansion of the operations of the Company to other
jurisdictions could require additional structural and organizational
modifications of the Company's form of relationship with hospitals or physician
practices. Those changes, if any, could have an adverse effect on the Company.
The laws in most states regarding the corporate practice of medicine and the
laws relating to self-referral have been subject to limited judicial and
regulatory interpretation and, therefore, no assurances can be given that if the
Company's activities are challenged that they will be found to be in compliance
with all applicable laws and regulations. The Company may also face competitors
with greater knowledge of such markets than the Company. There can be no
assurance that the Company will be able to effectively establish a presence in
these new markets.
Risks From Competition
The provision of health care services and physician practice management services
are both competitive businesses in which the Company competes for contracts and
patients with numerous entities in the health care industry. The Company also
competes with traditional providers and managers of health care services for the
recruitment of employed or managed physicians. In addition, the Company, in
pursuing its growth strategy, faces competitive pressures for the acquisition
of, and the provision of management services to, additional hospital-based and
office-based physician practices. Several companies, both publicly and privately
held, that have greater resources than the Company are pursuing the acquisition
of the assets of physician practices and management contracts with physician
practices. There can be no assurance that the Company will be able to continue
to compete effectively with such competitors, that additional competitors will
not enter the market, or that such competition will not make it more difficult
to acquire the assets of, and provide management services to, physician
practices on terms beneficial to the Company.
Risks Related to Volatility of Stock Price
Historically there has been and there may continue to be volatility in the
market price for the Company's common stock. Quarterly operating results of the
Company and their relationship to analysts' projections, changes in general
conditions in the economy, the financial markets or the healthcare industry, or
other developments affecting the Company or its competitors, could cause the
market price of the common stock to fluctuate substantially. In addition, in
recent years, the stock market and, in particular, the healthcare industry
segment, has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance.
Risks Related to Anti-takeover Effect of Delaware Law and Charter and By-law
Provisions
Certain provisions of the Company's certificate of incorporation, by-laws and
Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the common stock. These provisions include a classified Board of Directors and
the ability of the Board of Directors to authorize the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to the common stock. The Company also is subject Section 203 of the
Delaware General Corporation Laws which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that stockholder became an interested stockholder.
ITEM 2. PROPERTIES
- - -------------------
The Company leases substantially all of the office space required by its
operations, including its corporate headquarters in Hollywood, Florida and its
physician office locations, at an aggregate monthly rental expense of
approximately $186,000. The Company currently leases approximately 31,000 square
feet of office space for its corporate headquarters. This lease is for a term of
ten years, which expires in 2005, and provides for a monthly rental payment of
approximately $56,000 (adjusted for certain operating expenses). The Company
also leases office space for its physician practices under leases with remaining
terms which expire at various dates from 1998 to 2007, and monthly rental
payments ranging from $1,200 to $12,000. In addition, the Company owns a 3,000
square foot one-story building in Miami, Florida. The Company considers its
facilities to be adequate and suitable for its current needs.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
From time to time, the Company is party to various claims, suits and complaints.
In October 1996, the Company and certain of its directors, officers,
stockholders 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 Company's 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 continues to vigorously defend
against the lawsuit, believes the lawsuit is without merit and also believes the
lawsuit's ultimate resolution will not have a material adverse impact on the
financial position, operations and cash flow of the Company.
In December 1998, the buyer of two medical practices previously owned by the
Company, filed suit against the Company in the Circuit Court of the Seventeenth
Judicial Circuit in and for Broward County, Florida. The complaint seeks to
recover money damages and rescind the sale of the medical practices, based upon
alleged misrepresentations and concealment by the Company with respect to its
relationship with a third party payor in regards to these practices. The
practices were sold by the Company to the buyer in April 1998 in exchange for
the execution of a promissory note in the amount of $3,550,000 which is
presently in default. The Company believes the lawsuit is without merit and
intends to vigorously defend against it while vigorously pursuing its counter
claim which has been filed for recovery on its unsecured purchase money note.
The Company also believes the lawsuit's ultimate resolution will not have a
material adverse impact on the financial position, operations and cash flows of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - ------------------------------------------------------------------------------
The common stock of the Company is traded on the Nasdaq National Market under
the symbol "SHCR". There is no established trading market for the Company's
non-voting Class A common stock. The high and low sales prices of the Company's
common stock each calendar quarter, as reported by the Nasdaq National Market,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
High Low High Low High Low
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter (1).............. 91/2 65/8 171/2 123/4 101/16 55/8
Second Quarter................. --- --- 17 11 111/4 7
Third Quarter.................. --- --- 121/2 81/2 135/8 101/8
Fourth Quarter................. --- --- 91/4 61/2 161/2 121/4
<FN>
(1) Through March 16, 1999.
</FN>
</TABLE>
On March 16, 1999, the closing sale price of the Company's common stock was
$7.625. As of March 16, 1999, there were 46 holders of record of the Company's
voting common stock and one holder of record of non-voting Class A common stock.
The Company has not declared or paid any cash dividends on its common stock. The
Company's revolving credit facility prohibits the payment of cash dividends
prior to repayment of the outstanding balance under the credit facility in full.
During the fourth quarter of 1997, the Company issued approximately 14,000
shares of its common stock as partial consideration for the acquisition of an
office-based physician practice. From January 1998 through June 1998, the
16
<PAGE>
Company issued approximately 1,428,000 shares of its common stock as partial
consideration in the acquisition of several physicians practices. No
underwriters or underwriting discounts or commissions were involved. Such
transactions were exempt from the registration requirements of the Securities
Act of 1933, as amended, by reason of Section 4(2) thereof, based on the private
nature of the transaction and the financial sophistication of the purchasers,
each 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.
From July 1998 through December 1998 the Company repurchased approximately
425,000 shares of its common stock on the open market pursuant to the Stock
Repurchase Plan approved by its Board of Directors in July 1998. The shares of
common stock repurchased have been retired and cancelled.
From January 1999 through March 16, 1999 the Company repurchased approximately
1,275,000 shares issued to physicians in connection with the acquisition of
their physician practices by the Company from January 1998 through March 1998.
Shares were repurchased in accordance with the terms of each respective
acquisition agreement, retired and cancelled.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- - --------------------------------
The following selected financial data have been derived from the audited
financial statements of the Company and its Predecessor. (See Note 1 to the
Company's consolidated financial statements for an explanation of the
Predecessor.) The financial statements of the Predecessor for the period from
January 1, 1994 to November 28, 1994 and of the Company as of December 31, 1994,
1995, 1996, 1997 and 1998 and for the period from November 29, 1994 to December
31, 1994 and the years ended December 31, 1995, 1996, 1997 and 1998 have been
audited by Arthur Andersen LLP. The combined statement of operations data for
1994 combines the audited results of operations of the Predecessor for the
period from January 1, 1994 to November 28, 1994 and of the Company for the
period from November 29, 1994 to December 31, 1994. This combined information is
presented to provide meaningful period to period comparisons. The financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this report.
<TABLE>
<CAPTION>
Company Combined Company Predecessor
---------------------------------------- ----------- ----------- -----------
Period from Period from
November 29 January 1,
Year Ended Year Ended 1994 to 1994 to
December 31, December 31,December 31, November 28,
Statement of Operations 1998 1997 1996 1995 1994 1994 1994
-------- --------- --------- ----------- ----------- ----------- -----------
Data (in thousands):
Revenue:
<S> <C> <C> <C> <C> <C> <C> <C>
Patient service revenue......... $109,580 $ 95,418 $ 89,753 $ 64,665 $ 38,624 $ 5,129 $ 33,495
Management fee revenue.......... 3,410 3,198 3,014 --- --- --- ---
-------- --------- --------- ----------- ----------- ----------- -----------
Net revenue........................ 112,990 98,616 92,767 64,665 38,624 5,129 33,495
Operating expenses:
Direct facility expenses........ 76,350 68,919 66,125 47,477 26,531 4,089 22,442
Provision for bad debts......... 5,592 4,066 3,605 2,324 1,909 159 1,750
Salaries and benefits........... 7,722 7,424 6,967 5,398 3,127 452 2,675
General and administrative...... 4,177 4,900 4,561 3,976 2,581 297 2,284
Write-down of office-based net
assets........................ --- --- 17,30 --- --- --- ---
Physician stockholders' payroll in
excess of base salary (1)..... --- --- --- --- 1,949 --- 1,949
Transaction costs............... --- --- --- --- 372 372 ---
Amortization.................... 3,572 2,096 2,491 2,630 270 173 97
Depreciation.................... 807 689 1,023 559 177 65 112
-------- --------- --------- ----------- ----------- --------- -----------
Operating income (loss)............ 14,770 10,522 (9,365) 2,301 1,708 (478) 2,186
Interest expense, net.............. 3,955 2,461 2,572 4,254 634 341 293
Other (income) expense............. (628) --- --- --- --- --- ---
-------- --------- --------- ----------- ----------- ---------- -----------
Income (loss) before income
taxes and extraordinary item.... 11,443 8,061 (11,937) (1,953) 1,074 (819) 1,893
Income tax expense (benefit)....... 5,070 2,894 189 (456) 460 (177) 637
-------- --------- --------- ----------- ----------- ---------- -----------
Income (loss) before
extraordinary item............... 6,373 5,167 (12,126) (1,497) 614 (642) 1,256
Extraordinary item................. --- --- --- (2,184) --- --- ---
-------- --------- --------- ----------- ----------- ---------- -----------
Net income (loss)............... $ 6,373 $ 5,167 $ (12,126) $ (3,681) $ 614 $ (642) $ 1,256
======== ========= ========= =========== =========== ========== ===========
Income (loss) before extraordinary
item per share.................. $ 0.80 $ 0.77 $ (1.84) $ (1.05) $ (.36)
Net income (loss) per share:
Basic........................... 0.80 0.77 (1.84) (1.86) (.36)
Diluted......................... 0.78 0.73 (1.84) (1.86) (.36)
Company
December 31,
1998 1997 1996 1995 1994
-------- --------- --------- ----------- -----------
Balance Sheet Data (in thousands):
Working capital ................... $ 21,079 13,650 $ 8,336 $ 4,299 $ 1,338
Total assets....................... 139,810 87,035 73,408 64,373 54,127
Long-term debt, net................ 56,994 29,833 21,367 11,365 30,581
Stockholders' equity............... 67,547 41,350 35,958 42,669 13,261
<FN>
(1) Physician stockholders' payroll in excess of base salary represents amounts
paid to physician stockholders of the Predecessor in excess of the market
compensation rate for the physician services provided to the Predecessor by
those stockholders. Such payments ceased upon the Company's acquisition of
the Predecessor on November 28, 1994.
</FN>
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K 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 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,
gynecology-oncology, 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 year
ended December 31, 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.
Four of the Consolidated Practices, Sheridan NY, Sheridan TX, Sheridan CA, and
Sheridan PA. have entered into long-term management agreements with the Company
and are owned by Gilbert Drozdow, M.D. who is an executive officer and a
stockholder of the Company. In addition, the Consolidated Practices include
twelve practices with which the Company executed long-term management agreements
and purchase option agreements from March 1997 through September 1998. One of
these practices is located in Texas, the remainder are located in Florida.
The Company provides management services to a neonatology practice and a pain
management practice which entered into long-term management agreements with the
Company's in December 1997 and February 1998. The Company also provided
management services during 1997 to two primary care practices whose agreements
have been terminated.
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 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.
19
<PAGE>
BUSINESS COMBINATIONS AND OTHER TRANSACTIONS
Transactions with acquired physician practices were 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 were
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.
The Company provided management services during 1998 to three practices whose
management agreements did not meet the criteria for demonstrating a controlling
financial interest. One of these practices had been managed by the Company since
1996 until the Company terminated its management services agreement in April
1998, and was obligated to pay the Company a management fee based on a
percentage of net revenues. The Company was unable to establish a controlling
financial interest in this practice because its interest in the practice was not
unilaterally salable or transferable and the agreements were terminable by the
practice in instances other than due to gross negligence, fraud, bankruptcy or
illegal acts committed by the Company. The other two practices were obligated to
pay the Company a management fee based on expenses incurred by the Company plus
a flat fee which does not fluctuate based on performance. This violates the
financial interest criteria for establishing a controlling financial interest.
On November 28, 1994, the Company acquired all of the outstanding common stock
of Sheridan Healthcorp, Inc. (the "Predecessor") for approximately $43.3 million
(the "1994 Acquisition"). As a result of this transaction, the Company incurred
significant interest expense in 1995, which was related to the debt incurred to
finance the transaction, and has incurred significant goodwill amortization
expense since November 28, 1994.
On September 1, 1994, the Predecessor acquired a four-facility primary care
practice for approximately $7.5 million in cash and $1.2 million in deferred
payments. From December 1, 1994 to March 1, 1995, the Company completed five
acquisitions of primary care and obstetrical practices for an aggregate of
approximately $3.7 million in cash and $800,000 in deferred payments. On June 5,
1995, the Company acquired a three-facility primary care practice for $3.0
million in cash. In a transaction related to the June 1995 acquisition, one of
the principal physicians operating the acquired practice assigned a panel
services agreement with a health maintenance organization to the Company for
approximately $1.3 million in cash and approximately $300,000 in deferred
payments and approximately 35,000 shares of common stock of the Company. In
another transaction related to the June 1995 acquisition, the Company agreed to
make a deferred payment of $700,000 to a physician employed by the acquired
practice, which was paid during the fourth quarter of 1995. This payment was
treated as a bonus for accounting purposes, and accordingly, was charged to
expense in its entirety during 1995. From January 1, 1996 to October 4, 1996,
the Company completed five acquisitions of primary care, obstetrical and
rheumatology practices for an aggregate cost of approximately $8.2 million in
cash and $765,000 in deferred payments. Deferred payments incurred in connection
with practice acquisitions represent the difference between the Company's
contractual obligation for compensation pursuant to the physician's employment
agreement with the Company and an estimate of the replacement cost for the
physician services provided or amounts due under promissory notes between the
Company and certain physicians. These payments are included in "Amounts due for
acquisitions" in the Company's consolidated balance sheets.
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 a long-term management
agreement with, and purchased an option to acquire, a hospital-based anesthesia
practice and acquired the outstanding shares of 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
September 9, 1998 the Company completed four acquisitions of obstetrical
20
<PAGE>
practices and entered into long-term management agreements with and purchased
options to acquire two obstetrical practices, a perinatology practice, a
gynecology-oncology practice, an infertility practice and a general surgical
practice at an aggregate cost of $12.5 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. The Company
exercised its option to acquire the pain management practice to which it had
been providing management services on December 31, 1998. Therefore, the
Company's consolidated balance sheet as of December 31, 1998 includes the
balance sheet of this practice.
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. See
Note 1(j) to the Company's consolidated financial statements for more
information.
As a result of its change in strategic direction the Company has experienced a
shift in the composition of its patient service revenue. The primary care
practices held for sale generated a substantial majority of the Company's
capitation revenue during 1998 and preceding years.
As a result of its change in strategic direction, 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 remaining practices to be sold had been consolidated 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, the Company 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 the remaining practices held for sale generated approximately
$1.9 in net revenue for the year ended December 31, 1998. The practices held for
sale did not generate significant operating income in 1998. Therefore, the
Company has experienced a slight increase in operating income as a percentage of
net revenue.
Under shared-risk capitation arrangements, which accounted for approximately
1.6%, 7.8% and 14.8% of the Company's net revenue in 1998, 1997 and 1996,
respectively, 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 years 1996, 1997 and 1998 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 has 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.
21
<PAGE>
In order to effectively manage the Company's growth generated by the acquisition
of physician practices, the Company made significant investments in personnel,
computer equipment, computer software and other infrastructure costs. These
investments resulted in significant increases in salaries and benefits, general
and administrative expenses, and capital expenditures during 1996 and 1995,
compared to prior years.
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 the
amortization of intangible assets. Intangible assets are excess of the purchase
price of acquired businesses or cost of management services agreements over the
fair value of the net assets of those acquired businesses (which net assets
include any separately identifiable intangible assets). As of December 31, 1998,
the Company's total assets were approximately $139.8 million, of which
approximately $96.8 million, or 69.2%, were intangible assets. Of the total
goodwill at December 31, 1998, $27.8 million is related to the 1994 Acquisition,
$25.8 million is related to several acquisitions of physician practices
completed by the Predecessor and the Company and $43.2 million is related to the
cost of obtaining several management agreements with physician practices.
The goodwill 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. Management believes its role as a long-term service
provider to its hospital customers and the fact its relationships with hospitals
are not tied to a single physician or group of physicians contribute to the
indefinite length of this goodwill, and since 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.
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 20 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. The cost of
management services agreements is being amortized over the shorter of the term
of the management agreement or 25 years.
The Company continuously evaluates all components of intangible assets and other
intangible assets to determine whether there has been any impairment of the
carrying value of intangible assets 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
22
<PAGE>
intangible assets to 25 years. This change in estimate has resulted in an
increase in the amortization expense reported by those companies. Effective July
1998, the Company reduced the maximum amortization period of its intangible
assets related to physician practice acquisitions and affiliations to 25 years
on a prospective basis. This resulted in an increase in amortization expense for
the year ended December 31, 1998 of approximately $60,000 compared to the
amortization that would have been recorded. 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 a
percentage of net revenue:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Patient services revenue............................. 97.0% 96.8% 96.8%
Management fees...................................... 3.0 3.2 3.2
----------- ----------- -----------
Net revenue........................................ 100.0 100.0 100.0
Operating expenses:
Direct facility expenses............................. 67.6 69.9 71.3
Provision for bad debts.............................. 4.9 4.1 3.9
Salaries and benefits................................ 6.8 7.5 7.5
General and administrative........................... 3.7 5.0 4.9
Write-down of office-based net assets................ --- --- 18.7
Amortization......................................... 3.2 2.1 2.7
Depreciation......................................... 0.7 0.7 1.1
----------- ----------- -----------
Total operating expenses.......................... 86.9 89.3 110.1
----------- ----------- -----------
Operating income (loss)................................. 13.1% 10.7% (10.1)%
=========== =========== ===========
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Patient service revenue increased $14.2 million, or 14.9%, from $95.4 million in
1997 to $109.6 million in 1998. Patient service revenue within the Company's
multi-specialty group practices increased approximately $15.8 million, while
patient service revenue in the Company's hospital out-sourcing business
decreased approximately $1.6 million. Of the increase in the Company's
multi-specialty group practices, approximately $14.9 million was due to the
acquisitions of hospital-based and office-based physician practices from January
1998 through September 1998, approximately $5.4 million was due to office-based
acquisitions completed during 1997 and approximately $4.2 million was due to
growth in the Company's existing hospital-based contracts and office-based
contracts as a result of volume and reimbursement rate increases. These
increases were offset by a decrease in net revenue from primary care and
rheumatology practices that were sold during 1997 and 1998 which caused a
decrease in net revenue of approximately $8.7 million. Net revenue in the
Company's hospital out-sourcing business declined due to the termination of
existing hospital-based contracts. Net revenue from management services
increased approximately $200,000, or 6.6%, from $3.2 million in 1997 to $3.4
million in 1998. An increase in management fees generated from management
agreements with two hospital-based practices entered into in December 1997 and
February 1998, respectively, were mostly offset by a decrease in management fees
earned from two primary care practices whose agreements were terminated in
December 1997 and April 1998.
Direct facility expenses increased $7.4 million, or 10.7%, from $68.9 million in
1997 to $76.4 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 was primarily a result of the
23
<PAGE>
acquisitions discussed in the preceding paragraph and increases in direct
facility expenses of the Company's existing hospital-based and office-based
practices offset by a decline in direct facility expenses associated with the
practices sold. As a percentage of net revenue, direct facility expenses
decreased from 69.9% in 1997 to 67.6% in 1998. The decrease of the direct
facility expense percentage is due to a shift in the Company's revenue in its
office-based services from shared risk capitation to fee-for-service. The
Company's practices that generate revenue on a fee-for-service basis have had
lower direct facility expenses associated with their operation.
The provision for bad debts increased approximately $1.5 million, or 36.6%, from
$4.1 million in 1997 to $5.6 million in 1998. This increase was due to a 14.9%
increase in net revenue, as discussed above, and an increase in the Company's
overall bad debt percentage which increased from 4.1% 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 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 incur minimal bad
debt expense.
Salaries and benefits increased $298,000, or 4.0%, from $7.4 million in 1997 to
$7.7 million in 1998. This increase was attributable to the Company's hiring of
personnel necessary to support the growth that occurred in the Company's
multi-specialty group practices. As a percentage of net revenue, salaries and
benefits decreased from 7.5% in 1997 to 6.8% in 1998.
General and administrative expense decreased $723,000, or 14.7%, from $4.9
million in 1997 to $4.2 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 of $500,000 in legal fees incurred in connection with malpractice cases
which are now reflected as a direct facility expense, a decrease in rent expense
of $180,000 at the corporate office and a decrease in advertising expense of
$40,000. As a percentage of net revenue, general and administrative expense
decreased from 5.0% in 1997 to 3.7% in 1998.
Amortization expense increased $1.5 million, or 71.4%, from $2.1 million in 1997
to $3.6 million in 1998. This increase was related to several acquisitions of
physician practices and management agreements with physician practices,
completed from March 1997 to September 1998, which are included in the
transactions discussed in Note 2 to the accompanying consolidated financial
statements.
Operating income increased approximately $4.2 million, or 39.6%, from $10.6
million in 1997 to $14.8 million in 1998. This increase was due to growth from
acquisitions and new contracts. As a percentage of net revenue, operating income
increased from 10.7% in 1997 to 13.1% in 1998. This increase was primarily 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 69.9% in 1997 to 67.6% in 1998 as noted above.
Other income recognized was $628,000 for 1998. Other income primarily represents
an amount recognized by the Company pursuant to a favorable judgement received
by the Company in connection with certain litigation.
Interest expense increased from $2.5 million in 1997 to $4.0 million in 1998.
This increase was primarily related to borrowings under the Company's revolving
credit facility to fund the acquisitions discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Patient service revenue increased $5.7 million, or 6.3%, from $89.8 million in
1996 to $95.4 million in 1997. Patient service revenue from hospital-based
services increased $6.6 million, from $63.9 million in 1996 to $70.5 million in
1997. Of this increase, $800,000 was due to growth from existing contracts, $3.1
million was due to the addition of new contracts for hospital-based services,
and $2.7 million was due to the acquisition of a hospital-based neonatology and
pediatric practice in March 1996, as described in Note 2 to the accompanying
consolidated financial statements. Patient service revenue from office-based
services decreased $1.1 million, from $27.2 million in 1996 to $26.1 million in
1997 Of this decrease, $7.2 million, was due to the sale of two primary care
practices and two rheumatology practices during the period from December 1996 to
April 1997, which was offset by an increase in net revenue of $6.1 million from
acquisitions which occurred throughout 1997, as described in Note 2 to the
accompanying consolidated financial statements. Management fees increased
$184,000, or 6.1% from $3.0 million in 1996 to $3.2 million in 1997 due to
management agreements added with office-based practices during 1996.
24
<PAGE>
Direct facility expenses increased $2.8 million, or 4.2%, from $66.1 million in
1996 to $68.9 million in 1997. 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 was primarily due to the
acquisition of a hospital-based neonatology and pediatrics practice in March
1996 and the growth in new and existing contracts for hospital-based services,
as discussed in the preceding paragraph offset by a decline in direct facility
expenses associated with the practices sold. As a percentage of net revenue,
direct facility expenses decreased from 71.3% in 1996 to 69.9% in 1997. The
decrease of the direct facility expense percentage is due to a shift in the
Company's revenue in its office-based services from shared risk capitation to
fee-for-service. The Company's practices that generate revenue on a
fee-for-service basis have had lower direct facility expenses associated with
their operation.
The provision for bad debts increased $461,000, or 12.8%, from $3.6 million in
1996 to $4.1 million in 1997. This increase was due to a 6.3% increase in net
revenue, as discussed above, and an additional allowance for bad debts
associated with the office-based practices sold or held for sale. In some cases
the Company has retained, and anticipates retaining, the right to collect
accounts receivable on practices sold or held for sale. Collection efforts are
impaired subsequent to the sale of a practice due to reduced accessability to
the practices' books and records. The additional allowances is based on the
Company's estimate of uncollectable accounts that will result from an impaired
collection ability on accounts receivable in existence at the time of sale and
retained by the Company. As a percentage of net revenue, the provision for bad
debts increased slightly from 3.9% in 1996 to 4.1% in 1997.
Salaries and benefits increased $457,000, or 6.6%, from $7.0 million in 1996 to
$7.4 million in 1997. This increase was attributable to the Company's hiring of
personnel necessary to support the growth that occurred in the Company's
hospital-based services. As a percentage of net revenue, salaries and benefits
was constant from 1996 to 1997 at 7.5%.
General and administrative expense increased $339,000, or 7.4%, from $4.6
million in 1996 to $4.9 million in 1997. The increase in general and
administrative expenses was primarily due to an increase in legal fees due to
the litigation discussed in Note 7 to the accompanying consolidated financial
statements, and increases in various office expenses to support the increase in
the number of employees indicated in the preceding paragraph. As a percentage of
net revenue, general and administrative expense increased slightly from 4.9% in
1996 to 5.0% in 1997.
Due to a change in the Company's strategic direction, as discussed above under
"General," 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. See
Note 1(j) to the accompanying consolidated financial statements for more
information.
Amortization expense decreased $395,000, or 15.8%, from $2.5 million in 1996 to
$2.1 million in 1997. This decrease was due to a decrease in amortization
expense related to goodwill and intangible assets that were written down to
their estimated realizable values during the fourth quarter of 1996, and the
sale of four office-based practices during 1997, partially offset by several
acquisitions of physician practices during 1997.
Operating income increased from an operating loss of $9.4 million in 1996 to
operating income of $10.5 million in 1997. The increase was primarily due to the
$17.4 million write-down discussed above. Excluding this write-down, operating
income increased from $8.0 million in 1996 to $10.5 million in 1997, an increase
of $2.5 million or 31.3%. This increase in operating income is due to the
acquisition of a hospital-based neonatology and pediatrics practice in March
1996 as discussed above, improved operating performance in 1997 from the
Company's office-based practices and a decrease in amortization expense, as
discussed above.
Interest expense decreased from $2.6 million in 1996 to $2.5 million in 1997.
This decrease was primarily due to a lower interest rate on the revolving credit
facility established in March 1997 as compared to the previous credit facility.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had $21.1 million in working capital, up from
$13.7 million as of December 31, 1997. At December 31, 1998, net accounts
receivable of $28.3 million amounted to 91 days of net revenue compared to $21.6
million and 80 days at December 31, 1997. This increase is primarily
attributable to growth in fee-for service revenue and a decline in revenue from
shared-risk capitation which has no associated accounts receivable.
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. 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. 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. The revolving credit facility was further amended on March
10, 1999 to increase the Company's maximum borrowing availability under the
credit facility by increasing the maximum allowable leverage ratio. Based on the
increased leverage ratio the Company's applicable margin as of March 10, 1999
was 2.5%. 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
new credit facility until the maturity date of April 30, 2001.
The amount that can be borrowed under the credit facility is restricted by a
leverage ratio defined in the credit agreement. The outstanding balance under
the credit facilities increased from $29.0 million at December 31, 1997 to $56.6
million at December 31, 1998, primarily due to several acquisitions of physician
practices completed during 1998. The outstanding balance increased from $56.6
million at December 31, 1998 to $72.9 million at March 25, 1999, due to the
acquisition of a physician practice in January 1999 and the repurchase of
approximately 1,275,000 shares held by physicians whose practices were acquired
by the Company from January 1998 through March 1998. Based on these
transactions, the Company has maximized its borrowing availability under the
credit facility. Certain conditions must be met, including the maintenance of
certain financial ratios, and in certain circumstances, the approval of
NationsBank must be obtained, in order to use the credit facility to finance
acquisitions of physician practices. 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.
The Company's principal uses of cash during the year ended December 31, 1998
were to finance acquisitions of physician practices ($26.4 million), to
repurchase shares of the Company's common stock ($3.7 million), and to finance
increases in accounts receivable ($5.5 million). The $5.5 million increase in
accounts receivable, net of the provision for bad debts, was due to growth in
existing contracts for hospital-based services and the acquisition of physician
practices during 1998 which had a concentration of fee-for-service revenue and
replaced the Company's practices which had a concentration of shared risk
capitation revenue. The Company met its cash needs during this period primarily
through borrowings under its revolving credit facility with NationsBank ($27.6
million) and its net income, excluding non-cash expenses (amortization and
depreciation) ($10.8 million).
In March 1996, the Company issued approximately 658,000 shares of common stock
as partial consideration for an acquisition of a hospital-based physician
practice completed in March 1996, as discussed in Note 2 to the accompanying
consolidated financial statements. In November 1997, the Company issued
approximately 14,000 shares of common stock as partial consideration for an
acquisition of an office-based physician practice. During the period from
January 1998 through June 1998 the Company issued approximately 1,428,000 shares
of common stock as partial consideration for the acquisition of five practices.
Pursuant to a stock repurchase program approved by the Company's Board of
Directors, the Company repurchased approximately 425,000 shares of its common
stock from July 1998 through December 1998 for approximately $3.7 million.
26
<PAGE>
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 to issue equity or debt
securities, depending on market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
The Company, as directed by its Board of Directors, had engaged investment
advisors to assist the Company in evaluating its strategic alternatives
including the procurement of additional capital. Possible strategic alternatives
included an expansion of the company's existing credit facility, merger, sale or
an equity investment by a private capital firm or other similar party. On March
25, 1999 the Company announced the signing of a definitive merger agreement
between the Company and an investor group led by Vestar Capital Partners and the
Company's senior management. See "ITEM 1. BUSINESS - Recent Developments".
Net cash provided by operating activities was $4.8 million in 1998 compared to
$1.1 million of cash provided by operating activities in 1997. The increase in
cash provided by operating activities is due to an increase in the Company's net
income, excluding non-cash expenses and a decrease in amounts paid for income
taxes during 1998.
Net cash used by investing activities increased from $8.5 million in 1997 to
$27.6 million in 1998, primarily due to an increase in cash used for physician
practice acquisitions from $10.9 million in 1997 to $26.4 million in 1998. Cash
used for capital expenditures increased from $934,000 to $1.2 million primarily
due to the Company's expenditures associated with preparing for the Year 2000.
Net cash provided by financing activities increased from $7.8 million in 1997 to
$23.4 million in 1998. Net borrowings on long-term debt increased from $9.0
million in 1997 to $27.6 million in 1998. The net borrowings were used primarily
to finance acquisitions in 1998.
The Company's professional liability insurance requires the Company to pay a
self-insured retention amount equal to the first $250,000 and $150,000 in 1998
and 1997, respectively, of losses for each individual claim up to a maximum
aggregate self-insured retention amount of $1,000,000 and $900,000 for all
claims in 1998 and 1997, respectively. On an ongoing basis the Company reviews
reported claims by calendar year, amounts incurred for the defense and
settlement of reported claims and estimated additional amounts to be incurred on
reported claims. The Company records, as part of direct facility expenses
amounts estimated to be incurred on reported claims under the self-insurance
provisions of its professional liability policy. The Company paid approximately
$1.7 million in 1998 under the self-insurance provisions of its professional
liability insurance policy. As of December 31, 1998 the Company's reserve for
self-insurance on reported claims is approximately $1.2 million.
YEAR 2000 ISSUES
The Company has conducted a review of its computer systems, telecommunications
equipment, medical equipment and other devices 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 were completed by
December 31, 1998 and testing of those modifications is expected to be completed
by June 1999. The Company has begun the process of standardizing the information
27
<PAGE>
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. The Company anticipates
implementation in its existing office-based practices to be completed by
September 1999. Additional practices acquired by the Company during 1999 will be
evaluated for Year 2000 readiness and an action plan determined based upon that
evaluation. Information systems used by the Company's administrative support
departments are being upgraded during 1998 and 1999 to be Year 2000 compliant
and are expected to be completed by the fourth quarter of 1999. The Company is
presently upgrading other equipment affected by the Year 2000 issue or obtaining
certification of its Year 2000 readiness from the appropriate third-party
vendors. The Company expects to complete this process by September 1999. 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.
Computer software and related technologies used by third-party payors and
vendors are also likely to be affected by the Year 2000 date change. Failure of
any of these parties to properly process dates for the Year 2000 and thereafter
could result in unanticipated expenses and delays to the Company, including
delays in the payment for services provided and delays in our ability to conduct
normal banking operations. The Company will begin surveying significant
third-party payors and vendors in regards to their Year 2000 preparedness
beginning in the second quarter of 1999 and expects this assessment to be
completed during the fourth quarter of 1999. The Company presently does not have
a contingency plan to respond to problems that may arise with third-party payors
who are not prepared for the Year 2000.
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 for the next year 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 Company estimates that to date it has incurred approximately $100,000
in operating expenses and $300,000 in capital expenditures for the project.
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, reliance on the accuracy of third-party vendor Year 2000
certifications and similar uncertainties. The Company's inability to complete
its Year 2000 project on a timely basis or the lack of compliance of third party
payor systems could have an adverse impact on the Company's operating cash flow,
the impact of which cannot be estimated.
NEW ACCOUNTING PRONOUNCEMENTS
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 the adoption of SFAS No. 130 did not 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. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
28
<PAGE>
measure of segment profit or loss, certain specific revenue and expense items
and segment assets. The Company adopted SFAS No. 131 effective December 31,
1998. Management does not conduct its business in a manner that indicates the
existence of segments or allocate its management services by distinguishable
business segments. As a result, no additional disclosure was required.
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 adopted SFAS No. 132 effective December 31, 1998 which did not have
a significant impact on its financial statement disclosures.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 beginning January 1, 1999. Adoption of this statement will
not have a material impact on the Company's consolidated financial position or
results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities", ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5, therefore adoption of this statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either and asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 cannot be applied retroactively. The Company will adopt SFAS No. 133
beginning January 1, 2000. The Company does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - --------------------------------------------------------------------
The Company's revolving credit facility with NationsBank 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.
Accordingly, the Company's interest expense related to the outstanding
indebtedness under the credit facility is subject to fluctuations based on
changes in the interest rate environment.
To mitigate this risk, the Company entered into an interest rate swap agreement
in August 1998 with NationsBank N.A., the notional amount of which is $40
million at December 31, 1998. The Company entered into the agreement to fix the
interest expense paid on a portion of the amount outstanding under its credit
facility with NationsBank N.A. Under the terms of the agreement, which matures
in August 2001, the Company's borrowing rate is fixed at 5.54% plus the
applicable margin due under the terms of the revolving credit facility. The net
effect of this agreement on the Company's interest expense in 1998 was nominal.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ----------------------------------------------------
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
------
<S> <C>
Report of Independent Certified Public Accountants............................. 30
Consolidated Balance Sheets as of December 31, 1998 and 1997................... 31
Consolidated Statements of Operations for the Years ended December 31,
1998, 1997 and 1996.......................................................... 32
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1998, 1997 and 1996............................................. 33
Consolidated Statements of Cash Flows for the Years ended December 31,
1998, 1997 and 1996.......................................................... 34
Notes to Consolidated Financial Statements..................................... 35-57
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To Sheridan Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Sheridan
Healthcare, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sheridan Healthcare,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 1999 (except for the matter discussed in Note 11, as to which the
date is March 25, 1999).
31
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
------------------------
1998 1997
---------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 1,102 $ 427
Accounts receivable, less allowances of $2,346 and $1,828.......................... 28,300 21,588
Income tax refunds receivable...................................................... 1,097 1,280
Deferred income taxes.............................................................. --- 1,417
Other current assets............................................................... 3,316 2,814
---------- -----------
Total current assets............................................................. 33,815 27,526
Property and equipment, net........................................................... 4,041 3,538
Intangible assets, net of accumulated amortization of $6,113 and $15,798.............. 96,802 54,168
Other intangible assets, net of accumulated amortization of $1,958 and $1,712......... 1,501 1,803
Other assets.......................................................................... 3,651 ---
---------- -----------
Total assets..................................................................... $ 139,810 $ 87,035
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 1,440 $ 591
Amounts due for acquisitions....................................................... 288 527
Accrued salaries and benefits...................................................... 1,016 2,686
Self-insurance accruals............................................................ 4,319 3,973
Refunds payable.................................................................... 2,555 2,674
Accrued physician incentives....................................................... 934 744
Other accrued expenses............................................................. 1,735 2,235
Current portion of long-term debt.................................................. 449 446
---------- -----------
Total current liabilities........................................................ 12,736 13,876
Long-term debt, net of current portion................................................ 56,994 29,833
Amounts due for acquisitions.......................................................... 1,364 1,976
Other long-term liabilities........................................................... 1,169 ---
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.01; 5,000 shares authorized; none issued.............. --- ---
Common stock, par value $.01; 21,000 shares authorized
Voting; 7,535 and 6,509 shares issued and outstanding............................ 75 66
Class A non-voting; 297 shares issued and outstanding............................ 3 3
Additional paid-in capital......................................................... 73,626 53,811
Accumulated deficit................................................................ (6,157) (12,530)
---------- ----------
Total stockholders' equity ...................................................... 67,547 41,350
---------- -----------
Total liabilities and stockholders' equity....................................... $ 139,810 $ 87,035
========== ===========
</TABLE>
See accompanying notes.
32
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Patient service revenue............................................... $ 109,580 $ 95,418 $ 89,753
Management fees....................................................... 3,410 3,198 3,014
----------- ----------- -----------
Net revenue......................................................... 112,990 98,616 92,767
----------- ----------- -----------
Operating expenses:
Direct facility expenses.............................................. 76,350 68,919 66,125
Provision for bad debts............................................... 5,592 4,066 3,605
Salaries and benefits................................................. 7,722 7,424 6,967
General and administrative............................................ 4,177 4,900 4,561
Write-down of office-based net assets................................. --- --- 17,360
Amortization.......................................................... 3,572 2,096 2,491
Depreciation.......................................................... 807 689 1,023
----------- ----------- -----------
Total operating expenses............................................ 98,220 88,094 102,132
----------- ----------- -----------
Operating income (loss).................................................. 14,770 10,522 (9,365)
----------- ----------- -----------
Other (income) expense:
Interest expense, net................................................. 3,955 2,461 2,572
Other income.......................................................... (628) --- ---
----------- ----------- -----------
Total other expense................................................. 3,327 2,461 2,572
----------- ----------- -----------
Income (loss) before income taxes................................... 11,443 8,061 (11,937)
Income tax expense ...................................................... 5,070 2,894 189
----------- ----------- -----------
Net income (loss)................................................... $ 6,373 $ 5,167 $ (12,126)
=========== =========== ===========
Net income (loss) per share
Basic............................................................... $ 0.80 $ 0.77 $ (1.84)
Diluted............................................................. 0.78 0.73 (1.84)
Weighted average shares of common stock
and common stock equivalents outstanding
Basic............................................................... 7,947 6,722 6,587
Diluted............................................................. 8,219 7,035 6,587
</TABLE>
See accompanying notes.
33
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Convertible Preferred Stock
Voting Class A ------------------------------
Common Stock Common Stock Class A Class B Additional
--------------- --------------- -------------- -------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
------- ------- ------- ------- ----- ------ ------ ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 5,773 $ 58 297 $ 3 --- $ --- --- $ --- $ 48,179 $ (5,571) $ 42,669
Issuance of
common stock in
acquisition ...... 658 6 --- --- --- --- --- --- 5,417 5,423
Treasury shares
purchased and
retired........... (13) --- --- --- --- --- --- --- (8) --- (8)
Net loss............ --- --- --- --- --- --- --- --- --- (12,126) (12,126)
------ ------- ------- ------- ----- ----- ------ ------ --------- ----------- ---------
Balance,
December 31,1996.. 6,418 64 297 3 --- --- --- --- 53,588 (17,697) 35,958
Issuance of common
stock upon exercise
of employee stock
options .......... 77 1 --- --- --- --- --- --- 53 --- 54
Issuance of common
stock in
acquisition....... 14 1 --- --- --- --- --- --- 170 --- 171
Net income.......... --- --- --- --- --- --- --- --- --- 5,167 5,167
------- ------- ------- ------- ------ ----- ------ ------- --------- ----------- ---------
Balance,
December 31, 1997 6,509 66 297 3 --- --- --- --- 53,811 (12,530) 41,350
Issuance of common
stock upon exercise
of employee stock
options........... 23 --- --- --- --- --- --- --- 92 --- 92
Issuance of common
stock in
acquisitions...... 1,428 14 --- --- --- --- --- --- 23,410 --- 23,424
Treasury shares
purchased and
retired........... (425) (5) --- --- --- --- --- --- (3,687) --- (3,692)
Net Income.......... --- --- --- --- --- --- --- --- --- 6,373 6,373
------- ------- ------- ------- ------- ------ ------ ------- -------- ----------- ---------
Balance,
December 31, 1998 7,535 $ 75 297 $ 3 --- $ --- --- $ --- $ 73,626 $ (6,157) $ 67,547
======= ======= ======= ======= ======= ====== ====== ======= ======== =========== =========
</TABLE>
See accompanying notes.
34
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)....................................................... $ 6,373 $ 5,167 $ (12,126)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Write-down of office-based net assets................................. --- --- 17,360
Amortization.......................................................... 3,572 2,096 2,491
Depreciation.......................................................... 807 689 1,023
Provision for bad debts............................................... 5,592 4,066 3,605
Deferred income taxes................................................. 1,417 (263) (1,154)
Changes in operating assets and liabilities:
Accounts receivable, net.............................................. (11,140) (7,997) (7,076)
Income tax refunds receivable......................................... (101) (710) 190
Other current assets.................................................. (736) (1,125) (486)
Other assets.......................................................... 238 (655) 207
Accounts payable and accrued expenses................................. (1,221) (215) 1,229
----------- ----------- -----------
Net cash provided by operating activities............................. 4,801 1,053 5,263
----------- ----------- -----------
Cash flows from investing activities:
Investments in management agreements and
acquisitions of physicians practices.................................. (26,428) (10,929) (13,762)
Sale of physician practices............................................. 49 3,388 193
Capital expenditures.................................................... (1,192) (934) (1,245)
----------- ----------- -----------
Net cash used by investing activities................................. (27,571) (8,475) (14,814)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings on long-term debt............................................ 27,600 9,005 13,997
Payments on long-term debt.............................................. (555) (1,210) (4,438)
Treasury shares purchased and retired................................... (3,692) --- (8)
Exercise of employee stock options...................................... 92 54 ---
----------- ----------- -----------
Net cash provided by financing activities............................. 23,445 7,849 9,551
----------- ----------- -----------
Increase in cash and cash equivalents...................................... 675 427 ---
Cash and cash equivalents, beginning of year............................... 427 --- ---
----------- ----------- -----------
Cash and cash equivalents, end of year..................................... $ 1,102 $ 427 $ ---
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest..................................................... $ 3,898 $ 2,338 $ 2,588
Cash paid for income taxes................................................. 2,350 3,867 2,110
Capital leases entered into................................................ --- --- ---
</TABLE>
See accompanying notes.
35
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
(a) Organization
Sheridan Healthcare, Inc. (the "Company") was established in November 1994
concurrently with its purchase of the common stock of Sheridan Healthcorp, Inc.
(formerly, Southeastern Anesthesia Management Associates, Inc.) (the
"Predecessor") (the "1994 Acquisition") for $43.3 million in cash. The
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets acquired based on their estimated fair market
values at the date of acquisition. The management group of the Predecessor held
approximately 20% of its outstanding common stock prior to the acquisition and
became the management group of the Company, holding approximately 18% of its
outstanding common stock and equivalents after the acquisition. Accordingly, 18%
of the purchase price was considered a distribution to management stockholders
in excess of their basis in the common stock of the Predecessor, which was
approximately $249,000. Such excess was recorded as excess purchase price
distributed to management stockholders and included as a reduction to additional
paid in capital in the accompanying balance sheets and was not allocated to the
net assets acquired. As a result of the allocation, $31.2 million of the
purchase price was allocated to goodwill.
<TABLE>
<CAPTION>
<S> <C>
Purchase price...................................................................... $ 43,275
Excess purchase price distributed to management stockholders....................... (7,541)
-----------
Purchase price to be allocated.................................................... 35,734
-----------
Net assets acquired:
Working capital................................................................... 4,365
Property and equipment............................................................ 1,236
Other intangible assets (see Note (g))............................................ 1,880
Unamortized goodwill related to previous acquisition ............................. 7,316
Other assets...................................................................... 609
Long-term debt.................................................................... (9,580)
Deferred income taxes............................................................. (1,247)
-----------
Total net assets acquired...................................................... 4,579
-----------
Goodwill related to the 1994 Acquisition............................................ $ 31,155
===========
</TABLE>
(b) 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".
36
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
A controlling financial interest exists between a PPM and an affiliated
physician practice if all of the following six requirements are met; (i) the MSA
has a term that is either the entire remaining legal life of the physician
practice entity or a period of 10 years or more; (ii) the MSA is not terminable
by the physician practice except in the case of gross negligence, fraud or other
illegal acts by the PPM or bankruptcy of the PPM; (iii) the PPM has exclusive
authority over all decision making relating to ongoing major or central
operations of the physician practice, except for the dispensing of medical
services; (iv) the PPM has exclusive authority over all decision making related
to total practice compensation of the licensed medical professionals as well as
the ability to establish and implement guidelines for the selection, hiring and
firing of them; (v) the PPM must have a significant financial interest that is
unilaterally salable or transferable by the PPM; and (vi) the PPM must have a
significant financial interest that provides it with the right to receive
income, both as on-going fees and as proceeds from the sale of its interest in
the physician practice, in an amount that fluctuates based on the performance of
the operations (a net profit interest) of the physician practice and the change
in the fair value thereof.
The Company is following the above 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 four practices that are affiliates of the Company, Sheridan
Medical Healthcorp, P.C., Sheridan Healthcare of Texas, P.A., Sheridan
Children's Healthcare Services of Pennsylvania, P.C. and Sheridan Healthcare of
California Medical Group, Inc. 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 eleven office-based practices and one hospital-based
practice with which the Company has long-term management services agreements and
purchase option agreements whose terms also demonstrate a controlling financial
interest, (the "Consolidated 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
financial statements since the date of their inception.
The Company provides management services to a neonatology practice and a pain
management practice which entered into long-term management services 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. The Company did not have a controlling financial
interest in these practices. These management services 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 Company exercised its purchase option on December 31, 1998 to acquire the
pain management practice to which it had been providing management services
during 1998. The practice has been included in the Company's consolidated
balance sheet as of December 31, 1998 and will be included in the Company's
consolidated financial statements beginning January 1, 1999.
37
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The table below sets forth the components of the Company's net revenue:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997 1996
------------------ ---------------- -----------------
Total % Total % Total %
--------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
The Company.................................... $ 72,070 63.8% $ 76,850 77.9% $ 77,833 83.9%
Affiliates..................................... 13,309 11.8 12,511 12.7 11,920 12.8
Consolidated Practices......................... 24,201 21.4 6,057 6.2 --- ---
--------- -------- -------- -------- --------- -------
Patient service revenue..................... 109,580 97.0 95,418 96.8 89,753 96.7
--------- -------- -------- -------- --------- -------
Management fees................................ 3,410 3.0 3,198 3.2 3,014 3.3
--------- -------- -------- -------- --------- -------
Total..................................... $ 112,990 100.0% $ 98,616 100.0% $ 92,767 100.0%
========= ======== ======== ========= ========= ========
</TABLE>
(c) Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) Accounts Receivable and Net Revenue
The Company generates revenue from the provision of physician and services which
is referred to as patient service revenue and the provision of management
services which are referred to as management fees.
The Company derives substantially all of its patient service revenue from
various third-party payors including Medicare and Medicaid programs, health
maintenance organizations, commercial insurers and others. The amount of
payments received from such third-party payors is dependent upon mandated
payment rates in the case of the Medicare and Medicaid programs, and negotiated
payment rates in the case of other third-party payors, as well as the specific
benefits included in each patient's applicable health care coverage. The Company
records its revenues net of an allowance for contractual adjustments which
represents the difference between billed charges and expected collections from
third-party payors. Accordingly, net revenue and accounts receivable are
reflected in the consolidated financial statements net of contractual
allowances.
The Company received a portion of its patient service revenue pursuant to
shared-risk capitation arrangements with certain health maintenance
organizations until April 1998, at which time it sold its only remaining primary
care practice providing services under such arrangements. Under these
arrangements, the Company generally agreed to provide certain health care
services to enrollees of the health maintenance organization in exchange for a
fixed amount per enrollee per month. The Company directly provided primary care
services to the enrollees and subcontracted directly, or through a third-party
payor, with specialist physicians, hospitals and other health care providers to
provide the remainder of the health care services to the enrollees. The
Company's profitability under such arrangements was 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 fiscal periods presented in the
Company's statements of operations, amounts received from managed care
organizations under shared-risk capitation arrangements exceeded the cost of
services provided to patients under such arrangements.
38
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company derives its management fees pursuant to long-term management
services agreements with physician practices which require the practice to pay
the Company a management fee that is based on expenses incurred by the Company
plus either a percentage fee based on net revenues or a flat fee. The Company's
management fee may be increased under a flat fee arrangement if the net revenue
of the practice exceeds established thresholds, but may not be reduced.
(e) Charity Care
The Company has agreed with certain hospitals to provide charity care to
patients who are unable to pay or is required by law, in some cases, to provide
such care in emergency situations. Such patients are identified based on
financial information obtained from the patients and subsequent analysis. Since
management does not expect payment for such charity care, the estimated charges
related to such patients are included in the provision for bad debts in the
accompanying financial statements, the amounts which are immaterial.
(f) 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 $27.8 million of the total amount of intangible assets is
goodwill, net of accumulated amortization, at December 31, 1998, that is related
to the 1994 Acquisition. Such goodwill represents the Company's market position
and reputation, its relationships with its hospital customers and affiliated
physicians, the relationships between its affiliated physicians and their
patients, and other similar intangible assets. Management believes its role as a
long-term service provider to its hospital customers and the fact its
relationships with hospitals are not tied to a single physician or group of
physicians contribute to the indefinite length of this goodwill, and
accordingly, such goodwill is being amortized on a straight-line basis over 40
years.
Approximately $25.8 million of the total amount of intangible assets is
goodwill, net of accumulated amortization, at December 31, 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 20 to 25 years.
39
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Approximately $43.2 million of the total amount of intangible assets represents
the cost of obtaining management services agreements, net of accumulated
amortization at December 31, 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 group of hospital-based and
office-based specialists 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 management services agreement. The cost of
obtaining these management services agreements 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 December 31, 1998
------------------- -------------------- --------------------
<S> <C> <C>
20 years 3,121 2,185
25 years 68,834 66,818
---------------- ----------------
Sub-Total 71,955 69,003
1994 Acquisition:
40 years 30,960 27,799
---------------- ----------------
Total $ 102,915 $ 96,802
================ ================
</TABLE>
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. Effective July 1998, the Company reduced the
maximum amortization period of its intangible assets related to physician
practice acquisitions and affiliations to 25 years on a prospective basis. This
resulted in an increase in amortization expense for the year ended December 31,
1998 of approximately $60,000 compared to the amortization that would have been
recorded. 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.
The Company continuously evaluates whether events have occurred or circumstances
exist which impact the recoverability of the carrying value of intangible
assets, pursuant to Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, ("SFAS No. 121")." Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeded the fair value of the assets.
See Note (j) below for a description of an adjustment to reduce the carrying
values of certain components of goodwill to their net realizable values during
1996.
40
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Separately identifiable intangible assets related to the 1994 Acquisition and
the physician practice acquisitions are included in other intangible assets,
separate from intangible assets, and are discussed in Note (g) below.
(g) 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 1994 Acquisition, deferred acquisition costs, deferred loan costs and
non-compete covenants related to certain acquisitions of physician practices.
These intangible assets are being amortized over the lives of the underlying
assets or agreements, which range from five to seven years. See Note (j) below
for a description of an adjustment to reduce the carrying values of certain
other intangible assets to their net realizable values during 1996.
(h) Amounts Due for Acquisitions
Amounts due for acquisitions includes 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 of the practices acquired by the Company
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 physicians' employment with the Company. It 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. Also included in
amounts due for acquisitions is a promissory note payable to the owner of a
physician practice with which the Company has a management services agreement.
The note bears interest at 7.5%, is payable in monthly installments and matures
in December 2000.
(i) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Accounts receivable, other current assets, other
assets, accounts payable, accrued expenses and long-term debt are reflected in
the accompanying consolidated financial statements at cost which approximates
fair value.
(j) Write-down of Office-based Net Assets
In October 1996, the Company's Board of Directors approved a change in the
Company's 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 in
accordance with SFAS No. 121 and accrued certain liabilities for commitments
that no longer have value to the Company's future operations. The impairment of
intangible assets was calculated based on a comparison of the carrying amount of
those assets compared to the undiscounted cash flows of the operations over the
remaining amortization period. The write-down pertained to two rheumatology
practices acquired in January and February of 1996, a four-facility primary care
practice acquired in September 1994, two primary care practices acquired in
February 1995, and a primary care practice acquired in June 1995 which included
the assignment of a panel services agreement. These adjustments resulted in a
$17.4 million charge to earnings in 1996, which is comprised of adjustments to
the following assets and liabilities (in thousands):
41
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
<S> <C>
Goodwill............................................................................ $ 13,878
Property and equipment.............................................................. 1,045
Intangible assets................................................................... 430
Accrued expenses.................................................................... 2,007
-----------
Total write-down................................................................. $ 17,360
===========
</TABLE>
(k) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
(L) NET INCOME (LOSS) PER SHARE
---------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS No. 128").
SFAS No. 128 simplifies the current standards for computing earnings per share
("EPS") under Accounting Principles Board Opinion No. 15, "Earnings per Share"
by replacing the existing calculation of primary EPS with a basic EPS
calculation. It requires a dual presentation for complex capital structures of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of basic EPS factors to diluted EPS factors. The impact of
adopting SFAS No. 128 in 1997 was immaterial. Common stock equivalents, which
consist of stock options issued to employees and directors, are not included in
the determination of the net loss per diluted share in 1996 since they would
have the effect of reducing the net loss per share.
RECONCILIATION OF BASIC EPS FACTORS TO DILUTED EPS FACTORS:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average shares of common stock and
common stock equivalents for basic earnings
per share......................................... 7,947 6,722 6,587
Impact of dilutive employee stock options........... 272 313 ---
----------- ----------- -----------
Weighted average of shares of
common stock equivalents for
diluted earnings per share........................ 8,219 7,035 6,587
=========== =========== ===========
Options outstanding which are not
included in the calculation of
diluted earnings per share because
their impact is anti-dilutive..................... 518 73 223
=========== =========== ===========
</TABLE>
(n) New Accounting Standards
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 the adoption of SFAS No. 130 did not have a significant impact on its
financial statement presentation as comprehensive income is equal to net income.
42
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items
and segment assets. The Company adopted SFAS No. 131 effective December 31,
1998. Management does not conduct its business in a manner that indicates the
existence of segments or allocate its management services by distinguishable
business segments. As a result, no additional disclosure was required.
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 adopted SFAS No. 132 effective December 31, 1998 which did not have
a significant impact on its financial statement disclosures.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 beginning January 1, 1999. Adoption of this statement will
not have a material impact on the Company's consolidated financial position or
results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities", ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company's accounting policies conform with the
requirements of SOP 98-5, therefore adoption of this statement will not impact
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 cannot be applied retroactively. The Company will adopt SFAS No. 133
beginning January 1, 2000. The Company does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position or results of operations.
43
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(2) ACQUISITIONS
------------
In September 1994, the Predecessor acquired a four-facility primary care
practice for cash and notes and the assumption of certain contingent
obligations. The aggregate purchase price was $8.7 million, including the effect
of certain adjustments to the purchase price recorded in 1995 based on
subsequent information. The acquisition was accounted for as a purchase, and
accordingly, the purchase price was allocated to the net assets acquired based
on their estimated fair market values. As a result of this allocation, $8.2
million of the purchase price was allocated to goodwill, which was amortized
over 20 years until the sale of the practice by the Company and is shown below,
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price..................................................................... $ 8,723
----------
Net assets acquired:
Working capital (deficit)........................................................ (355)
Property and equipment........................................................... 868
-----------
Net assets acquired........................................................... 513
-----------
Goodwill related to the acquisition................................................ $ 8,210
===========
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with this
acquisition was reduced by approximately $5.3 million to approximately $2.1
million.
In December 1994, the Company acquired an obstetrical practice for $1.4 million
in cash and deferred payments. The acquisition was accounted for as a purchase,
and accordingly, the purchase price was allocated to the net assets acquired
based on their estimated fair market values. As a result of this allocation,
$841,000 of the purchase price was allocated to goodwill which, net of the
reduction in carrying value, is being amortized over 20 years and in shown
below, (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price..................................................................... $ 1,437
----------
Net assets acquired:
Working capital.................................................................. 118
Property and equipment........................................................... 78
Intangible assets................................................................ 400
-----------
Net assets acquired........................................................... 596
-----------
Goodwill related to the acquisition................................................ $ 841
===========
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with this
acquisition was reduced by approximately $170,000 to approximately $583,000.
During the period from February to June 1995, the Company made five acquisitions
of office-based physician practices for an aggregate of $6.1 million in cash and
deferred payments. In a transaction related to one of those acquisitions, one of
the principal physicians operating the acquired practices assigned a panel
services agreement with a health maintenance organization to the Company for
$400,000 in cash plus deferred payments of $935,000 and approximately 35,000
shares of common stock of the Company which had a value of approximately
$450,000 on the date of acquisition. These acquisitions, including the
assignment of the panel services agreement, were accounted for as purchases, and
accordingly, the purchase prices were allocated to the net assets acquired based
on their fair market values. As a result of these allocations, $7.3 million of
the aggregate purchase price was allocated to goodwill which, net of the
reduction in carrying value, is being amortized over 20 years on a straight line
basis and is shown below, (in thousands):
44
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
<S> <C>
Aggregate purchase price........................................................... $ 7,880
----------
Net assets acquired:
Working capital.................................................................. 144
Property and equipment........................................................... 358
Intangible assets................................................................ 30
-----------
Net assets acquired........................................................... 532
-----------
Goodwill related to the acquisitions............................................... $ 7,348
===========
</TABLE>
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions was reduced by approximately $5.0 million to approximately $1.0
million.
In March 1996, the Company acquired a hospital-based physician practice for $4.2
million in cash and approximately 658,000 shares of the Company's common stock
which had a value of approximately $5.4 million on the date of acquisition. The
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets acquired based on their fair market values. As a
result of this allocation, $9.8 million of the purchase price was allocated to
goodwill which is being amortized over 25 years on a straight line basis and is
shown below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Aggregate purchase price........................................................... $ 9,644
----------
Net assets acquired:
Working capital.................................................................. 1,407
Property and equipment........................................................... 78
Accrued termination benefits..................................................... (1,100)
Long-term debt................................................................... (500)
-----------
Net assets acquired........................................................... (115)
-----------
Goodwill related to the acquisition................................................ $ 9,759
===========
</TABLE>
During the period from January to October 1996, the Company made five
acquisitions of office-based physician practices for an aggregate of $8.2
million in cash and deferred payments. These acquisitions were accounted for as
purchases, and accordingly, the purchase price of each acquisition was allocated
to the net assets acquired based on their estimated fair market values. As a
result of these allocations, $6.8 million of the aggregate purchase price was
allocated to goodwill which, net of the reduction in carrying value, is being
amortized over 20 years on a straight line basis and is shown below (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Aggregate purchase price........................................................... $ 8,210
----------
Net assets acquired:
Working capital.................................................................. 830
Property and equipment........................................................... 670
Intangible assets................................................................ 60
Long-term debt................................................................... (130)
-----------
Net assets acquired........................................................... 1,430
-----------
Goodwill related to the acquisitions............................................... $ 6,780
===========
</TABLE>
45
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In connection with the write-down of office-based net assets in 1996, as
discussed in Note 1(j), the carrying value of the goodwill associated with these
acquisitions was reduced by approximately $3.4 million to approximately $1.2
million.
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
$200,000 on the date of acquisition. Concurrent with each acquisition of an
option the Company entered into a long-term management services agreement with
each practice. These transactions were accounted for as purchases, and
accordingly, the purchase price of each option was allocated to the net assets
acquired based on their estimated fair market values. As a result of these
allocations, $11.1 million of the aggregate purchase price was allocated to the
cost of the management services agreements which is being amortized over the
shorter of the term of the agreement or 25 years and is shown below (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Aggregate purchase price........................................................... $ 11,012
----------
Net assets acquired:
Working capital.................................................................. (390)
Property and equipment........................................................... 218
Intangible assets................................................................ 111
-----------
Net assets acquired........................................................... (61)
-----------
Net cost of management services agreements......................................... $ 11,073
===========
</TABLE>
During the period from January 1998 to September 1998 the Company completed
thirteen transactions with physician practices for aggregate consideration of
approximately $49.1 million of which approximately $25.5 million was paid in
cash and approximately $23.6 million was paid through the issuance of
approximately 1,428,000 shares of the Company's common stock. Approximately $5.2
million was paid for the acquisition of practices' net assets or practices'
stock and approximately $43.9 million was paid for the purchase of options to
acquire the practices' stock for a nominal amount concurrent with the execution
of long-term management services agreements. 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, $43.1 million of the
aggregate consideration was allocated to the cost of management services
agreements which are being amortized over 25 years and $5.3 million was
allocated to goodwill which is also being amortized over 25 years as shown below
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Aggregate purchase price........................................................... $ 49,050
----------
Net assets acquired:
Working capital.................................................................. 159
Property and equipment........................................................... 452
Intangible assets................................................................ 80
-----------
Net assets acquired........................................................... 691
-----------
Goodwill and net cost of management services agreements............................ $ 48,359
===========
</TABLE>
The value of the Company's common stock issued in connection with each
transaction is based on the higher of the closing market price for the Company's
common stock on the date each transaction is completed or the price guaranteed
by the Company on some future date. 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
either by making an additional cash payment or by the issuance of additional
shares of the Company's common stock. Such shares have been excluded from the
calculation of diluted earnings per share
46
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
because of management's ability to fund the additional purchase price, if any,
through cash payments rather than through the issuance of additional shares.
Based on the closing market price of the Company's common stock on December 31,
1998 the total value of the contingencies was approximately $12.0 million.
The following table summarizes the pro forma consolidated results of operations
of the Company as though the transactions with physician practices 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>
Year Ended December 31,
-----------------------
1998 1997
---------- -----------
(in thousands, except
per share data)
Pro Forma Results of Operations:
<S> <C> <C>
Net revenue.......................................................... $ 119,224 $ 123,924
Income before income taxes........................................... 12,163 11,816
Net income........................................................... 6,756 7,103
Net income per share - basic......................................... 0.83 0.90
Net income per share - diluted....................................... 0.80 0.87
</TABLE>
In connection with the change in the Company's strategic direction, as discussed
in Note 1(j), 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. 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 sale of the rheumatology offices in 1997 generated a gain of approximately
$75,000 based on the adjusted carrying value of the practices' net assets. The
sale of the primary care practices in April 1998 generated a gain of
approximately $240,000 based on the adjusted carrying value of the practice's
net assets, offset by a similar loss on the sale of net assets in connection
with the Company's termination of a management services agreement in April 1998.
The sale of primary care practices in December 1996, February 1997 and December
1997 did not generate significant gains or losses as these practices were sold
for the approximate book value of their net assets.
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost less accumulated depreciation, and is
depreciated using straight-line and accelerated methods over the estimated
useful lives of the assets. Maintenance and repairs are charged to expense when
incurred and improvements are capitalized. Upon the sale or retirement of
assets, the cost and accumulated depreciation are removed from the balance sheet
and any gain or loss is recognized currently.
47
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Equipment, computer hardware and software............................ $ 3,704 $ 3,486
Furniture............................................................ 2,341 1,919
Building and improvements............................................ 1,138 1,083
----------- -----------
Total.............................................................. 7,183 6,488
Accumulated depreciation and amortization............................ (3,142) (2,950)
----------- -----------
Property and equipment, net........................................ $ 4,041 $ 3,538
=========== ===========
</TABLE>
At December 31, 1998 the net book value of property and equipment related to
capital lease obligations was $867,000.
(4) OTHER ASSETS
------------
Other assets consist primarily of notes receivable entered into in connection
with the sale of certain physician practices during 1998. The components of
other assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998
------------
<S> <C>
Promissory note including accrued interest of $86, payable in monthly
installments of $28 including interest at 7.5%
with a final payment due in April 2003...................................... $ 3,555
Promissory note, payable in monthly installments of $3, ........................
including interest at 10.73%, maturing in December 2001...................... 90
Promissory note including accrued interest of $12, payable
in monthly installments of $12 including interest at 9.0%,
maturing in April 2001....................................................... 308
-----------
Total notes receivable....................................................... 3,953
Security deposits............................................................... 90
-----------
Total other assets........................................................... 4,043
Less-Current portion............................................................ (392)
-----------
Total non-current other assets............................................... $ 3,651
===========
</TABLE>
Annual maturities of notes receivable as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... 392
2000............................................................................... 244
2001............................................................................... 138
2002............................................................................... 103
2003............................................................................... 3,076
-----------
Total............................................................................ $ 3,953
===========
</TABLE>
The borrower under the promissory note which matures in April 2003, of which
approximately $3.6 million is outstanding including accrued interest, is
presently in default under the terms of the promissory note and the terms of the
asset purchase agreement entered into in April 1998, pursuant to which the note
was issued. See Note 8(d) for further disclosure of ongoing litigation regarding
the promissory note.
48
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(5) LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revolving credit facility, maturing in April 2001, at Libor plus an
applicable margin (6.9% at December 31, 1998),
secured by substantially all assets of the Company ............... $ 56,600 $ 29,000
Capital lease obligations, payable in aggregate monthly installments
of $45 as of December 31, 1998, including interest ranging from 4%
to 10%, maturing at various dates through 2001, secured by
property and equipment............................................ 843 1,279
----------- -----------
Total debt........................................................ 57,443 30,279
Less - Current portion............................................... (449) (446)
----------- -----------
Total long-term debt.............................................. $ 56,994 $ 29,833
=========== ===========
</TABLE>
Annual maturities of long-term debt as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... 449
2000............................................................................... 388
2001............................................................................... 56,606
-----------
Total............................................................................ $ 57,443
===========
</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 December
31, 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 December 31, 1998, the Company had
the ability to borrow an additional amount of approximately $8.0 million as of
December 31, 1998.
The Company entered into an interest rate swap agreement in August 1998 with
NationsBank N.A., the notional amount of which is $40 million at December 31,
1998. The Company entered into the agreement to fix the interest expense paid on
a portion of the amount outstanding under its credit facility with NationsBank
N.A. Under the terms of the agreement, which matures in August 2001, the
Company's borrowing rate is fixed at 5.54% plus the applicable margin due under
the terms of the revolving credit facility. Hedge accounting treatment is
applied to the interest rate swap agreement with interest differentials
currently payable or receivable under the agreement recognized each period as an
adjustment to interest expense. The net effect of this agreement on the
Company's interest expense in 1998 was nominal.
49
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(6) 401(K) PROFIT SHARING PLANS
---------------------------
The Company maintains 401(k) Profit Sharing Plans (the "Plans"), which are
defined contribution plans covering substantially all employees who meet certain
age and service requirements. For the three years ended December 31, 1998, the
Company made discretionary profit sharing contributions to the Plans equal to a
percentage of the eligible employees' salaries, and made other employer
contributions to the Plans. There was no expense related to the Plans for the
years ended December 31, 1998, 1997 and 1996 as contributions were covered in
each year by the Plans' forfeitures.
(7) INCOME TAXES
------------
Current income tax expense represents the income tax payable for the period.
Deferred income tax expense (benefit) represents the change in the balance of
deferred income taxes during the period. In accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes for the tax consequences in future
years of differences between the tax basis and the financial reporting basis of
assets and liabilities based on the enacted tax rates expected to be applicable
to the future periods in which such tax consequences will occur.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current................................................ $ 3,653 $ 3,157 $ 1,343
Deferred............................................... 1,417 (263) (1,154)
----------- ----------- -----------
Total............................................... $ 5,070 $ 2,894 $ 189
=========== =========== ===========
Federal................................................ $ 4,245 $ 2,454 $ (27)
State.................................................. 825 440 216
----------- ----------- -----------
Total................................................ $ 5,070 $ 2,894 $ 189
=========== =========== ===========
</TABLE>
A reconciliation of the tax provision at the statutory federal rate of 34% to
the actual income tax expense (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Tax provision (benefit) at the
federal statutory rate.............................. $ 3,891 $ 2,741 $ (3,721)
State income taxes..................................... 453 319 (433)
Increase (decrease) in valuation allowance for
deferred tax assets................................. --- (828) 2,122
Non-deductible portion of write-down
of office-based net assets.......................... --- --- 1,279
Non-deductible goodwill amortization................... 830 621 516
Capital gain to be offset against unrecognized
capital loss carryover.............................. (190) --- ---
Income of affiliates that cannot be
offset against net operating
losses of the Company............................... --- --- 296
Other, net............................................. 86 41 130
----------- ----------- -----------
Total............................................... $ 5,070 $ 2,894 $ 189
=========== =========== ===========
</TABLE>
50
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Deferred income taxes were related to the following timing differences at
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ------------
<S> <C> <C>
Goodwill and other intangible assets................................ $ 924 $ 2,378
Accrual basis income of cash basis affiliates....................... (487) (327)
Self-insurance accruals............................................. 1,290 1,420
Conversion to accrual basis by cash basis taxpayers................. (374) (388)
Bad debt reserve.................................................... --- (300)
Property and equipment.............................................. (378) ---
Original issue discount interest.................................... 321 ---
Other, net.......................................................... (2) (72)
----------- -----------
Total............................................................ 1,294 2,711
Valuation allowance................................................. (1,294) (1,294)
----------- -----------
Net deferred income taxes........................................ $ 0 $ 1,417
=========== ===========
</TABLE>
The Company records a valuation allowance to reflect net deferred income taxes
at their estimated realizable value.
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
(a) Major Customers
A significant portion of the Company's revenue is derived from delivering or
managing hospital-based physician services at multiple hospitals which are under
common ownership. Of the Company's total net revenue in 1998, approximately
$22.9 million, or 20.3%, was derived from anesthesia, obstetrics and neonatology
services delivered at three hospitals owned and operated by the South Broward
Hospital District. In addition, approximately $28.9 million, or 25.6% of the
Company's total net revenue in 1998, was derived from anesthesia, neonatology,
pediatric and emergency services delivered at 13 hospitals and two ambulatory
surgical facilities owned and operated by Columbia/HCA Healthcare Corp. In
addition, approximately $9.3 million, or 8.3% of the Company's total net revenue
in 1998, was derived from anesthesia, neonatology, pediatric, emergency and
management services delivered at three hospitals owned and operated by Tenet
Healthcare Corporation.
A significant portion of the Company's revenue is derived from delivering
medical services to patients who are covered under various Medicare and Medicaid
health care programs. Approximately 10.4% of the Company's total net revenue in
1998 was derived from the assignment of Medicare and Medicaid benefits to the
Company by patients of the Company's affiliated physicians. In addition,
approximately 4.4% of the Company's total net revenue in 1998 was derived from
capitation payments from health maintenance organizations for patients who had
assigned their Medicare or Medicaid benefits to the health maintenance
organizations. In each year the amounts received from managed care organization
under the Company's capitation arrangements exceeded the cost of services
provided to patients under those arrangements.
In addition, the Company derived 8.2%, 14.3% and 20.8% of its total net revenue
in 1998, 1997 and 1996, respectively, from a single third-party payor. No other
third-party payor or other customer accounted for 10% or more of the Company's
net revenue in 1998.
51
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(b) Employment Agreements
The Company and its affiliates have employment contracts with certain
executives, physicians and other clinical and administrative employees. Future
annual minimum payments under such employment agreements as of December 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 16,117
2000............................................................................... 13,722
2001............................................................................... 11,283
2002............................................................................... 9,898
2003............................................................................... 7,533
Thereafter......................................................................... 4,324
-----------
Total .......................................................................... $ 62,877
===========
</TABLE>
(c) Self-insurance
Due to the nature of its business, the Company becomes involved as a defendant
in medical malpractice lawsuits, some of which are currently ongoing, and is
subject to the attendant risk of substantial damage awards. The Company
maintains professional and general liability insurance on a claims-made basis.
The Company has a primary malpractice insurance policy which covers losses
incurred by the Company up to a limit of $1.0 million per individual claim. In
addition, the Company has a secondary malpractice insurance policy which covers
losses in excess of the primary policy limits, up to a limit of $5.0 million per
individual claim and a limit of $5.0 million per calendar year for all claims
combined. Under the primary policy, the Company is required to pay a
self-insured retention amount equal to the first $250,000 and $150,000 in 1998
and 1997, respectively, of losses for each individual claim up to a maximum
aggregate self-insured retention amount of $1,000,000 and $900,000 for all
claims in 1998 and 1997, respectively. Defense costs in excess of these
self-insured retention amounts are paid by the Company's insurer. There can be
no assurance, that an existing or future claim or claims will not exceed the
limits of available insurance coverage, that any insurer will remain solvent and
able to meet its obligations to provide coverage for any such claim or claims or
that such coverage will continue to be available with sufficient limits and at a
reasonable cost to adequately and economically insure the Company's operations
in the future. A judgment against the Company in excess of such coverage could
have a material adverse effect on the Company.
The liability for self-insurance accruals in the accompanying balance sheets
includes estimates of the ultimate costs related to both reported claims and
claims incurred but not reported. The estimate of claims incurred but not
reported was $3,165,000, $2,522,000 and $2,095,000 at December 31, 1998, 1997
and 1996, respectively, which represents an estimate of the aggregate cost to be
incurred by the Company on unreported claims. An analysis of the self-insurance
accrual is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year.............................. $ 3,973 $ 3,170 $ 1,615
Provision for self-insurance............................ 1,159 378 1,252
Self-insurance accruals related to
acquired physician practices......................... 892 626 439
Payments made for claims................................ (1,705) (201) (136)
----------- ----------- -----------
Balance, end of year............................... $ 4,319 $ 3,973 $ 3,170
=========== =========== ===========
</TABLE>
52
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Payments made for claims increased in 1998 as a result of an increase in
reported claims during 1997, many of which are incurring ongoing legal defense
costs or were settled during 1998. The increase in reported claims was
anticipated due to the growth in the Company's overall business and addition of
medical specialties that historically have demonstrated a higher frequency of
malpractice claims. Historically, the malpractice claims asserted against the
Company have not exceeded the limits of its professional liability insurance and
the Company's cost of self-insurance has been limited to the maximum annual
aggregate retention amount.
(d) 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 Company's Predecessor. 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 Company believes the lawsuit is
without merit and continues to vigorously defend against it and also believes
the lawsuit's ultimate resolution and ongoing professional fees incurred as
defense costs will not have a material adverse impact on the financial position,
operations and cash flows of the Company.
In December 1998, the buyer of two medical practices previously owned by the
Company, filed suit against the Company in the Circuit Court of the Seventeenth
Judicial Circuit in and for Broward County, Florida. The complaint seeks to
recover money damages and rescind the sale of the medical practices, based upon
alleged misrepresentations and concealment by the Company with respect to its
relationship with a third party payor in regards to these practices. The
practices were sold by the Company to the buyer in April 1998 in exchange for
the execution of a promissory note in the amount of $3,550,000 which is
presently in default. The Company believes the lawsuit is without merit and
intends to vigorously defend against it while vigorously pursuing a counter
claim for recovery on its unsecured purchase money note. The Company also
believes the lawsuit's ultimate resolution and ongoing professional fees
incurred as defense costs will not have a material adverse impact on the
financial position, operations and cash flows of the Company. See Note (2) for
further disclosure regarding the sale of the primary care practices referred to
in this paragraph.
(e) Lease Commitments
The Company leases office space and furniture and equipment for its physician
practice locations and administrative office under various non-cancellable
operating leases. Rent expense under operating leases was $2,230,733, $2,475,000
and $2,399,000 in 1998, 1997 and 1996, respectively. Future annual minimum
payments under non-cancellable operating leases as of December 31, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999.............................................................................. $ 2,231
2000.............................................................................. 2,044
2001.............................................................................. 1,857
2002.............................................................................. 1,593
2003.............................................................................. 1,264
Thereafter........................................................................ 2,282
-----------
Total.......................................................................... $ 11,271
===========
</TABLE>
53
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(f) Government Regulation
The healthcare industry in general, and the services that the Company provides
are subject to extensive federal and state laws and regulations. Additionally, a
significant portion of the Company's net revenue is from payment by
government-sponsored health care programs, principally Medicare and Medicaid,
and is subject to audit and adjustments by applicable regulatory agencies.
Failure to comply with any of these laws or regulations, the results of
regulatory audits and adjustments, or changes in the amounts payable for the
Company's services under these programs could have a material adverse effect on
the Company's financial position and results of operations
Federal and state laws regulate the healthcare industry, the relationship
between practice management companies such as the Company and physicians, and
the relationship among physicians and other providers of healthcare services.
Several laws, including fee-splitting, anti-kickback laws and prohibition of the
corporate practice of medicine, have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies vested with broad discretion in interpreting them. The
Company's agreements and proposed activities have not been examined by federal
or state authorities under these laws and regulations. Although the Company
believes that its operations are conducted so as to comply with all of the
applicable laws, there can be no assurance such operations will not be
challenged as in violation of one or more of such laws. In addition, these laws
and their interpretation vary from state to state. The regulatory framework at
certain jurisdictions may limit the Company's expansion into or ability to
continue operations within such jurisdictions, if the Company's is unable to
modify its operational structure to conform to such regulatory framework. Any
limitation on the Company's ability to expand could have an adverse effect on
the Company.
There have been numerous initiatives at the federal and state levels for
comprehensive reforms affecting the availability of, and payment for,
healthcare. The Company believes that such initiatives will continue during the
foreseeable future. Certain reforms previously proposed could, if adopted, have
a material effect on the Company.
(9) STOCKHOLDERS' EQUITY
--------------------
At January 1, 1995, the issued and outstanding stock of the Company consisted of
409,900 shares of the Company's Class A voting common stock held by management
of the Company and 350,000 and 78,572 shares of Class A and Class B Convertible
Preferred Stock, respectively. Each share of Class A and Class B Convertible
Preferred Stock was convertible, at the option of the holder, into one-fourth of
a share of Class A voting and Class B non-voting common stock, respectively, and
three-fourths of a share of Redeemable Preferred Stock. The Class A and Class B
Convertible Preferred Stock accrued dividends on a cumulative basis at 7.5% per
annum, and had a liquidation value of $50 per share.
In June 1995, the Company issued a convertible promissory note for $5.0 million,
which was convertible into 181,671 shares of common stock. The noteholder also
received a warrant to purchase up to an additional 45,410 shares of the
Company's common stock at an exercise price of $0.58 per share which becomes
exercisable in three installments if, through the substantial efforts of the
noteholder, the Company consummates transactions with physician practices
(generally either by acquiring such practices or entering into agreements to
manage such practices) which collectively result in certain increases in the
Company's earnings during certain measurement periods. The first and second
installments, which consisted of 15,146 shares each, expired unexercised in
December 1996 and 1997, respectively. The remaining installment of 15,132 shares
expired unexercised in June 1998.
54
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company completed an initial public offering of its common stock on November
3, 1995, in which it issued 3,825,000 shares of common stock at a price of
$13.00 per share. In connection with the public offering (i) the Company
increased the amount of authorized preferred stock to 5,000,000 shares and
increased the amount of authorized common stock to 31,000,000 shares, (ii) all
of the outstanding Class A and Class B Convertible Preferred Stock was converted
into 1,321,377 shares of Class A common stock, 296,638 shares of Class B common
stock, and 321,429 shares of Redeemable Preferred Stock, (iii) all of the
Redeemable Preferred Stock was redeemed by the Company for an aggregate amount
of $16.1 million, (iv) the Class A voting common stock was redesignated as
"common stock" and the Class B non-voting common stock was redesignated as
"Class A common stock," and (v) a 15.10-to-one stock split was effected as a
stock dividend. The 15.10 to one stock split has been retroactively reflected in
the accompanying consolidated financial statements.
The initial public offering generated net proceeds to the Company of $44.8
million. Of the total proceeds, $16.1 million was used to redeem the Company's
redeemable preferred stock, $26.1 million was used to repay long-term debt, $1.5
million was used to pay accrued dividends on convertible preferred stock, and
$1.1 million was used to pay certain deferred payments in connection with the
acquisition of a physician practice in June 1995.
In March 1996, the Company issued approximately 658,000 shares of its common
stock as partial consideration for an acquisition of a hospital-based physician
practice, as discussed in Note 2.
In May 1997, the Company reduced the amount of authorized common stock from
31,000,000 shares to 21,000,000 shares. In November 1997, the Company issued
approximately 14,000 shares of its common stock as partial consideration for an
acquisition of an office-based physician practice.
During the period from January 1998 through June 1998 the Company issued
approximately 1,428,000 shares of its common stock as partial consideration in
the acquisition of seven physician practices. Pursuant to a stock repurchase
program approved by the Company's Board of Directors, the Company repurchased
approximately 425,000 shares of its common stock from July 1998 through December
1998 for approximately $3.7 million. The shares repurchased have been retired
and cancelled. Employees of the Company exercised options to acquire
approximately 23,000 and 77,000 shares of the Company's common stock during 1998
and 1997, respectively.
(10) STOCK OPTIONS
-------------
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") in 1996. As
permitted under SFAS No. 123 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 employee 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 to employees.
In 1995 the Company adopted the 1995 Stock Option Plan, under which 750,000
shares of common stock were reserved for issuance. An amendment to the plan in
1997 and second amendment in 1998 increased the shares of common stock reserved
for issuance to 1,350,000 which was subsequently amended in 1998 to increase the
shares of common stock reserved for issuance to 1,750,000. Options granted under
the 1995 Stock Option Plan become exercisable either over time, or upon the
attainment of defined operating goals. All stock options granted expire ten
years after the date of grant. Stock option activity has been as follows:
55
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
---------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year..... 937,084 $ 7.91 553,911 $ 5.73 321,461 $ 8.82
Granted during year............ 522,675 13.18 471,500 9.27 608,071 7.17
Terminated during year......... --- --- --- (335,071) 10.51
Exercised...................... (23,475) 3.92 (77,190) 0.58 --- ---
Forfeited during year.......... (34,105) 8.97 (11,137) 6.65 (40,550) 12.32
---------- --------- ---------
Balance, end of year...... 1,402,179 $ 9.92 937,084 $ 7.91 553,911 $ 5.73
========== ========= =========
Exercisable at end of year..... 397,223 $ 8.13 151,716 $ 6.25 131,283 $ 3.38
</TABLE>
The weighted average fair value per share as of the grant date was $6.78 for
stock options granted in 1998, $6.11 for stock options granted in 1997, $4.15
for stock options granted in 1996 and $6.82 for stock options granted in 1995.
The determination of the fair value of all stock options granted in 1998, 1997,
1996 and 1995 was based on (i) risk-free interest rates of 6.2% to 6.5%,
depending on the expected life of each option, (ii) expected option lives of 3
to 6 years, depending on the vesting provisions of each option, (iii) expected
volatility in the market price of the Company's common stock from 50% to 78%,
and (iv) no expected dividends on the underlying common stock. Stock options
outstanding at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Total Outstanding Exercisable
------------------------------------ ------------------------
Weighted Average Weighted
Range of Number ----------------------- Number Average
Exercise of Exercise Remaining of Exercise
Prices Shares Price Life Shares Price
---------------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$.58 22,508 $ .58 6.2 years 22,508 $ .58
$5.75 to $8.13 326,746 6.48 7.1 years 245,382 6.64
$8.75 to $9.50 520,250 9.22 8.3 years 39,334 8.70
$10.00 to $14.25 532,675 13.12 9.3 years 89,999 13.85
----------- -----------
Total 1,402,179 $ 9.92 8.3 years 397,223 $ 8.13
=========== ===========
</TABLE>
The following table summarizes the pro forma consolidated results of operations
of the Company as though the fair value based accounting method in SFAS No. 123
had been used in accounting for stock options.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997
------------ ------------
(in thousands, except
per share data)
As reported results of operations:
<S> <C> <C>
Net income........................................................... $ 6,373 $ 5,167
Net income per share - basic......................................... $ 0.80 $ 0.77
Net income per share - diluted....................................... $ 0.78 $ 0.73
Pro forma results of operations:
Net income........................................................... $ 4,113 $ 3,495
Net income per share - basic......................................... $ 0.52 $ 0.52
Net income per share - diluted....................................... $ 0.50 $ 0.50
</TABLE>
56
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(11) SUBSEQUENT EVENT
----------------
In January 1999 the Company completed the acquisition of a physician practice
for approximately $1.9 million which was paid in cash. From January 1999 through
March 16, 1999 the Company repurchased approximately 1,275,000 shares of its
common stock for approximately $10.6 million from certain physicians who
received the Company's common stock as partial consideration for the acquisition
of their practices by the Company from January 1998 through March 1998, see Note
(2). Concurrent with such repurchases, the Company made payments of
approximately $5.6 million in connection with the stock price guarantees
associated with the stock issued and repurchased in those acquisitions.
On March 25, 1999 the Company announced the signing of a definitive merger
agreement between the Company and an investor group led by Vestar Capital
Partners and Sheridan Healthcare, Inc. senior management. Under the terms of the
agreement, the investor group will offer Sheridan Healthcare, Inc. shareholders
$9.25 per share in cash for all outstanding common shares in a tender offer.
Including debt and other obligations of the Company, and costs expected to be
incurred in connection with the acquisition, the total value of the transaction
is approximately $155 million. The transaction was unanimously recommended by
the Company's Board of Directors and is subject to a variety of conditions,
including receipt of at least a majority of the voting stock in the tender
offer, shareholder approval, financing and regulatory approvals.
57
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
--------------------------------------------------------------
To Sheridan Healthcare, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Sheridan Healthcare, Inc. and subsidiaries for each of
the three years in the period ended December 31, 1998, included in this Form
10-K, and have issued our report thereon dated February 18, 1999 (except for the
matter discussed in Note 11, as to which the date is March 25, 1999). Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 1999. (except for the matter discussed in
Note 11, as to which the date is March 25, 1999).
58
<PAGE>
<TABLE>
<CAPTION>
SHERIDAN HEALTHCARE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands)
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Deductions Period
----------- ----------- ---------- -----------
Accounts receivable allowances:
<S> <C> <C> <C> <C>
Year ended December 31, 1998.................... $ 1,828 $ 5,592 $ 5,074 $ 2,346
=========== =========== =========== ===========
Year ended December 31, 1997.................... $ 1,277 $ 4,066 $ 3,515 $ 1,828
=========== =========== =========== ===========
Year ended December 31, 1996.................... $ 737 $ 3,605 $ 3,065 $ 1,277
=========== =========== =========== ===========
</TABLE>
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- - ------------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------------------------------
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the captions "Proposal One: Election
of Directors" and "Compliance with Section 16(a) of the Exchange Act"
information required by Item 10 of Form 10-K as to directors and certain
executive officers of the Company and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- - --------------------------------
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption "Compensation of Directors
and Executive Officers" information required by Item 11 of Form 10-K and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------------------------------------------------------------------------
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption "Security Ownership of
Management and Certain Beneficial Owners" information required by Item 12 of
Form 10-K and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders,
which Proxy Statement is to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption "Certain Transactions"
information required by Item 13 of Form 10-K and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- - -------------------------------------------------------------------------
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules: See Item 8.
(b) No reports on Form 8-K have been filed during the last quarter for which
this report is filed.
60
<PAGE>
3. Exhibits (cont'd):
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Third Amended and Restated Certificate of Incorporation, as
amended effective May 27, 1997 (incorporated herein by
reference to such exhibits filed as exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 and to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997) .
3.2 Amended and Restated By-laws (incorporated herein by reference
to such exhibit filed as an exhibit to the Company=s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
4.1 Specimen certificate for shares of Common stock of the Company
(incorporated herein by reference to such exhibit filed as an
exhibit to the Company=s Registration Statement on Form S-1
(File No. 33-93290) filed on June 8, 1995, as amended (the
A Registration Statements).
4.2 Amended and Restated Stockholders= Agreement by and among SAMA
Holdings, Inc. and the TA Investors, as defined therein, the
NationsBank Investors, as defined therein, Summit Hospital
Corporation and the additional parties listed on Schedule B
thereto, amended and restated as of June 5, 1995, and
effective as of November 28, 1994 (incorporated herein by
reference to such exhibit filed as an exhibit to the
Registration Statement).
4.3 Amendment to Stockholders= Agreement by and among SAMA
Holdings, Inc. and the TA Investors, as defined therein, the
NationsBank Investors, as defined therein, Summit Hospital
Corporation and the additional parties listed in Schedule B
thereto, as amended and restated as of June 5, 1995, and
effective as of November 28, 1994, dated as of October 27,
1995 (incorporated herein by reference to such exhibits filed
as exhibits to the Registration Statement and to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995).
10.1 Employment Agreement of Lewis Gold, M.D. effective as of
November 28, 1994 by and among SAMA Holdings, Inc.,
Southeastern Anesthesia Management Associates, Inc. and Lewis
Gold, as amended July 28, 1995 (incorporated herein by
reference to such exhibits filed as exhibits to the
Registration Statement).
10.2 Employment Agreement of Mitchell Eisenberg, M.D. effective as
of November 28, 1994 by and among SAMA Holdings, Inc.,
Southeastern Anesthesia Management Associates, Inc. and
Mitchell Eisenberg, as amended July 28, 1995 (incorporated
herein by reference to such exhibits filed as exhibits to the
Registration Statement).
10.3 Executive Employment Agreement of Jay Martus effective as of
January 1, 1995 by and among SAMA Holdings, Inc., Southeastern
Anesthesia Management Associates, Inc. and Jay Martus, as
amended August 1, 1995 (incorporated herein by reference to
such exhibits filed as exhibits to the Registration
Statement).
10.4 Executive Employment Agreement of Gilbert Drozdow dated
January 1, 1995 by and among SAMA Holdings, Inc., Southeastern
Anesthesia Management Associates, Inc. and Gilbert Drozdow, as
amended August 1, 1995 (incorporated herein by reference to
such exhibits filed as exhibits to the Registration
Statement).
61
<PAGE>
3. Exhibits (cont'd):
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.5 Agreement and License of Packaged Software dated April 10,
1989, as amended, by and between Medical Software Specialties,
Inc. and Southeastern Anesthesia Management Associates, P.A.,
as amended (incorporated herein by reference to such exhibit
filed as an exhibit to the Registration Statement).
10.6 Participation Agreement by and between Health Options, Inc.
and Southeastern Anesthesia Management Associates, dated as of
February 8, 1995, as amended, including the attached schedule
of participating physicians who have signed the agreement
(form of agreement incorporated herein by reference to such
exhibit filed as an exhibit to the Registration Statement).
10.7 Participation Agreement by and between Health Options, Inc.
and Southeastern Anesthesia Management Associates P.A. dated
as of September 30, 1991 (incorporated herein by reference to
such exhibit filed as an exhibit to the Registration
Statement).
10.8 Form of Health Options Participation Agreement by and between
Health Options, Inc. and Individual Physician, including the
attached schedule of participating physicians who have signed
the Agreement, and including a reimbursement change letter
(form of agreement incorporated herein by reference to such
exhibit filed as an exhibit to the Registration Statement).
10.9 Physician Agreement dated April 1, 1990 by and between
Pavilack, Karch, Lipton Barran & Ast, P.A. d/b/a Anesthesia
Associates of Hollywood and Humana Medical Plan, Inc. and
Humana Plan of Florida, Inc. and Humana Health Insurance
Company of Florida, Inc. (incorporated herein by reference to
such exhibit filed as and exhibit to the Registration
Statement).
10.10 Preferred Patient Care Agreement by and between Blue Cross and
Blue Shield of Florida, Inc. and Individual Physicians, with
attached schedule of physicians who have signed the agreement,
and including a reimbursement change letter (form of agreement
incorporated herein by reference to such exhibit filed as an
exhibit to the Registration Statement).
10.11 Form of Blue Cross and Blue Shield of Florida Traditional
Program Participating Physician Agreement, with attached
schedule of signatories, and including a reimbursement change
letter (form of agreement incorporated herein by reference to
such exhibit filed as an exhibit to the Registration
Statement).
10.12 Management Services Agreement, dated as of November 28, 1994,
between AMSA, Inc., a Florida corporation, and
Anesthesiologists Management Services Associates, P.C., a New
York professional corporation, as amended September 1, 1995
(incorporated herein by reference to such exhibits filed as
exhibits to the Registration Statement and to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10.13 Master Equipment Lease Agreement dated as of June 12, 1995 by
and between NationsBanc Leasing Corporation and the Company
(incorporated herein by reference to such exhibit filed as an
exhibit to the Registration Statement).
62
<PAGE>
3. Exhibits (cont'd):
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 Agreement and Plan of Merger, by and among Sheridan
Healthcare, Inc., Sheridan Acquisition Corp., Inc.,
Neonatology Certified, Inc., and the additional parties listed
on Exhibit C attached thereto, dated as of March 14, 1996
(incorporated herein by reference to such exhibit filed as an
exhibit to the Company's Report on Form 8-K filed as of March
14, 1996).
10.15 Stock Purchase Agreement, by and among Sheridan Healthcare,
Inc., Children's Hospital Services, Inc., and the parties
listed on Exhibit C attached thereto, dated as of March 14,
1996 (incorporated herein by reference to such exhibit filed
as an exhibit to the Company's Report on Form 8-K filed as of
March 14, 1996).
10.16 Investment and Stockholders= Agreement, by and among Sheridan
Healthcare, Inc., and the parties listed on Schedule A
attached thereto, dated as of March 14, 1996 (incorporated
herein by reference to such exhibit filed as an exhibit to the
Company's Report on Form 8-K filed as of March 14, 1996).
10.17 Executive Employment Agreement, dated as of August 9, 1996, by
and between Sheridan Healthcorp, Inc., Sheridan Healthcare,
Inc. and Michael F. Schundler (incorporated herein by
reference to such exhibit filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10.18 Anesthesiology Agreement by and between South Broward Hospital
District, a special taxing district doing business as Memorial
Healthcare System and Sheridan Healthcorp, Inc., a Florida
corporation, dated as of January 1, 1997 (incorporated herein
by reference to such exhibit filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
10.19 Real Property Lease Agreement, by and among ACP Venture I
Limited Partnership, a Delaware limited partnership, and
Sheridan Healthcorp, Inc., a Florida corporation, dated as of
January 11, 1997 (incorporated herein by reference to such
exhibit filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the first quarter ended March 31, 1997).
10.21 Investment and Stockholders= Agreement, by and between the
Company and Frederick N. Herman, M.D., dated as of November 3,
1997 (incorporated herein by reference to such exhibit filed
as an exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.22 Investment and Stockholders= Agreement, by and among the
Company and Rafael D. Arango, M.D., Stuart J. Leaderman, M.D.,
Eduardo H. Marti, M.D., Charles Merson, M.D., Ramiro
Rodriguez, M.D., Tirso J. Rojas, M.D., Laurence Skolnik, M.D.
and Joaquin C. Taranco, M.D., dated as of January 9, 1998
(incorporated herein by reference to such exhibit filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.23 Investment and Stockholders= Agreement, by and among the
Company and Jeffrey L. Buchalter, M.D., Kurt A. Krueger, M.D.,
Davie E. Fairleigh, M.D., and Ruben B. Timmons, M.D., dated as
of January 28, 1998 (incorporated herein by reference to such
exhibit filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998).
63
<PAGE>
3. Exhibits (cont'd):
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.24 Investment and Stockholders= Agreement, by and among the
Company and Michael R. Cavenee, M.D. and Kenneth J. Trimmer,
M.D., dated as of March 4, 1998 (incorporated herein by
reference to such exhibit filed as an exhibit to the Company's
Report on Form 8-K filed as of March 19, 1998).
10.25 Investment and Stockholders= Agreement, by and between the
Company and Nord Capital Group, Inc., dated as of March 4,
1998 (incorporated herein by reference to such exhibit filed
as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10.26 Investment and Stockholders= Agreement, by and among the
Company, Staffan R. B. Nordqvist, M.D. and Laurel A. King,
M.D., dated as of March 6, 1998 (incorporated herein by
reference to such exhibit filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998).
10.27 Second Amended and Restated Credit Agreement by and between
NationsBank, N.A. as Agent and Lender and the Company, as
Borrower, dated as of April 30, 1998.
10.28 Sheridan Healthcare, Inc. Third Amended and Restated 1995
Stock Option Plan, effective as of April 27, 1995, amended and
restated as of July 27, 1995 and further amended as of
February 26, 1997, as of May 15, 1997, and as of June 24, 1998
(incorporated herein by reference to such exhibits filed as
exhibits to the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997 and June 30, 1997).
10.29 Investment and Stockholders= Agreement, by and among the
Company and Odalis Sijin Engel, M.D., dated as of June 16,
1998 (incorporated herein by reference to such exhibit filed
as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
10.30 Investment and Stockholders= Agreement, by and among the
Company and Santiago H. Triana, M.D., dated as of June 23,
1998 (incorporated herein by reference to such exhibit filed
as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
10.31 Investment and Stockholders= Agreement, by and among the
Company and Felix Estrada, M.D., Ian Jeffries, M.B., and
Andrew Kairalla, M.D., dated as of June 26, 1998 (incorporated
herein by reference to such exhibit filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
10.32 Amendment No. 3, dated and effective as of August 15, 1998, to
the Employment Agreement by and among SAMA Holdings, Inc.
n/k/a Sheridan Healthcare, Inc. , Southeastern Anesthesia
Management Associates, Inc. n/k/a Sheridan Healthcorp,Inc. and
Mitchell Eisenberg.
10.33 Amendment No. 3, dated and effective as of August 15, 1998, to
the Executive Employment Agreement by and among SAMA Holdings,
Inc. n/k/a Sheridan Healthcare, Inc., Southeastern Anesthesia
Management Associates, Inc. n/k/a Sheridan Healthcorp, Inc.
and Lewis Gold.
10.34 Amendment No. 2, dated and effective as of August 15, 1998, to
the Executive Employment Agreement by and among SAMA Holdings,
Inc. n/k/a Sheridan Healthcare, Inc., Southeastern Anesthesia
Management Associates, Inc. n/k/a Sheridan Healthcorp, Inc.
and Jay A. Martus.
64
<PAGE>
3. Exhibits (cont'd):
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.35 Amendment No. 1, dated and effective as of August 15, 1998, to
the Executive Employment Agreement by and among Sheridan
Healthcare, Inc., Sheridan Healthcorp, Inc. and Michael
Schundler.
10.36 Amendment No. 3, dated and effective as of October 12, 1998,
to the Executive Employment Agreement by and among SAMA
Holdings, Inc. n/k/a Sheridan Healthcare, Inc., Southeastern
Anesthesia Management Associates, Inc. n/k/a Sheridan
Healthcorp, Inc. and Jay A. Martus.
10.37 Amendment No. 1, to the Second Amended and Restated Credit
Agreement, by and among NationsBank, N.A., as Agent and
Lender, and the Company, as Borrower, dated as of September
23, 1998.
21.1 Schedule of Subsidiaries.
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 1999 By: /s/ Michael F. Schundler
-------------------------
Michael F. Schundler
Chief Financial Officer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mitchell Eisenberg, M.D. Chairman of the Board, March 30, 1999
- - ---------------------------- President, Chief Executive
Mitchell Eisenberg, M.D. Officer (Principal Executive
Officer)
/s/ Lewis D. Gold, M.D. Executive Vice President, March 30, 1999
- - ---------------------------- Director
Lewis D. Gold, M.D.
/s/ Henry E. Golembesky, M.D. Director March 30, 1999
- - -----------------------------
Henry E. Golembesky, M.D.
/s/ Jamie Hopping Director March 30, 1999
- - -----------------------------
Jamie Hopping
/s/ Neil A. Natkow, D.O. Director March 30, 1999
- - -----------------------------
Neil A. Natkow, D.O.
/s/ Michael F. Schundler Chief Financial Officer March 30, 1999
- - ------------------------- (Principal Financial and
Michael F. Schundler Accounting Officer)
66
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
by and among
SHERIDAN HEALTHCARE, INC.,
as Borrower,
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent and as Lender
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
April 30, 1998
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April
30, 1998 (the "Agreement"), is made by and among SHERIDAN HEALTHCARE, INC., a
Delaware corporation having its principal place of business in Hollywood,
Florida (the "Borrower"), NATIONSBANK, NATIONAL ASSOCIATION, a national banking
association organized and existing under the laws of the United States, in its
capacity as a Lender ("NationsBank"), and each other financial institution
executing and delivering a signature page hereto and each other financial
institution which may hereafter execute and deliver an instrument of assignment
with respect to this Agreement pursuant to Section 12.1 (hereinafter such
financial institutions may be referred to individually as a "Lender" or
collectively as the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION, a
national banking association organized and existing under the laws of the United
States, in its capacity as agent for the Lenders (in such capacity, and together
with any successor agent appointed in accordance with the terms of Section 11.9,
the "Agent");
W I T N E S S E T H:
--------------------
WHEREAS, (a) the Borrower and NationsBank have heretofore entered into
a Revolving Credit Agreement dated November 1, 1995 (the "Original Agreement")
pursuant to which NationsBank agreed to make a revolving credit facility to the
Borrower, which facility was guaranteed by certain subsidiaries and affiliates
(the "Original Guarantors") of the Borrower by Guaranty Agreements (the
"Original Guarantys"), and (b) the Borrower and the Original Guarantors have
secured their obligations pursuant to a Security Agreement dated November 1,
1995 (the "Original Security Agreement") by which the Borrower and the Original
Guarantors granted to NationsBank a security interest in property described
therein, and (c) the Borrower and certain subsidiaries and affiliates (the
"Original Pledgors") have secured their obligations and the Borrower's
obligations pursuant to a Securities Pledge Agreement dated November 1, 1995
(the "Original Pledge Agreement") pursuant to which the Original Pledgors
granted to NationsBank a security interest in the securities described therein;
and
WHEREAS, by the Amended and Restated Credit Agreement dated March 12,
1997, as amended by the First Amendment to the Amended and Restated Credit
Agreement dated December 17, 1997 (the "Existing Agreement") the Borrower, the
Agent and certain Lenders (the "Existing Lenders") amended and restated the
Original Agreement in its entirety; and
WHEREAS, in conjunction with the entering into of the Existing
Agreement, (a) the Original Guarantors amended and restated the Original
Guarantys in their entirety pursuant to (i) that certain Amended and Restated
Guaranty Agreement dated March 12, 1997 and (ii) subsequent Guaranty Agreements
delivered to the Agent pursuant to Section 8.20 of the Existing Agreement
(collectively, the "Existing Guarantys"), (b) the Borrower and the Original
Guarantors amended and restated the Original Security Agreement in its entirety
pursuant to (i) that certain Amended and Restated Security Agreement dated March
12, 1997 and (ii) subsequent Security Agreements delivered to the Agent pursuant
to Section 8.20 of the Existing Agreement (collectively, the "Existing Security
Agreements"), and (c) the Original Pledgors have amended and restated the
Original Pledge Agreement in its entirety pursuant to (i) that certain Amended
<PAGE>
and Restated Securities Pledge Agreement and (ii) subsequent Securities Pledge
Agreements delivered to the Agent pursuant to Section 8.20 of the Existing
Agreement (collectively, the "Existing Pledge Agreements"); and
WHEREAS, the Borrower has requested that the Lenders amend and restate
the Existing Agreement in its entirety in order to provide for a revolving
credit facility of $75,000,000, the proceeds of which are to be used as provided
in Section 2.12 and which shall include a letter of credit facility of
$2,000,000 for the issuance of standby letters of credit; and
WHEREAS, the Lenders are willing to make such revolving credit and
letter of credit facilities available to the Borrower upon the terms and
conditions set forth herein;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as
follows:
ARTICLE I
Definitions and Terms
---------------------
1.1. Amendment and Restatement . The Borrower, the Agent, and the Lender
hereby agree that upon the effectiveness of this Agreement, the terms and
provisions of the Existing Agreement shall be and hereby are amended and
restated in their entirety by the terms and conditions of this Agreement and the
terms and provisions of the Existing Agreement, except as otherwise provided
herein, shall be superseded by this Agreement.
Notwithstanding the amendment and restatement of the Existing Agreement
by this Agreement, the Borrower shall continue to be liable to the Agent and the
Existing Lenders with respect to agreements on the part of the Borrower under
the Existing Agreement to indemnify and hold harmless the Agent and Existing
Lenders from and against all claims, demands, liabilities, damages, losses,
costs, charges and expenses to which the Agent and the Existing Lenders may be
subject arising in connection with the Existing Agreement. This Agreement is
given as a substitution of, and not as a payment of, the obligations of Borrower
under the Existing Agreement and is not intended to constitute a novation of the
Existing Agreement. Except as otherwise selected by the Borrower by delivery of
a Borrowing Notice or Interest Rate Protection Notice prior to the Closing Date
in accordance with the terms hereof, upon the effectiveness of this Agreement
all amounts outstanding and owing by Borrower under the Existing Agreement as of
the Closing Date, as determined by the Lenders, shall constitute Advances
hereunder accruing interest with respect to Base Rate Loans under the Existing
Agreement, at the Base Rate hereunder. The parties hereto agree that the
Interest Periods for all Eurodollar Rate Loans outstanding under the Existing
Agreement on the Closing Date shall be terminated and the Borrower shall furnish
to the Agent an Interest Rate Selection Notice for existing Loans and a
Borrowing Notice for additional Loans as may be required in connection with the
allocation of Loans among Lenders in accordance with their Applicable Commitment
Percentages. All of the indebtedness, liabilities and obligations owing by the
Borrower under the Existing Agreement shall continue to be secured by the
"Collateral" as defined in the Existing Agreement and the Borrower acknowledges
and agrees that the "Collateral" as defined in the Existing Agreement remains
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subject to a security interest in favor of NationsBank in its capacity as Agent
hereunder for the ratable benefit of the Lenders and to secure the liabilities
of Borrower re-evidenced by this Agreement and the other Loan Documents.
1.2. Definitions. For the purposes of this Agreement, in addition to the
definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Acquisition" means the acquisition of (i) a controlling
equity interest in another Person (including the purchase of an option,
warrant or convertible or similar type security to acquire such a
controlling interest at the time it becomes exercisable by the holder
thereof), whether by purchase of such equity interest or upon exercise
of an option or warrant for, or conversion of securities into, such
equity interest, or (ii) assets of another Person which constitute all
or substantially all of the assets of such Person or of a line or lines
of business conducted by such Person.
"Advance" means a borrowing under the Revolving Credit
Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan.
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is
under common control with the Borrower; or (ii) which beneficially owns
or holds 5% or more of any class of the outstanding voting stock (or in
the case of a Person which is not a corporation, 5% or more of the
equity interest) of the Borrower; or 5% or more of any class of the
outstanding voting stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through ownership of voting stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender that portion of the Total Revolving Credit Commitment (including
its Participations and its obligations hereunder to the Issuing Bank to
acquire Participations) allocable to such Lender (i) with respect to
Lenders as of the Closing Date, as set forth in Exhibit A and (ii) with
respect to any Person who becomes a Lender hereafter, as reflected in
each Assignment and Acceptance to which such Lender is a party
Assignee; provided that the Applicable Commitment Percentage of each
Lender shall be increased or decreased to reflect any assignments to or
by such Lender effected in accordance with Section 12.1.
"Applicable Lending Office" means, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an
affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other office of such Lender (or an
affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower by written notice in accordance with the
terms hereof as the office by which its Loans of such Type are to be
made and maintained.
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"Applicable Margin" and "Applicable Unused Fee" means for each
Eurodollar Rate Loan that percent per annum set forth below, which
shall be based upon the Consolidated Leverage Ratio for the
Four-Quarter Period most recently ended as specified below:
<TABLE>
<CAPTION>
Tier Consolidated Leverage Ratio Eurodollar Applicable Margin Applicable Unused Fee
<S> <C> <C>
I Less than 1.50 to 1.00 1.000% 0.250%
II Equal to or greater than 1.50 to 1.125% 0.375%
1.00 and less than 2.00 to 1.00
III Equal to or greater than 2.00 to 1.375% 0.375%
1.00 and less than 2.50 to 1.00
IV Equal to or greater than 2.50 to 1.875% 0.500%
1.00 and equal to or less than 3.00
to 1.00
</TABLE>
From the Closing Date to through October 31, 1998, the Applicable
Margin and Applicable Unused Fee shall be Tier IV. Thereafter, the
Applicable Margin and Applicable Unused Fee shall be established at the
end of each fiscal quarter of the Borrower (each, a "Determination
Date"). Any change in the Applicable Margin or Applicable Unused Fee
following each Determination Date shall be determined based upon the
computations set forth in the certificate furnished to the Agent
pursuant to Section 8.1(a)(ii) and Section 8.1(b)(ii), subject to
review and confirmation of such computations by the Agent, and shall be
effective commencing on the first Business Day next following the date
such certificate is received (or, if earlier, the date such certificate
was required to be delivered) until the first Business Day following
the date on which a new certificate is delivered or is required to be
delivered, whichever shall first occur; provided, however, if the
Borrower shall fail to deliver any such certificate within the time
period required by Section 8.1, then the Applicable Margin and
Applicable Unused Fee shall be Tier IV until the appropriate
certificate is so delivered.
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit, or
similar documentation, executed by the Borrower from time to time and
delivered to the Issuing Bank to support the issuance of Letters of
Credit.
"Asset Disposition" means any voluntary disposition, whether
by sale, lease or transfer of (a) any or all of the assets, excluding
cash and cash equivalents, of the Borrower or any Subsidiary or any
professional corporation or association whose financial results are
included in the consolidated financial statements of the Borrower, and
(b) any of the capital stock, or securities and investments
interchangeable, exercisable or convertible for or into, or otherwise
entitling the holder to receive, any of the capital stock of any
Subsidiary or any professional corporation or association whose
financial results are included in the consolidated financial statements
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of the Borrower (other than a disposition permitted under Sections 9.6
or Section 9.9 hereof).
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered to the Agent in connection with an assignment of a
Lender's interest under this Agreement pursuant to Section 12.1.
"Authorized Representative" means any of the Chairman of the
Board, the President, the Chief Financial Officer, the Vice
President-Finance, or the General Counsel of the Borrower or, any other
Person expressly designated by the Board of Directors of the Borrower
(or the appropriate committee thereof) as an Authorized Representative
of the Borrower, as set forth from time to time in a certificate in the
form of Exhibit C.
"Base Rate" means, for any day, the rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus one-half of
one percent (1/2%) and (b) the Prime Rate for such day. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds
Rate shall become effective on the effective date of such change in the
Prime Rate or the Federal Funds Rate.
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate.
"Base Rate Refunding Loan" means a Base Rate Loan made to
satisfy Reimbursement Obligations arising from a drawing under a Letter
of Credit.
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrower's Account" means a demand deposit account number
3603892011 or any successor account with the Agent, which may be
maintained at one or more offices of the Agent or an agent of the
Agent.
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving Credit
Facility, in the form of Exhibit D.
"Business Day" means, (i) with respect to any Base Rate Loan,
any day which is not a Saturday, Sunday or a day on which banks in the
States of New York and North Carolina are authorized or obligated by
law, executive order or governmental decree to be closed and, (ii) with
respect to any Eurodollar Rate Loan, any day which is a Business Day,
as described above, and on which the relevant international financial
markets are open for the transaction of business contemplated by this
Agreement in London, England, New York, New York and Charlotte, North
Carolina.
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"Capital Expenditures" means, with respect to the Borrower and
the Guarantors, for any period the sum of (without duplication) (i) all
expenditures (whether paid in cash or accrued as liabilities) by the
Borrower or any Guarantor during such period for items that would be
classified as "property, plant or equipment" or comparable items on the
consolidated balance sheet of the Borrower and the Guarantors,
including without limitation all transactional costs incurred in
connection with such expenditures provided the same have been
capitalized, excluding, however, the amount of any Capital Expenditures
paid for with proceeds of casualty insurance as evidenced in writing
and submitted to the Agent together with any compliance certificate
delivered pursuant to Section 8.1(a) or (b), and excluding all
expenditures which are included in the Cost of Acquisition with respect
to an Acquisition, and (ii) with respect to any Capital Lease entered
into by the Borrower or a Guarantor during such period, the present
value of the lease payments due under such Capital Lease over the term
of such Capital Lease applying a discount rate equal to the interest
rate provided in such lease (or in the absence of a stated interest
rate, that rate used in the preparation of the financial statements
described in Section 8.1(a)), all the foregoing in accordance with GAAP
applied on a Consistent Basis.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time
including Statement No. 13 of the Financial Accounting Standards Board
and any successor thereof.
"Change of Control" means, at any time:
(i) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than existing
shareholders at the Closing Date either (A) becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act ), directly or indirectly, of Voting Stock of the Borrower
(or securities convertible into or exchangeable for such
Voting Stock) representing thirty-five percent (35%) or more
of the combined voting power of all Voting Stock of the
Borrower (on a fully diluted basis) or (B) otherwise acquires
the ability, directly or indirectly, to elect a majority of
the board of directors of the Borrower; or
(ii) during any period of up to 12 consecutive
months, commencing on the Closing Date, individuals who at the
beginning of such 12-month period were directors of the
Borrower shall cease for any reason (other than the death,
disability or retirement of an officer of the Borrower that is
serving as a director at such time so long as another officer
of the Borrower replaces such Person as a director) to
constitute a majority of the board of directors of the
Borrower; or
(iii) any Person or two or more Persons who are
stockholders other than existing stockholders as of the
Closing Date, either directly or indirectly, acting in concert
shall have acquired, after the Closing Date, by contract or
otherwise, or shall have entered into a contract or
arrangement that, upon consummation thereof, will result in
its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence on the management or
policies of the Borrower.
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"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 6.1 have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
"Collateral" means, collectively, all property of the
Borrower, any Guarantor or any other Person in which the Agent or any
Lender is granted a Lien as security for all or any portion of the
Obligations under any Security Instrument.
"Consistent Basis" in reference to the application of GAAP
means the accounting principles observed in the period referred to are
comparable in all material respects to those applied in the preparation
of the audited financial statements of the Borrower referred to in
Section 7.6(a).
"Consolidated EBITDA" means, with respect to the Borrower and
the Guarantors for any Four-Quarter Period ending on the date for which
the computation thereof is being made, the sum of, without duplication,
(i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii)
taxes on income, (iv) amortization, (v) depreciation, and (vi) certain
demonstrable adjustments approved by the Agent in connection with an
Acquisition all determined on a consolidated basis in accordance with
GAAP applied on a Consistent Basis; provided, however, that with
respect to an Acquisition that is accounted for as a "purchase", for
the first four Four-Quarter Periods ending after the date of such
Acquisition, the computation of Consolidated EBITDA shall include the
actual historical results of operations of the Person or assets so
acquired, which amounts shall be determined on a historical pro forma
basis as if such Acquisition had been consummated as a "pooling of
interests".
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and the Guarantors for any Four-Quarter Period ending on the
date for which the computation thereof is being made, the ratio of (i)
Consolidated EBITDA for such period plus Consolidated Lease Payments
for such period less (without duplication) Capital Expenditures for
such period, to (ii) Consolidated Fixed Charges for such period.
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"Consolidated Fixed Charges" means, with respect to the
Borrower and the Guarantors for any Four-Quarter Period ending on the
date for which the computation thereof is being made, the sum of,
without duplication, (i) Consolidated Interest Expense, (ii) current
maturities of Consolidated Indebtedness as of the end of such
Four-Quarter Period (but excluding any amounts outstanding under the
Revolving Credit Facility and any insurance premium financing plan that
fully amortizes within one year) (iii) Consolidated Lease Payments for
such period and (iv) all cash dividends paid to shareholders of the
Borrower, all determined on a consolidated basis in accordance with
GAAP applied on a Consistent Basis; provided, however, that with
respect to an Acquisition that is accounted for as a "purchase", for
the first four Four-Quarter Periods ending after the date of such
Acquisition, the computation of Consolidated Fixed Charges shall
include the actual historical results of operations of the Person or
assets so acquired, which amounts shall be determined on a historical
pro forma basis as if such Acquisition had been consummated as a
"pooling of interests".
"Consolidated Indebtedness" means all Indebtedness for Money
Borrowed and all Deferred Excess Compensation of the Borrower and the
Guarantors, all determined on a consolidated basis.
"Consolidated Interest Expense" means, with respect to any
period ending on the date for which the computation thereof is being
made, the gross interest expense of the Borrower and the Guarantors,
including without limitation (i) the current amortized portion of debt
discounts to the extent included in gross interest expense, (ii) the
current amortized portion of all fees (including fees payable in
respect of any Swap Agreement) payable in connection with the
incurrence of Indebtedness to the extent included in gross interest
expense and (iii) the portion of any payments made in connection with
Capital Leases allocable to interest expense, all determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Lease Payments" means, with respect to any
period ending on the date for which computation thereof is being made,
the gross amount of all lease or rental payments, whether or not
characterized as rent, of the Borrower and the Guarantors, excluding
payments in respect of Capital Leases constituting Indebtedness, all
determined on a consolidated basis in accordance with GAAP applied on a
Consistent Basis.
"Consolidated Leverage Ratio" means, for any date for which
the computation thereof is being made, the ratio of (i) Consolidated
Indebtedness (determined as at such date) to (ii) Consolidated EBITDA
(for the Four-Quarter Period ending on (or most recently ended prior
to) such date).
"Consolidated Net Income" means, for any period ending on the
date for which computation thereof is being made, the gross revenues
from operations of the Borrower and the Guarantors (including payments
received by the Borrower and the Guarantors of (i) interest income, and
(ii) dividends and distributions made in the ordinary course of their
businesses by Persons in which investment is permitted pursuant to this
Agreement and not related to an extraordinary event), less all
operating and non-operating expenses of the Borrower and the Guarantors
including taxes on income, all determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis; but excluding (for
all purposes other than compliance with Section 9.1(a)) hereof as
income: (i) net gains on the sale, conversion or other disposition of
capital assets, (ii) net gains on the acquisition, retirement, sale or
other disposition of capital stock and other securities of the Borrower
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or the Guarantors, (iii) net gains on the collection of proceeds of
life insurance policies, (iv) any write-up of any asset, and (v) any
other net gain or credit of an extraordinary nature as determined in
accordance with GAAP applied on a Consistent Basis.
"Consolidated Net Worth" means, as of any date for which the
amount thereof is to be determined, the consolidated stockholder's
equity of the Borrower and the Guarantors as determined in accordance
with GAAP minus (without duplication of deductions in respect of items
already deducted in arriving at consolidated stockholder's equity) (i)
all reserves (other than contingency reserves not allocated to any
particular purpose), including without limitation reserves for
depreciation, depletion, amortization, obsolescence, deferred income
taxes, insurance and inventory valuation and (ii) any treasury stock
all as determined on a consolidated basis in accordance with GAAP
applied on a Consistent Basis.
"Consolidated Total Assets" means, as of any date for which
the amount thereof is to be determined, the net book value of all
assets of the Borrower and the Guarantors as determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Contingent Obligation" of any Person means all contingent
liabilities required (or which, upon the creation or incurring thereof,
would be required) to be included in the financial statements
(including footnotes) of such Person in accordance with GAAP applied on
a Consistent Basis, including Statement No. 5 of the Financial
Accounting Standards Board, all Rate Hedging Obligations and Letters of
Credit and any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including obligations of such Person however incurred:
(1) to purchase such Indebtedness or other obligation
or any property or assets constituting security therefor;
(2) to advance or supply funds in any manner (i) for
the purchase or payment of such Indebtedness or other
obligation, or (ii) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(3) to grant or convey any lien, security interest,
pledge, charge or other encumbrance on any property or assets
of such Person to secure payment of such Indebtedness or other
obligation of the primary obligor;
(4) to lease property or to purchase securities or
other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
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(5) otherwise to assure the owner of the Indebtedness
or such obligation of the primary obligor against loss in
respect thereof.
Such liabilities shall be computed at the amount which, in light of all
the facts and circumstances existing at the time, represent in the
reasonable judgment of the Agent the present value of the amount which
can reasonably be expected to become an actual or matured liability.
The Borrower shall furnish to the Agent the calculation of such
Contingent Obligations and such information as it shall reasonably deem
necessary in order to calculate such present value.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.8 hereof of a Eurodollar Rate Loan
of one Type as a Eurodollar Rate Loan of the same Type from one
Interest Period to the next Interest Period.
"Contract Provider" means any Person or any employee, agent or
subcontractor of such Person who provides professional health care
services under or pursuant to any contract with the Borrower or any
Guarantor.
"Convert", "Conversion", and "Converted" shall refer to a
conversion pursuant to Section 2.8 or Article V of
one Type of Loan into another Type of Loan.
"Cost of Acquisition" means, with respect to any Acquisition,
as at the date of entering into any agreement therefor, the sum of the
following (without duplication): (i) the value of the capital stock,
warrants or options to acquire capital stock of the Borrower or any
Guarantor to be transferred in connection therewith, (ii) the amount of
any cash and fair market value of other property (excluding property
described in clause (i) and the unpaid principal amount of any debt
instrument) given as consideration, (iii) the amount (determined by
using the face amount or the amount payable at maturity, whichever is
greater) of any Indebtedness incurred, assumed or acquired by the
Borrower or any Guarantor in connection with such Acquisition, (iv) all
additional purchase price amounts in the form of earnouts and other
contingent obligations that should be recorded on the financial
statements of the Borrower and the Guarantors in accordance with GAAP,
(v) all amounts paid in respect of covenants not to compete, consulting
agreements that should be recorded as a liability on the financial
statements of the Borrower and the Guarantors in accordance with GAAP,
and other affiliated contracts in connection with such Acquisition,
(vi) the aggregate fair market value of all other consideration given
by the Borrower or any Guarantor in connection with such Acquisition,
and (vii) out of pocket transaction costs for the services and expenses
of attorneys, accountants and other consultants incurred in effecting
such transaction, and other similar transaction costs so incurred.
"Debt Offering" means the incurrence of any Indebtedness for
Money Borrowed permitted hereunder in connection with a public offering
or private placement of debt securities of the Borrower or any
Subsidiary or any professional corporation or association whose
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financial results are included in the consolidated financial statements
of the Borrower; provided however, the term "Debt Offering" shall not
include any Indebtedness permitted by Section 9.5.
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder.
"Default Rate" means (i) with respect to each Eurodollar Rate
Loan, until the end of the Interest Period applicable thereto, a rate
of two percent (2%) above the Eurodollar Rate applicable to such Loan,
and thereafter at a rate of interest per annum which shall be two
percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans,
at a rate of interest per annum which shall be two percent (2%) above
the Base Rate and (iii) in any case, the maximum rate permitted by
applicable law, if lower.
"Deferred Excess Compensation" means the present value of
those amounts payable to a Person pursuant to an employment contract
with the Borrower or a Guarantor in excess of reasonable compensation
for services which present value is reflected on the balance sheet of
the Borrower or such Guarantor as a liability.
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States
of America.
"Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
Lender, and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 12.1, the Borrower,
such approval not to be unreasonably withheld or delayed by the Agent
or the Borrower, it being agreed that the Borrower may withhold its
approval if as a result of such assignment the Borrower incurs
increased costs under Section 5.1 or Section 5.6; provided, however,
that neither the Borrower nor an affiliate of the Borrower shall
qualify as an Eligible Assignee.
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Agent:
(a) Government Securities;
(b) obligations of any corporation organized under
the laws of any state of the United States of America or under
the laws of any other nation, payable in the United States of
America, expressed to mature not later than 180 days following
the date of issuance thereof and rated in an investment grade
rating category by S&P and Moody's;
(c) interest bearing demand or time deposits issued
by any Lender or certificates of deposit maturing within one
year from the date of issuance thereof and issued by a bank or
trust company organized under the laws of the United States or
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of any state thereof having capital surplus and undivided
profits aggregating at least $400,000,000 and being rated
"A-3" or better by S&P or "A" or better by Moody's;
(d) Repurchase Agreements;
(e) Municipal Obligations;
(f) Pre-Refunded Municipal Obligations;
(g) shares of mutual funds which invest in
obligations described in paragraphs (a) through (f) above, the
shares of which mutual funds are at all times rated "AAA" by
S&P;
(h) tax-exempt or taxable adjustable rate preferred
stock issued by a Person having a rating of its long term
unsecured debt of "A" or better by S&P or "A-3" or better by
Moody's; and
(i) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P-1" by Moody's.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of the Borrower or any of its ERISA Affiliates or is assumed
by the Borrower or any of its ERISA Affiliates in connection with any
Acquisition or (ii) has at any time been maintained for the employees
of the Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act, the Toxic Substances Control
Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as
amended, any other "Superfund" or "Superlien" law or any other federal,
or applicable state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any Hazardous Material.
"Equity Offering" means a public or private offering of equity
securities (including, without limitation, any security or investment
exchangeable, exercisable or convertible for or into, or otherwise
entitling the holder to receive, equity securities) of the Borrower or
any Subsidiary or any professional corporation or association whose
financial results are included in the consolidated financial statements
of the Borrower (other than securities issued to the Borrower or a
Subsidiary); provided however, the term "Equity Offering" shall not
include any issuance of equity securities in connection with (i) the
exercise of stock options granted, or purchase of restricted stock,
pursuant to Schedule 9.9, or (ii) an Acquisition permitted by Section
9.2 and constituting all or a portion of the Cost of Acquisition.
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute and all
rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to the Borrower, means any
Person or trade or business which is a member of a group which is under
common control with the Borrower, who together with the Borrower, is
treated as a single employer within the meaning of Section 414(b) and
(c) of the Code.
"Eurodollar Rate Loan" means a Loan for which the rate of
interest is determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means the interest rate per annum calculated
according to the following formula:
Eurodollar = Interbank Offered Rate + Applicable
----------------------
Rate 1- Reserve Requirement Margin
"Event of Default" means any of the occurrences set forth as
such in Section 10.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Excluded Asset Dispositions" means, collectively (or
individually as the context may indicate), (i) the sale of certain
assets of Primedica Healthcare, Inc. pursuant to the terms of that
certain Consent Letter dated April 16, 1998, and (ii) the sale of the
furniture, equipment and medical supplies of the primary care and
rheumatology practice located at 4700 North Habana Avenue, #201, Tampa,
Florida pursuant to the terms set forth in the Sheridan Healthcare,
Inc. Memorandum dated April 17, 1998.
"Facility Guaranty" means the Second Amended and Restated
Guaranty and Suretyship Agreement among the Guarantors and the Agent
for the benefit of the Lenders, delivered as of the Closing Date and
such other Guaranty and Suretyship Agreements otherwise pursuant to
Section 8.20, as from time to time amended, revised, modified,
supplemented or amended and restated.
"Facility Termination Date" means the date on which the
Revolving Credit Termination Date shall have occurred, no Letters of
Credit shall remain outstanding and the Borrower shall have fully,
finally and irrevocably paid and satisfied all Obligations.
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"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that if such day is not a Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day.
"Fiscal Year" means the twelve month fiscal period of the
Borrower and the Guarantors commencing on January 1 of each calendar
year and ending on December 31 of each calendar year.
"Foreign Benefit Law" means any applicable statute, law,
ordinance, code, rule, regulation, order or decree of any foreign
nation or any province, state, territory, protectorate or other
political subdivision thereof regulating, relating to, or imposing
liability or standards of conduct concerning, any Employee Benefit
Plan.
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower and the Guarantors, taken together as
one accounting period.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board, the American Institute of Certified Public Accountants
or which have other substantial authoritative support and are
applicable in the circumstances as of the date of a report.
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of America.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, court, agency or instrumentality or political
subdivision thereof or any entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a
foreign entity or government.
"Guarantors" means, at any date, the Subsidiaries,
Partnerships and professional corporations or associations whose
financial results are included in the consolidated financial statements
of the Borrower.
"Hazardous Material" means and includes any hazardous, toxic
or dangerous waste, substance or material, the generation, handling,
storage, disposal, treatment or emission of which is subject to any
Environmental Law.
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"HCFA" means the United States Health Care Financing
Administration and any successor thereto.
"Indebtedness" means with respect to any Person, without
duplication, all Indebtedness for Money Borrowed, all indebtedness of
such Person for the acquisition of property, all indebtedness secured
by any Lien on the property of such Person whether or not such
indebtedness is assumed, all Letter of Credit Outstandings, all
liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business), and all
Contingent Obligations; but excluding all accounts payable and accrued
expenses in the ordinary course of business so long as payment therefor
is due within one year; provided that in no event shall the term
Indebtedness include surplus and retained earnings, lease obligations
(other than pursuant to Capital Leases), reserves for deferred income
taxes and investment credits, other deferred credits or reserves, or
deferred compensation obligations.
"Indebtedness for Money Borrowed" means with respect to any
Person, without duplication, all indebtedness in respect of money
borrowed, including without limitation all Capital Leases, all
insurance premium financing and the deferred purchase price of any
property or asset, evidenced by a promissory note, bond, debenture or
similar written obligation for the payment of money (including
conditional sales or similar title retention agreements), other than
trade payables incurred in the ordinary course of business.
"Interbank Offered Rate" means, with respect to any Eurodollar
Rate Loan for the Interest Period applicable thereto, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00
A.M. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If or
any reason such rate is not available, the term "Interbank Offered
Rate" shall mean, with respect to any Eurodollar Rate Loan for the
Interest Period applicable thereto, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 A.M. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to
the nearest 1/100 of 1%).
"Interest Period" means, for each Eurodollar Rate Loan, a
period commencing on the date such Eurodollar Rate Loan is made or
Converted and ending, at the Borrower's option, on the date one, two,
three, or six months thereafter as notified to the Agent by the
Authorized Representative three (3) Business Days prior to the
beginning of such Interest Period; provided, that,
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(i) if the Authorized Representative fails to notify
the Agent of the length of an Interest Period three (3)
Business Days prior to the first day of such Interest Period,
the Loan for which such Interest Period was to be determined
shall be deemed to be a Base Rate Loan as of the first day
thereof;
(ii) if an Interest Period for a Eurodollar Rate Loan
would end on a day which is not a Business Day, such Interest
Period shall be extended to the next Business Day (unless such
extension would cause the applicable Interest Period to end in
the succeeding calendar month, in which case such Interest
Period shall end on the next preceding Business Day);
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of a calendar month;
(iv) no Interest Period shall extend past the Stated
Termination Date; and
(v) there shall not be more than seven (7) Interest
Periods in effect on any day.
"Interest Rate Selection Notice" means the written notice
delivered by an Authorized Representative in connection with the
election of a subsequent Interest Period for any Eurodollar Rate Loan
or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or
the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in
the form of Exhibit E.
"Issuing Bank" means initially NationsBank and thereafter any
Lender which is successor to NationsBank as issuer of Letters of Credit
under Article III.
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Borrower and the Agent, as amended,
modified or supplemented from time to time.
"Letter of Credit" means a standby letter of credit issued by
the Issuing Bank for the account of the Borrower in favor of a Person
advancing credit or securing an obligation on behalf of the Borrower.
"Letter of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to acquire Participations in
respect of Letters of Credit and Reimbursement Obligations up to an
aggregate amount at any one time outstanding equal to such Lender's
Applicable Commitment Percentage of the Total Letter of Credit
Commitment as the same may be increased or decreased from time to time
pursuant to this Agreement.
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"Letter of Credit Facility" means the facility described in
Article III hereof providing for the issuance by the Issuing Bank for
the account of the Borrower of Letters of Credit in an aggregate stated
amount at any time outstanding not exceeding the Total Letter of Credit
Commitment.
"Letter of Credit Outstandings" means, as of any date of
determination, the aggregate amount remaining undrawn under all Letters
of Credit plus Reimbursement Obligations then outstanding.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and any
Guarantor shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement, financing
lease, or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Loan" or "Loans" means any borrowing pursuant to an Advance
under the Revolving Credit Facility.
"Loan Documents" means this Agreement, the Notes, the Security
Instruments, the Facility Guaranties, the LC Account Agreement, the
Applications and Agreements for Letter of Credit, the Swap Agreements,
and all other instruments and documents heretofore or hereafter
executed or delivered to or in favor of any Lender or the Agent in
connection with the Loans made and transactions contemplated under this
Agreement, as the same may be amended, revised, modified, supplemented
or amended and restated amended from the time to time.
"Loan Party" means, collectively, the Borrower, each Guarantor
and each other Person providing Collateral pursuant to any Security
Instrument.
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Borrower or any of the Guarantors, taken as a whole,
(ii) the ability of any Loan Party to pay or perform its respective
obligations, liabilities and indebtedness under the Loan Documents as
such payment or performance becomes due in accordance with the terms
thereof, or (iii) the rights, powers and remedies of the Agent or any
Lender under any Loan Document or the validity, legality or
enforceability thereof (including for purposes of clauses (ii) and
(iii) the imposition of burdensome conditions thereon).
"Material Guarantor" means any Guarantor which (i) has total
assets equal to or greater than 5% of Consolidated Total Assets
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(calculated as of the end of the most recent fiscal period with respect
to which the Agent shall have received financial statements required to
be delivered pursuant to Sections 8.1(a) or (b) (or if prior to
delivery of any financial statements pursuant to such Sections, then
calculated with respect to the Fiscal Year end financial statements
referenced in Section 7.6) (the "Required Financial Information")) or
(ii) has net income equal to or greater than 5% of Consolidated Net
Income (calculated for the most recent period for which the Agent has
received the Required Financial Information).
"Medicaid Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that health care
operations are in compliance with all the conditions of participation
set forth in the Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered into
between a state agency or other such entity administering the Medicaid
program and a health care operation under which the health care
operation agrees to provide services for Medicaid patients in
accordance with the terms of the agreement and Medicaid Regulations.
"Medicaid Regulations" means, collectively, (i) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting the medical assistance program established by
Title XIX of the Social Security Act and any statutes succeeding
thereto; (ii) all applicable provisions of all federal rules,
regulations, manuals and orders of all Governmental Authorities
promulgated pursuant to or in connection with the statutes described in
clause (i) above and all federal administrative, reimbursement and
other guidelines of all Governmental Authorities having the force of
law promulgated pursuant to or in connection with the statutes
described in clause (i) above; (iii) all state statutes and plans for
medical assistance enacted in connection with the statutes and
provisions described in clauses (i) and (ii) above; and (iv) all
applicable provisions of all rules, regulations, manuals and orders of
all Governmental Authorities promulgated pursuant to or in connection
with the statutes described in clause (iii) above and all state
administrative, reimbursement and other guidelines of all Governmental
Authorities having the force of law promulgated pursuant to or in
connection with the statutes described in clause (ii) above, in each
case as may be amended, supplemented or otherwise modified from time to
time.
"Medicare Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that the health care
operation is in compliance with all the conditions of participation set
forth in the Medicare Regulations.
"Medicare Provider Agreement" means an agreement entered into
between a state agency or other such entity administering the Medicare
program and a health care operation under which the health care
operation agrees to provide services for Medicare patients in
accordance with the terms of the agreement and Medicare Regulations.
"Medicare Regulations" means, collectively, all federal
statutes (whether set forth in Title XVIII of the Social Security Act
or elsewhere) affecting the health insurance program for the aged and
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<PAGE>
disabled established by Title XVIII of the Social Security Act and any
statutes succeeding thereto; together with all applicable provisions of
all rules, regulations, manuals and orders and administrative,
reimbursement and other guidelines having the force of law of all
Governmental Authorities (including without limitation, Health and
Human Services ("HHS"), HCFA, the Office of the Inspector General for
HHS, or any person succeeding to the functions of any of the foregoing)
promulgated pursuant to or in connection with any of the foregoing
having the force of law, as each may be amended, supplemented or
otherwise modified from time to time.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions
within the preceding six (6) Fiscal Years.
"Municipal Obligations" means general obligations issued by,
and supported by the full taxing authority of, any state of the United
States of America or of any municipal corporation or other public body
organized under the laws of any such state which are rated in the
highest investment rating category by both S&P and Moody's.
"NationsBank" means NationsBank, National Association.
"Net Proceeds" means (a) from any Equity Offering or Debt
Offering cash payments received by the Borrower or any Subsidiary or
any professional corporation or association whose financial results are
included in the consolidated financial statements of the Borrower
therefrom as and when received, net of all legal, accounting, banking
and underwriting fees and expenses, commissions, discounts and other
issuance expenses incurred in connection therewith and all taxes
required to be paid or accrued as a consequence of such issuance; (b)
from any Asset Disposition cash payments received by the Borrower or
any Subsidiary or any professional corporation or association whose
financial results are included in the consolidated financial statements
of the Borrower therefrom (including cash payments received pursuant to
any note or other debt security received in connection with any Asset
Disposition) as and when received, net of (i) all legal, accounting,
banking and underwriting fees and expenses and other fees and expenses
paid to third parties and incurred in connection therewith, (ii) all
taxes required to be paid or accrued as a consequence of such sale,
(iii) amounts applied to repayment of Indebtedness (other than the
Obligations) secured by a Lien on the asset or property disposed, and
(iv) any other necessary costs incurred in connection with such Asset
Disposition.
"Note Pledge Agreement" means that certain Amended and
Restated Note Pledge Agreement dated April 16, 1998 between Primedica
Healthcare, Inc. and the Agent, for the benefit of the Lenders, as from
time to time amended, revised, modified, supplemented or amended and
restated.
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"Notes" means, collectively, the promissory notes of the
Borrower evidencing Revolving Loans executed and delivered to the
Lenders as provided in Section 2.5 substantially in the form of Exhibit
F.
"NMS" means NationsBanc Montgomery Securities LLC.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the Reimbursement
Obligations and otherwise in respect of the Letters of Credit, (iii)
all liabilities of the Borrower to any Lender or an affiliate of any
Lender which arise under a Swap Agreement, and (iv) the payment and
performance of all other obligations, liabilities and Indebtedness of
the Borrower to the Lenders or the Agent hereunder, under any one or
more of the other Loan Documents or with respect to the Loans.
"Participation" means, with respect to any Lender (other than
the Issuing Bank) and a Letter of Credit, the extension of credit
represented by the participation of such Lender hereunder in the
liability of the Issuing Bank in respect of a Letter of Credit issued
by the Issuing Bank in accordance with the terms hereof.
"Partnership" means any general or limited partnership (as
defined by the Florida Uniform Partnership Act) in which the Borrower
or an affiliate is a partner.
"Partnership Interests" shall have the meaning therefor
provided in the Pledge Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" means any employee pension benefit plan within
the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412
of the Code and which (i) is maintained for employees of the Borrower
or any of its ERISA Affiliates or is assumed by the Borrower or any of
its ERISA Affiliates in connection with any Acquisition or (ii) has at
any time been maintained for the employees of the Borrower or any
current or former ERISA Affiliate.
"Permitted Liens" has the meaning given to such term in
Section 9.4.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization,
association, joint venture or a government or agency or political
subdivision thereof.
"Pledge Agreement" means, collectively (or individually as the
context may indicate), (i) that certain Second Amended and Restated
Securities Pledge Agreement dated as of the date hereof by and among
the Borrower, certain Guarantors and the Agent for the benefit of the
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Agent and the Lenders, and (ii) any additional Pledge Agreement
delivered to the Agent pursuant to Section 8.20, as from time to time
amended, revised, modified, supplemented or amended and restated.
"Pledged Partnership Interests" has the meaning given to such
term in the Pledge Agreement.
"Pledged Securities" has the meaning given to such term in the
Pledge Agreement.
"Pledged Stock" has the meaning given to such term in the
Pledge Agreement.
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably called
for redemption and advance refunded through the deposit in escrow of
Government Securities or other debt securities which are (i) not
callable at the option of the issuer thereof prior to maturity, (ii)
irrevocably pledged solely to the payment of all principal and interest
on such obligations as the same becomes due and (iii) in a principal
amount and bear such rate or rates of interest as shall be sufficient
to pay in full all principal of, interest, and premium, if any, on such
obligations as the same becomes due as verified by a nationally
recognized firm of certified public accountants.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of NationsBank
presently located at Independence Center, 15th Floor, NC1 001-15-04,
Charlotte, North Carolina 28255, Attention: Agency Services, or such
other office and address as the Agent may from time to time designate.
"Rate Hedging Obligations" means any and all obligations of
the Borrower or any Guarantor, whether absolute or contingent and
howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor), under (i) any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward
rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, Dollar-denominated or
cross-currency interest rate exchange agreements, forward currency
exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts, warrants and
those commonly known as interest rate "swap" agreements; and (ii) any
and all cancellations, buybacks, reversals, terminations or assignments
of any of the foregoing.
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"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Regulatory Change" means any change effective after the
Closing Date in United States federal or state laws or regulations
(including Regulation D and capital adequacy regulations) or foreign
laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks,
which includes any of the Lenders, under any United States federal or
state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with
the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy,
including those relating to "highly leveraged transactions," whether or
not having the force of law, and whether or not failure to comply
therewith would be unlawful and whether or not published or proposed
prior to the date hereof.
"Reimbursement Obligation" shall mean at any time, the
obligation of the Borrower with respect to any Letter of Credit to
reimburse the Issuing Bank and the Lenders to the extent of their
respective Participations (including by the receipt by the Issuing Bank
of proceeds of Loans pursuant to Section 3.2) for amounts theretofore
paid by the Issuing Bank pursuant to a drawing under such Letter of
Credit.
"Repurchase Agreement" means a repurchase agreement entered
into with any financial institution whose debt obligations or
commercial paper are rated "A" by either of S&P or Moody's or "A-1" by
S&P or "P-1" by Moody's.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51%, of
the aggregate Credit Exposures of all the Lenders on such date. For
purposes of the preceding sentence, the amount of the "Credit Exposure"
of each Lender shall be equal to the aggregate principal amount of the
Loans owing to such Lender plus the aggregate unutilized amounts of
such Lender's Revolving Credit Commitment plus the amount of such
Lender's Applicable Commitment Percentage of Letter of Credit
Outstandings; provided that, if any Lender shall have failed to pay to
the Issuing Bank its Applicable Commitment Percentage of any drawing
under any Letter of Credit resulting in an outstanding Reimbursement
Obligation, such Lender's Credit Exposure attributable to Letters of
Credit and Reimbursement Obligations shall be deemed to be held by the
Issuing Bank for purposes of this definition.
"Reserve Requirement" means, at any time, the maximum rate at
which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) by member banks of the
Federal Reserve System against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (i) any category of
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liabilities which includes deposits by reference to which the
Eurodollar Rate is to be determined, or (ii) any category of extensions
of credit or other assets which include Eurodollar Rate Loans. The
Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"Restricted Payment" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of stock of Borrower or any of the Guarantors (other than those payable
or distributable solely to the Borrower or another Guarantor) now or
hereafter outstanding, except a dividend payable solely in shares of a
class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class
of stock of Borrower or any of the Guarantors (other than those payable
or distributable solely to the Borrower or another Guarantor) now or
hereafter outstanding; (c) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock of Borrower or any Guarantor now
or hereafter outstanding; and (d) any issuance and sale of capital
stock of any Guarantor (or any option, warrant or right to acquire such
stock) other than to the Borrower or another Guarantor.
"Revolving Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Loans to the Borrower up
to an aggregate principal amount at any one time outstanding equal to
such Lender's Applicable Commitment Percentage of the Total Revolving
Credit Commitment.
"Revolving Credit Facility" means the facility described in
Article II hereof providing for Loans to the Borrower by the Lenders in
the aggregate principal amount of the Total Revolving Credit
Commitment.
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Loans then
outstanding.
"Revolving Credit Termination Date" means (i) the Stated
Termination Date or (ii) such earlier date of termination of Lenders'
obligations pursuant to Section 10.1 upon the occurrence of an Event of
Default, or (iii) such date as the Borrower may voluntarily and
permanently terminate the Revolving Credit Facility by payment in full
of all Obligations (including the discharge of all Obligations to the
Issuing Bank and the Lenders with respect to Letters of Credit and
Participations).
"Revolving Loan" means any borrowing pursuant to an Advance
under the Revolving Credit Facility in accordance with Article II.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill.
"Securities Pledge Agreement Supplement" means, collectively
(or individually as the context may indicate) any duly completed and
signed Securities Pledge Agreement Supplement in the form of Exhibit A
to the Pledge Agreement delivered to the Agent pursuant to the terms of
the Pledge Agreement or Section 8.20.
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"Security Agreement" means, collectively (or individually as
the context may indicate), (i) the Second Amended and Restated Security
Agreement dated as of the date hereof by the Borrower and the
Guarantors to the Agent, and (ii) any additional Security Agreement
delivered to the Agent pursuant to Section 8.20, as from time to time
amended, revised, modified, supplemented or amended and restated.
"Security Instruments" means, collectively, the Pledge
Agreement, the Security Agreement, the LC Account Agreement, the Note
Pledge Agreement and all other agreements, instruments and other
documents, whether now existing or hereafter in effect, pursuant to
which the Borrower or any Guarantor shall grant or convey to the Agent
or the Lenders a Lien in property as security for all or any portion of
the Obligations, as any of them may be amended, revised, modified,
supplemented or amended and restated from time to time.
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Guarantor is an "employer" as described in Section 4001(b) of ERISA and
which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Stated Termination Date" means April 30, 2001.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower and/or
by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements between the
Borrower and any Lender with respect to Indebtedness evidenced by any
or all of the Notes, on terms mutually acceptable to Borrower and such
Person and approved by each of the Lenders, which agreements create
Rate Hedging Obligations.
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"Termination Event" means: (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder (unless
the notice requirement has been waived by applicable regulation); or
(ii) the withdrawal of the Borrower or any ERISA Affiliate from a
Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA or was deemed such
under Section 4068(f) of ERISA; or (iii) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate a Pension Plan by the PBGC; or (v) any other event or
condition which would constitute grounds under Section 4042(a) of ERISA
for the termination of, or the appointment of a trustee to administer,
any Pension Plan; or (vi) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the
imposition of a Lien pursuant to Section 412 of the Code or Section 302
of ERISA; or (viii) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Section 4241
or Section 4245 of ERISA, respectively; or (ix) any event or condition
which results in the termination of a Multiemployer Plan under Section
4041A of ERISA or the institution by the PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA.
"Total Letter of Credit Commitment" means an amount not to
exceed $2,000,000.
"Total Revolving Credit Commitment" means a principal amount
equal to $75,000,000, as reduced from time to time in accordance with
Section 2.7.
"Type" shall mean any type of Loan (i.e. a Base Rate Loan or a
Eurodollar Rate Loan).
"Voting Stock" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
1.3. Rules of Interpretation .
(a) All accounting terms not specifically defined herein shall
have the meanings assigned to such terms and shall be interpreted in
accordance with GAAP applied on a Consistent Basis.
(b) Each term defined in Article 1 or 9 of the Florida Uniform
Commercial Code shall have the meaning given therein unless otherwise
defined herein, except to the extent that the Uniform Commercial Code
of another jurisdiction is controlling, in which case such terms shall
have the meaning given in the Uniform Commercial Code of the applicable
jurisdiction.
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(c) The headings, subheadings and table of contents used
herein or in any other Loan Document are solely for convenience of
reference and shall not constitute a part of any such document or
affect the meaning, construction or effect of any provision thereof.
(d) Except as otherwise expressly provided, references herein
to articles, sections, paragraphs, clauses, annexes, appendices,
exhibits and schedules are references to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules in or
to this Agreement.
(e) All definitions set forth herein or in any other Loan
Document shall apply to the singular as well as the plural form of such
defined term, and all references to the masculine gender shall include
reference to the feminine or neuter gender, and vice versa, as the
context may require.
(f) When used herein or in any other Loan Document, words such
as "hereunder", "hereto", "hereof" and "herein" and other words of like
import shall, unless the context clearly indicates to the contrary,
refer to the whole of the applicable document and not to any particular
article, section, subsection, paragraph or clause thereof.
(g) References to "including" means including without limiting
the generality of any description preceding such term, and for purposes
hereof the rule of ejusdem generis shall not be applicable to limit a
general statement, followed by or referable to an enumeration of
specific matters, to matters similar to those specifically mentioned.
(h) All dates and times of day specified herein shall refer to
such dates and times at Charlotte, North Carolina.
(i) Each of the parties to the Loan Documents and their
counsel have reviewed and revised, or requested (or had the opportunity
to request) revisions to, the Loan Documents, and any rule of
construction that ambiguities are to be resolved against the drafting
party shall be inapplicable in the construing and interpretation of the
Loan Documents and all exhibits, schedules and appendices thereto.
(j) Any reference to an officer of the Borrower or any other
Person by reference to the title of such officer shall be deemed to
refer to each other officer of such Person, however titled, exercising
the same or substantially similar functions.
(k) All references to any agreement or document as amended,
modified or supplemented, or words of similar effect, shall mean such
document or agreement, as the case may be, as amended, modified or
supplemented from time to time only as and to the extent permitted
therein and in the Loan Documents.
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ARTICLE II
The Revolving Credit Facility
-----------------------------
2.1. Revolving Loans .
(a) Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances to the
Borrower under the Revolving Credit Facility from time to time from the
Closing Date until the Revolving Credit Termination Date on a pro rata
basis as to the total borrowing requested by the Borrower on any day
determined by such Lender's Applicable Commitment Percentage up to but
not exceeding the Revolving Credit Commitment of such Lender, provided,
however, that the Lenders will not be required and shall have no
obligation to make any such Advance (i) so long as a Default or an
Event of Default has occurred and is continuing or (ii) if the Agent
has accelerated the maturity of any of the Notes as a result of an
Event of Default; provided further, however, that immediately after
giving effect to each such Advance, the principal amount of Revolving
Credit Outstandings plus Letter of Credit Outstandings shall not exceed
the Total Revolving Credit Commitment. Within such limits, the Borrower
may borrow, repay and reborrow under the Revolving Credit Facility on a
Business Day from the Closing Date until, but (as to borrowings and
reborrowings) not including, the Revolving Credit Termination Date;
provided, however, that (y) no Revolving Loan that is a Eurodollar Rate
Loan shall be made which has an Interest Period that extends beyond the
Stated Termination Date and (z) each Revolving Loan that is a
Eurodollar Rate Loan may, subject to the provisions of Section 2.8, be
repaid only on the last day of the Interest Period with respect thereto
unless such payment is accompanied by the additional payment, if any,
required by Section 5.4.
(b) Amounts. Except as otherwise permitted by the Lenders from
time to time, the aggregate unpaid principal amount of the Revolving
Credit Outstandings plus Letter of Credit Outstandings shall not exceed
at any time the Total Revolving Credit Commitment, and, in the event
there shall be outstanding any such excess, the Borrower shall
immediately make such payments and prepayments as shall be necessary to
comply with this restriction. Each Revolving Loan hereunder, other than
Base Rate Refunding Loans, and each Conversion under Section 2.8, shall
be in an amount of at least (i) $750,000, and, if greater than
$750,000, an integral multiple of $500,000 in the case of Eurodollar
Rate Loans, and (ii) $500,000, and if greater than $500,000, an
integral multiple of $100,000 in the case of Base Rate Loans.
(c) Advances. An Authorized Representative shall give the
Agent (1) at least three (3) Business Days' irrevocable written notice
by telefacsimile transmission of a Borrowing Notice or Interest Rate
Selection Notice (as applicable) with appropriate insertions, effective
upon receipt, of each Revolving Loan that is a Eurodollar Rate Loan
(whether representing an additional borrowing hereunder or the
Conversion of a borrowing hereunder from Base Rate Loans to Eurodollar
Rate Loans) prior to 11:00 A.M. and (2) irrevocable written notice by
telefacsimile transmission of a Borrowing Notice or Interest Rate
Selection Notice (as applicable) with appropriate insertions, effective
upon receipt, of each Revolving Loan (other than Base Rate Refunding
Loans to the extent the same are effected without notice pursuant to
Section 2.1(c)(iv)) that is a Base Rate Loan (whether representing an
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additional borrowing hereunder or the Conversion of borrowing hereunder
from Eurodollar Rate Loans to Base Rate Loans) prior to 11:00 A.M. on
the day of such proposed Revolving Loan. Each such notice shall specify
the amount of the borrowing, the type of Revolving Loan (Base Rate or
Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan,
the Interest Period to be used in the computation of interest. Notice
of receipt of such Borrowing Notice or Interest Rate Selection Notice,
as the case may be, together with the amount of each Lender's portion
of an Advance requested thereunder, shall be provided by the Agent to
each Lender by telefacsimile transmission with reasonable promptness,
but (provided the Agent shall have received such notice by 11:00 A.M.)
not later than 1:00 P.M. on the same day as the Agent's receipt of such
notice.
(ii) Not later than 2:00 P.M. on the date specified for each
borrowing under this Section 2.1, each Lender shall, pursuant to the
terms and subject to the conditions of this Agreement, make the amount
of the Advance or Advances to be made by it on such day available by
wire transfer to the Agent in the amount of its pro rata share,
determined according to such Lender's Applicable Commitment Percentage
of the Revolving Loan or Revolving Loans to be made on such day. Such
wire transfer shall be directed to the Agent at the Principal Office
and shall be in the form of Dollars constituting immediately available
funds. The amount so received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the Borrower by
delivery of the proceeds thereof to the Borrower's Account or otherwise
as shall be directed in the applicable Borrowing Notice by the
Authorized Representative and reasonably acceptable to the Agent.
(iii) The Borrower shall have the option to elect the duration
of the initial and any subsequent Interest Periods and to Convert the
Revolving Loans in accordance with Section 2.8. Eurodollar Rate Loans
and Base Rate Loans may be outstanding at the same time, provided,
however, there shall not be outstanding at any one time Eurodollar Rate
Loans having more than seven (7) different Interest Periods. If the
Agent does not receive a Borrowing Notice or an Interest Rate Selection
Notice giving notice of election of the duration of an Interest Period
or of Conversion of any Loan to or Continuation of a Loan as a
Eurodollar Rate Loan by the time prescribed by Section 2.1(c) or 2.8,
the Borrower shall be deemed to have elected to Convert such Loans to
(or Continue such Loan as) a Base Rate Loan until the Borrower notifies
the Agent in accordance with Section 2.8.
(iv) Notwithstanding the foregoing, if a drawing is made under
any Letter of Credit, such drawing is honored by the Issuing Bank prior
to the Stated Termination Date, and the Borrower shall not immediately
fully reimburse the Issuing Bank in respect of such drawing, (A)
provided that the conditions to making a Revolving Loan as herein
provided shall then be satisfied, the Reimbursement Obligation arising
from such drawing shall be paid to the Issuing Bank by the Agent
without the requirement of notice to or from the Borrower from
immediately available funds which shall be advanced as a Base Rate
Refunding Loan by each Lender under the Revolving Credit Facility in an
amount equal to such Lender's Applicable Commitment Percentage of such
Reimbursement Obligation, and (B) if the conditions to making a
Revolving Loan as herein provided shall not then be satisfied, each of
the Lenders shall fund by payment to the Agent (for the benefit of the
Issuing Bank) in immediately available funds the purchase from the
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Issuing Bank of their respective Participations in the related
Reimbursement Obligation based on their respective Applicable
Commitment Percentages of the Total Letter of Credit Commitment. If a
drawing is presented under any Letter of Credit in accordance with the
terms thereof and the Borrower shall not immediately reimburse the
Issuing Bank in respect thereof, then notice of such drawing or payment
shall be provided promptly by the Issuing Bank to the Agent and the
Agent shall provide notice to each Lender by telephone or telefacsimile
transmission. If notice to the Lenders of a drawing under any Letter of
Credit is given by the Agent at or before 12:00 noon on any Business
Day, each Lender shall, pursuant to the conditions specified in this
Section 2.1(c)(iv), either make a Base Rate Refunding Loan or fund the
purchase of its Participation in the amount of such Lender's Applicable
Commitment Percentage of such drawing or payment and shall pay such
amount to the Agent for the account of the Issuing Bank at the
Principal Office in Dollars and in immediately available funds before
2:30 P.M. on the same Business Day. If notice to the Lenders of a
drawing under a Letter of Credit is given by the Agent after 12:00 noon
on any Business Day, each Lender shall, pursuant to the conditions
specified in this Section 2.1(c)(iv), either make a Base Rate Refunding
Loan or fund the purchase of its Participation in the amount of such
Lender's Applicable Commitment Percentage of such drawing or payment
and shall pay such amount to the Agent for the account of the Issuing
Bank at the Principal Office in Dollars and in immediately available
funds before 12:00 noon on the next following Business Day. Any such
Base Rate Refunding Loan shall be advanced as, and shall Continue as, a
Base Rate Loan unless and until the Borrower Converts such Base Rate
Loan in accordance with the terms of Section 2.8.
2.2 Payment of Interest. (a) The Borrower shall pay interest
to the Agent for the account of each Lender on the outstanding and
unpaid principal amount of each Revolving Loan made by such Lender for
the period commencing on the date of such Revolving Loan until such
Revolving Loan shall be due at the then applicable Base Rate for Base
Rate Loans or applicable Eurodollar Rate for Eurodollar Rate Loans, as
designated by the Authorized Representative pursuant to Section 2.1;
provided, however, that if any amount shall not be paid when due (at
maturity, by acceleration or otherwise), all amounts outstanding
hereunder shall bear interest thereafter at the Default Rate.
(b) Interest on each Revolving Loan shall be computed on the
basis of a year of 360 days and calculated in each case for the actual
number of days elapsed. Interest on each Revolving Loan shall be paid
(i) quarterly in arrears on the last Business Day of each March, June,
September and December, commencing June 30, 1998 for each Base Rate
Loan, (ii) on the last day of the applicable Interest Period for each
Eurodollar Rate Loan, and (iii) upon payment in full of the principal
amount of such Revolving Loan.
2.3. Payment of Principal . (a) Manner of Payment. The
principal amount of each Revolving Loan shall be due and payable to the
Agent for the benefit of each Lender in full on the Revolving Credit
Termination Date, or earlier as specifically provided herein. The
principal amount of any Base Rate Loan may be prepaid in whole or in
part at any time. The principal amount of any Eurodollar Rate Loan may
be prepaid only at the end of the applicable Interest Period unless the
Borrower shall pay to the Agent for the account of the Lenders the
additional amount, if any, required under Section 5.4. All prepayments
of Revolving Loans made by the Borrower shall be in the amount of (i)
$750,000 or such greater amount which is an integral multiple of
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$500,000 in the case of Eurodollar Rate Loans, (ii) $500,000 or such
greater amount which is an integral multiple of $100,000 in the case of
Base Rate Loans, or (iii) the amount equal to all Revolving Credit
Outstandings and all interest accrued thereon or such other amount as
necessary to comply with Section 2.1(b) or Section 2.8.
(b) Mandatory Prepayments. The Borrower shall make the
following required prepayments, each such payment to be made to the
Agent for the benefit of the Lenders within the time period specified
below:
(i) Equity Offerings. The Borrower shall make, or shall cause
each applicable Subsidiary or any professional corporation or
association whose financial results are included in the consolidated
financial statements of the Borrower to make, a prepayment from the Net
Proceeds of any Equity Offering in an amount equal to one hundred
percent (100%) of such Net Proceeds, but excluding up to $20,000,000 in
Net Proceeds of an Equity Offering of the Borrower within ninety (90)
days of the Closing Date. Each such prepayment shall be made within
fifteen (15) Business Days of receipt of such Net Proceeds and upon not
less than three (3) Business Days' written notice to the Agent, and
shall include within one (1) Business Day of repayment a certificate of
an Authorized Representative setting forth in reasonable detail the
calculations utilized in computing the amount of the Net Proceeds.
(ii) Debt Offerings. The Borrower shall make, or shall cause
each applicable Subsidiary or any professional corporation or
association whose financial results are included in the consolidated
financial statements of the Borrower to make, a prepayment from the Net
Proceeds of any Debt Offering in an amount equal to one hundred percent
(100%) of such Net Proceeds. Each such prepayment shall be made within
fifteen (15) Business Days of receipt of such Net Proceeds and upon not
less than three (3) Business Days' written notice to the Agent, and
shall include within one (1) Business Day of repayment a certificate of
an Authorized Representative setting forth in reasonable detail the
calculations utilized in computing the amount of the Net Proceeds.
(iii) Asset Dispositions. The Borrower shall make, or shall
cause each applicable Subsidiary or any professional corporation or
association whose financial results are included in the consolidated
financial statements of the Borrower to make, a prepayment from the Net
Proceeds of any Asset Disposition in an amount equal to one hundred
percent (100%) of such Net Proceeds, but excluding the Net Proceeds of
any Excluded Asset Disposition. Each such prepayment shall be made
within fifteen (15) Business Days of receipt of such Net Proceeds and
upon not less than three (3) Business Days' written notice to the
Agent, and shall include within one (1) Business Day of repayment a
certificate of an Authorized Representative setting forth in reasonable
detail the calculations utilized in computing the amount of the Net
Proceeds.
All mandatory prepayments made pursuant to this Section 2.3
shall permanently reduce the Total Revolving Credit Commitment by the
amount of such mandatory prepayment and shall be applied first to all
Base Rate Loans until all Base Rate Loans shall have been repaid and
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then to Eurodollar Rate Loans. Any prepayment of a Eurodollar Rate Loan
pursuant to this Section 2.3 other than on the last day of an Interest
Period shall be accompanied by the additional payment, if any, required
under Section 5.4 hereof.
2.4. Non-Conforming Payments. (a) Each payment of principal
(including any prepayment) and payment of interest and fees, and any
other amount required to be paid to the Lenders with respect to the
Revolving Loans, shall be made to the Agent at the Principal Office,
for the account of each Lender, in Dollars and in immediately available
funds before 12:30 P.M. on the date such payment is due. The Agent may,
but shall not be obligated to, debit the amount of any such payment
which is not made by such time to any ordinary deposit account, if any,
of the Borrower with the Agent.
(b) The Agent shall deem any payment made by or on behalf of
the Borrower hereunder that is not made both in Dollars and in
immediately available funds and prior to 12:30 P.M. to be a
non-conforming payment. Any such payment shall not be deemed to be
received by the Agent until the later of (i) the time such funds become
available funds and (ii) the next Business Day. Any non-conforming
payment may constitute or become a Default or Event of Default.
Interest shall continue to accrue on any principal as to which a
non-conforming payment is made until the later of (x) the date such
funds become available funds or (y) the next Business Day at the
Default Rate from the date such amount was due and payable.
(c) In the event that any payment hereunder or under the Notes
becomes due and payable on a day other than a Business Day, then such
due date shall be extended to the next succeeding Business Day unless
provided otherwise under clause (ii) of the definition of "Interest
Period"; provided that interest shall continue to accrue during the
period of any such extension and provided further, that in no event
shall any such due date be extended beyond the Revolving Credit
Termination Date.
2.5. Notes . Revolving Loans made by each Lender shall be
evidenced by the Note payable to the order of such Lender in the
respective amount of its Applicable Commitment Percentage of the
Revolving Credit Commitment, which Note shall be dated the Closing Date
or a later date pursuant to an Assignment and Acceptance and shall be
duly completed, executed and delivered by the Borrower.
2.6. Pro Rata Payments . Except as otherwise provided herein,
(a) each payment on account of the principal of and interest on the
Revolving Loans and the fees described in Section 2.10 shall be made to
the Agent for the account of the Lenders pro rata based on their
Applicable Commitment Percentages, (b) all payments to be made by the
Borrower for the account of each of the Lenders on account of
principal, interest and fees, shall be made without diminution, setoff,
recoupment or counterclaim, and (c) the Agent will promptly distribute
to the Lenders in immediately available funds payments received in
fully collected, immediately available funds from the Borrower.
2.7. Reductions . The Borrower shall, by notice from an
Authorized Representative, have the right from time to time but not
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more frequently than once each calendar month, upon not less than five
(5) Business Days' written notice to the Agent, effective upon receipt,
to reduce the Total Revolving Credit Commitment. The Agent shall give
each Lender, within one (1) Business Day of receipt of such notice,
telefacsimile notice, or telephonic notice (confirmed in writing), of
such reduction. Each such reduction shall be in the aggregate amount of
$750,000 or such greater amount which is in an integral multiple of
$500,000, or the entire remaining Total Revolving Credit Commitment,
and shall permanently reduce the Total Revolving Credit Commitment.
Each reduction of the Total Revolving Credit Commitment shall be
accompanied by payment of the Revolving Loans to the extent that the
principal amount of Revolving Credit Outstandings plus Letter of Credit
Outstandings exceeds the Total Revolving Credit Commitment after giving
effect to such reduction, together with accrued and unpaid interest on
the amounts prepaid. No such reduction shall result in the payment of
any Eurodollar Rate Loan other than on the last day of the Interest
Period of such Eurodollar Rate Loan unless such prepayment is
accompanied by amounts due, if any, under Section 5.4.
2.8. Conversions and Elections of Subsequent Interest Periods
. Subject to the limitations set forth below and in Article V, the
Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before
11:00 A.M. on any Business Day, convert all or a part of Eurodollar
Rate Loans to Base Rate Loans on the last day of the Interest Period
for such Eurodollar Rate Loans; and
(b) provided that no Default or Event of Default shall have
occurred and be continuing and upon delivery, effective upon receipt,
of a properly completed Interest Rate Selection Notice to the Agent on
or before 11:00 A.M. three (3) Business Days' prior to the date of such
election or conversion:
(i) elect a subsequent Interest Period for all or a
portion of Eurodollar Rate Loans to begin on the last day of
the then current Interest Period for such Eurodollar Rate
Loans; and
(ii) convert Base Rate Loans to Eurodollar Rate Loans
on any Business Day.
Each election and conversion pursuant to this Section 2.8
shall be subject to the limitations on Eurodollar Rate Loans set forth
in the definition of "Interest Period" herein and in Sections 2.1, 2.3
and Article V. The Agent shall give written notice to each Lender of
such notice of election or conversion prior to 3:00 P.M. on the day
such notice of election or conversion is received. All such
continuations or conversions of Loans shall be effected pro rata based
on the Applicable Commitment Percentages of the Lenders.
2.9. Increase and Decrease in Amounts . The amount of the
Total Revolving Credit Commitment which shall be available to the
Borrower as Advances shall be reduced by the aggregate amount of
Outstanding Letters of Credit.
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2.10. Unused Fee . For the period beginning on the Closing
Date and ending on the Revolving Credit Termination Date, the Borrower
agrees to pay to the Agent, for the pro rata benefit of the Lenders
based on their Applicable Commitment Percentages, an unused fee equal
to the Applicable Unused Fee multiplied by the average daily amount by
which the Total Revolving Credit Commitment exceeds the sum of (i)
Revolving Credit Outstandings plus (ii) Letter of Credit Outstandings.
Such fees shall be due in arrears on the last Business Day of each
March, June, September and December commencing June 30, 1998 to and on
the Revolving Credit Termination Date. Notwithstanding the foregoing,
so long as any Lender fails to make available any portion of its
Revolving Credit Commitment when requested, such Lender shall not be
entitled to receive payment of its pro rata share of such fee until
such Lender shall make available such portion. Such fee shall be
calculated on the basis of a year of 360 days for the actual number of
days elapsed.
2.11. Deficiency Advances . No Lender shall be responsible for
any default of any other Lender in respect to such other Lender's
obligation to make any Loan or fund its purchase of any Participation
hereunder nor shall the Revolving Credit Commitment of any Lender
hereunder be increased as a result of such default of any other Lender.
Without limiting the generality of the foregoing, in the event any
Lender shall fail to advance funds to the Borrower as herein provided,
the Agent may in its discretion, but shall not be obligated to, advance
under the Revolving Note in its favor as a Lender all or any portion of
such amount or amounts (each, a "deficiency advance") and shall
thereafter be entitled to payments of principal of and interest on such
deficiency advance in the same manner and at the same interest rate or
rates to which such other Lender would have been entitled had it made
such advance under its Revolving Note; provided that, upon payment to
the Agent from such other Lender of the entire outstanding amount of
each such deficiency advance, together with accrued and unpaid interest
thereon, from the most recent date or dates interest was paid to the
Agent by the Borrower on each Revolving Loan comprising the deficiency
advance at the interest rate per annum for overnight borrowing by the
Agent from the Federal Reserve Bank, then such payment shall be
credited against the applicable Revolving Note of the Agent in full
payment of such deficiency advance and the Borrower shall be deemed to
have borrowed the amount of such deficiency advance from such other
Lender as of the most recent date or dates, as the case may be, upon
which any payments of interest were made by the Borrower thereon.
2.12. Use of Proceeds . The proceeds of the Loans made
pursuant to the Revolving Credit Facility hereunder shall be used by
the Borrower for general corporate purposes, including refinancing
certain Indebtedness, working capital needs, and the making of
Acquisitions and Capital Expenditures permitted hereunder.
ARTICLE III
Letters of Credit
-----------------
3.1. Letters of Credit . The Issuing Bank agrees, subject to
the terms and conditions of this Agreement, upon request of the
Borrower to issue from time to time for the account of the Borrower
Letters of Credit upon delivery to the Issuing Bank of an Application
and Agreement for Letter of Credit relating thereto in form and content
acceptable to the Issuing Bank; provided, that (i) the Letter of Credit
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Outstandings shall not exceed the Total Letter of Credit Commitment and
(ii) no Letter of Credit shall be issued if, after giving effect
thereto, Letter of Credit Outstandings plus Revolving Credit
Outstandings shall exceed the Total Revolving Credit Commitment. No
Letter of Credit shall have an expiry date (including all rights of the
Borrower or any beneficiary named in such Letter of Credit to require
renewal) or payment date occurring later than the earlier to occur of
one year after the date of its issuance or the fifth Business Day prior
to the Stated Termination Date.
3.2. Reimbursement .
(a) The Borrower hereby unconditionally agrees to pay to
the Issuing Bank immediately on demand at the Principal Office all
amounts required to pay all drafts drawn or purporting to be drawn
under the Letters of Credit and all reasonable expenses incurred by the
Issuing Bank in connection with the Letters of Credit, and in any event
and without demand to place in possession of the Issuing Bank (which
shall include Advances under the Revolving Credit Facility if permitted
by Section 2.1) sufficient funds to pay all debts and liabilities
arising under any Letter of Credit. The Issuing Bank agrees to give the
Borrower prompt notice of any request for a draw under a Letter of
Credit. The Issuing Bank may charge any account the Borrower may have
with it for any and all amounts the Issuing Bank pays under a Letter of
Credit, plus charges and reasonable expenses as from time to time
agreed to by the Issuing Bank and the Borrower; provided that to the
extent permitted by Section 2.1(c)(iv), amounts shall be paid pursuant
to Advances under the Revolving Credit Facility. The Borrower agrees to
pay the Issuing Bank interest on any Reimbursement Obligations not paid
when due hereunder at the Base Rate plus two percent (2.0%), or the
maximum rate permitted by applicable law, if lower, such rate to be
calculated on the basis of a year of 360 days for actual days elapsed.
(b) In accordance with the provisions of Section 2.1(c),
the Issuing Bank shall notify the Agent of any drawing under any Letter
of Credit promptly following the receipt by the Issuing Bank of such
drawing.
(c) Each Lender (other than the Issuing Bank) shall
automatically acquire on the date of issuance thereof, a Participation
in the liability of the Issuing Bank in respect of each Letter of
Credit in an amount equal to such Lender's Applicable Commitment
Percentage of such liability, and to the extent that the Borrower is
obligated to pay the Issuing Bank under Section 3.2(a), each Lender
(other than the Issuing Bank) thereby shall absolutely, unconditionally
and irrevocably assume, and shall be unconditionally obligated to pay
to the Issuing Bank as hereinafter described, its Applicable Commitment
Percentage of the liability of the Issuing Bank under such Letter of
Credit.
(i) Each Lender (including the Issuing Bank in its
capacity as a Lender) shall, subject to the terms and
conditions of Article II, pay to the Agent for the account of
the Issuing Bank at the Principal Office in Dollars and in
immediately available funds, an amount equal to its Applicable
Commitment Percentage of any drawing under a Letter of Credit,
such funds to be provided in the manner described in Section
2.1(c)(iv).
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(ii) Simultaneously with the making of each payment
by a Lender to the Issuing Bank pursuant to Section
2.1(c)(iv)(B), such Lender shall, automatically and without
any further action on the part of the Issuing Bank or such
Lender, acquire a Participation in an amount equal to such
payment (excluding the portion thereof constituting interest
accrued prior to the date the Lender made its payment) in the
related Reimbursement Obligation of the Borrower. The
Reimbursement Obligations of the Borrower shall be immediately
due and payable whether by Advances made in accordance with
Section 2.1(c)(iv) or otherwise.
(iii) Each Lender's obligation to make payment to the
Agent for the account of the Issuing Bank pursuant to Section
2.1(c)(iv) and this Section 3.2(c), and the right of the
Issuing Bank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance
whatsoever and shall be made without any offset, abatement,
withholding or reduction whatsoever. If any Lender is
obligated to pay but does not pay amounts to the Agent for the
account of the Issuing Bank in full upon such request as
required by Section 2.1(c)(iv) or this Section 3.2(c), such
Lender shall, on demand, pay to the Agent for the account of
the Issuing Bank interest on the unpaid amount for each day
during the period commencing on the date of notice given to
such Lender pursuant to Section 2.1(c) until such Lender pays
such amount to the Agent for the account of the Issuing Bank
in full at the interest rate per annum for overnight borrowing
by the Agent from the Federal Reserve Bank.
(iv) In the event the Lenders have purchased
Participations in any Reimbursement Obligation as set forth in
clause (ii) above, then at any time payment (in fully
collected, immediately available funds) of such Reimbursement
Obligation, in whole or in part, is received by Issuing Bank
from the Borrower, Issuing Bank shall promptly pay to each
Lender an amount equal to its Applicable Commitment Percentage
of such payment from the Borrower.
(d) Promptly following the end of each calendar quarter, the
Issuing Bank shall deliver to the Agent a notice describing the
aggregate undrawn amount of all Letters of Credit at the end of such
quarter. Upon the request of any Lender from time to time, the Issuing
Bank shall deliver to the Agent, and the Agent shall deliver to such
Lender, any other information reasonably requested by such Lender with
respect to each Letter of Credit outstanding.
(e) The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article VI,
be subject to the conditions that such Letter of Credit be in such form
and contain such terms as shall be reasonably satisfactory to the
Issuing Bank consistent with the then current practices and procedures
of the Issuing Bank with respect to similar letters of credit, and the
Borrower shall have executed and delivered such other instruments and
agreements relating to such Letters of Credit as the Issuing Bank shall
have reasonably requested consistent with such practices and procedures
and shall not be in conflict with any of the express terms herein
contained. All Letters of Credit shall be issued pursuant to and
subject to the Uniform Customs and Practice for Documentary Credits,
1993 revision, International Chamber of Commerce Publication No. 500
(the "UCP") and all subsequent amendments and revisions thereto.
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(f) The Borrower agrees that Issuing Bank may, in its sole
discretion, accept or pay, as complying with the terms of any Letter of
Credit, any drafts or other documents otherwise in order which may be
signed or issued by an administrator, executor, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, attorney in fact or other legal representative of
a party who is authorized under such Letter of Credit to draw or issue
any drafts or other documents.
(g) Without limiting the generality of the provisions of
Section 12.9, the Borrower hereby agrees to indemnify and hold harmless
the Issuing Bank, each other Lender and the Agent from and against any
and all claims and damages, losses, liabilities, reasonable costs and
expenses which the Issuing Bank, such other Lender or the Agent may
incur (or which may be claimed against the Issuing Bank, such other
Lender or the Agent) by any Person by reason of or in connection with
the issuance or transfer of or payment or failure to pay under any
Letter of Credit; provided that the Borrower shall not be required to
indemnify the Issuing Bank, any other Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, (i) caused by the willful misconduct or gross
negligence of the party to be indemnified or (ii) caused by the failure
of the Issuing Bank to pay under any Letter of Credit after the
presentation to it of a request for payment strictly complying with the
terms and conditions of such Letter of Credit, unless such payment is
prohibited by any law, regulation, court order or decree. The
indemnification and hold harmless provisions of this Section 3.2(g)
shall survive repayment of the Obligations, occurrence of the Revolving
Credit Termination Date, and expiration or termination of this
Agreement.
(h) Without limiting Borrower's rights as set forth in Section
3.2(g), the obligation of the Borrower to immediately reimburse the
Issuing Bank for drawings made under Letters of Credit and the Issuing
Bank's right to receive such payment shall be absolute, unconditional
and irrevocable, and such obligations of the Borrower shall be
performed strictly in accordance with the terms of this Agreement and
such Letters of Credit and the related Applications and Agreement for
any Letter of Credit, under all circumstances whatsoever, including the
following circumstances:
(i) any lack of validity or enforceability of the
Letter of Credit, the obligation supported by the Letter of
Credit or any other agreement or instrument relating thereto
(collectively, the "Related LC Documents");
(ii) any amendment or waiver of or any consent to or
departure from all or any of the Related LC Documents;
(iii) the existence of any claim, setoff, defense
(other than the defense of payment in accordance with the
terms of this Agreement) or other rights which the Borrower
may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any persons or entities for whom any
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such beneficiary or any such transferee may be acting), the
Agent, the Lenders or any other Person, whether in connection
with the Loan Documents, the Related LC Documents or any
unrelated transaction;
(iv) any breach of contract or other dispute between
the Borrower and any beneficiary or any transferee of a Letter
of Credit (or any persons or entities for whom such
beneficiary or any such transferee may be acting), the Agent,
the Lenders or any other Person;
(v) any draft, statement or any other document
presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever;
(vi) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or
agreed to by the Agent, with or without notice to or approval
by the Borrower in respect of any of Borrower's Obligations
under this Agreement; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
3.3. Letter of Credit Facility Fees . The Borrower shall pay
to the Agent, (i) for the pro rata benefit of the Lenders based on
their Applicable Commitment Percentages, a fee on the aggregate amount
available to be drawn on each outstanding Letter of Credit at a rate
equal to the Applicable Margin, and (ii) for the Issuing Bank, an
amount to be agreed upon from time to time by the Issuing Bank and the
Borrower, based on the aggregate amount available to be drawn on each
outstanding Letter of Credit. Such fees shall be due with respect to
each Letter of Credit quarterly in arrears on the last day of each
March, June, September and December, the first such payment to be made
on the first such date occurring after the date of issuance of a Letter
of Credit. The fees described in this Section 3.3 shall be calculated
on the basis of a year of 360 days for the actual number of days
elapsed.
3.4. Administrative Fees . The Borrower shall pay to the
Issuing Bank such administrative fee and other fees, if any, in
connection with the Letters of Credit in such amounts and at such times
as the Issuing Bank and the Borrower shall agree from time to time.
ARTICLE IV
Security
--------
4.1. Security . As security for the full and timely payment
and performance of all Obligations, the Loan Parties shall on or before
the Closing Date do or cause to be done all things necessary in the
reasonable opinion of the Agent and its counsel to grant to the Agent
for the benefit of the Lenders a duly perfected first priority security
interest in all Collateral subject to no prior Lien or other
encumbrance or restriction on transfer (other than restrictions on
transfer imposed by applicable securities laws).
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4.2. Further Assurances. At the request of the Agent, the
Borrower will or will cause the Guarantors or other Loan Party, as the
case may be to execute, by its duly authorized officers, alone or with
the Agent, any certificate, instrument, statement or document, or to
procure any such certificate, instrument, statement or document, or to
take such other action (and pay all actual out of pocket costs) which
the Agent reasonably deems necessary from time to time to create,
continue or preserve the liens and security interests in Collateral
(and the perfection and priority thereof) of the Agent contemplated
hereby and by the other Loan Documents.
4.3. Information Regarding Collateral. The Borrower
represents, warrants and covenants that (i) the chief executive office
of the Borrower and each other Person providing Collateral pursuant to
a Security Instrument (each, a "Grantor") at the Closing Date is
located at the address or addresses specified on Schedule 4.3, and (ii)
Schedule 4.3 contains a true and complete list of (a) the name and
address of each Grantor and of each other Person that has effected any
merger or consolidation with a Grantor or contributed or transferred to
a Grantor any property constituting Collateral at any time since
January 1, 1993 (excluding Persons making sales in the ordinary course
of their businesses to a Grantor of property constituting inventory in
the hands of such seller), (b) each location of the chief executive
office of each Grantor at any time since January 1, 1993, (c) each
location in which goods constituting Collateral are or have been
located since January 1, 1993 (together with the name of each owner of
the property located at such address if not the applicable Grantor, and
a summary description of the relationship between the applicable
Grantor and such Person), and (d) each trade style used by any Grantor
since January 1, 1993 and the purposes for which it was used. Borrower
shall not change, and shall not permit any other Grantor to change, the
location of its chief executive office or any location specified in
clause (c) of the immediately preceding sentence, or use or permit any
other Grantor to use, any additional trade style, except upon giving
not less than thirty (30) days' prior written notice to the Agent and
taking or causing to be taken all such action at Borrower's or such
other Grantor's expense as may be reasonably requested by the Agent to
perfect or maintain the perfection of the Lien of the Agent in
Collateral.
4.4.Security Instruments . On or before the Closing Date the
Borrower shall execute and deliver to the Agent, and shall cause each
of the Guarantors to execute and deliver to the Agent, each of the
Security Instruments to which it is a party, together with such other
instruments and documents, including financing statements and
amendments to financing statements, as the Agent may reasonably
request.
ARTICLE V
Change in Circumstances
-----------------------
5.1 Increased Cost and Reduced Return .
(a) If, after the date hereof, the adoption of any applicable
law, rule, or regulation, or any change in any applicable law, rule, or
regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable
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agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any
such governmental authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any
Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar
Rate Loans, or change the basis of taxation of any amounts payable to
such Lender (or its Applicable Lending Office) under this Agreement or
its Note in respect of any Eurodollar Rate Loans (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement (other
than the Reserve Requirement utilized in the determination of the
Eurodollar Rate) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the Revolving
Credit Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or on the London interbank market any other condition
affecting this Agreement or its Note or any of such extensions of
credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, Converting into,
Continuing, or maintaining any Eurodollar Rate Loans or to reduce any
sum received or receivable by such Lender (or its Applicable Lending
Office) under this Agreement or its Note with respect to any Eurodollar
Rate Loans, then the Borrower shall pay to such Lender on demand such
amount or amounts as will compensate such Lender for such increased
cost or reduction; provided that no Lender will be entitled to any
compensation for any such increased cost or reduction if demand for
payment thereof is made by such Lender more than 180 days after the
occurrence of the circumstances giving rise to such claim. If any
Lender requests compensation by the Borrower under this Section 5.1(a),
the Borrower may, by notice to such Lender (with a copy to the Agent),
suspend the obligation of such Lender to make or Continue Loans of the
Type with respect to which such compensation is requested, or to
Convert Loans of any other Type into Loans of such Type, until the
event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.4 shall be applicable);
provided that such suspension shall not affect the right of such Lender
to receive the compensation so requested.
(b) If, after the date hereof, any Lender shall have
determined that the adoption of any applicable law, rule, or regulation
regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any governmental authority,
central bank, or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital
adequacy (whether or not having the force of law) of any such
governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of
such
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Lender or any corporation controlling such Lender as a consequence of
such Lender's obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption,
change, request, or directive (taking into consideration its policies
with respect to capital adequacy), then from time to time upon demand
the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender for such reduction.
(c) Each Lender shall promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this
Section and will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Lender, be otherwise
disadvantageous to it. Any Lender claiming compensation under this
Section shall furnish to the Borrower and the Agent a statement setting
forth the additional amount or amounts to be paid to it hereunder which
shall be conclusive in the absence of manifest error. In determining
such amount, such Lender may use any reasonable averaging and
attribution methods that such Lender uses for its customers that are
similarly situated to the Borrower.
5.2 Limitation on Types of Loans . If on or prior to the first
day of any Interest Period for any Eurodollar Rate Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall
be conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding
Eurodollar Rate Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying
the relevant Type of Loans and the relevant amounts or periods, and so
long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Loans of such Type, Continue Loans of
such Type, or to Convert Loans of any other Type into Loans of such
Type and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Loans of the affected Type,
either prepay such Loans or Convert such Loans into another Type of
Loan in accordance with the terms of this Agreement.
5.3. Illegality . Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Eurodollar Rate
Loans hereunder, then such Lender shall promptly notify the Borrower
thereof and such Lender's obligation to make or Continue Eurodollar
Rate Loans and to Convert other Types of Loans into Eurodollar Rate
Loans shall be suspended until such time as such Lender may again make,
maintain, and fund Eurodollar Rate Loans (in which case the provisions
of Section 5.4 shall be applicable).
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5.4. Treatment of Affected Loans . If the obligation of any
Lender to make a Eurodollar Rate Loan or to Continue, or to Convert
Loans of any other Type into, Loans of a particular Type shall be
suspended pursuant to Section 5.1 or 5.3 hereof (Loans of such Type
being herein called "Affected Loans" and such Type being herein called
the "Affected Type"), such Lender's Affected Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for Affected Loans (or, in the case of
a Conversion required by Section 5.3 hereof, on such earlier date as
such Lender may specify to the Borrower with a copy to the Agent) and,
unless and until such Lender gives notice as provided below that the
circumstances specified in Section 5.1 or 5.3 hereof that gave rise to
such Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Loans of the Affected Type shall be made or Continued
instead as Base Rate Loans, and all Loans of such Lender that would
otherwise be Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent)
that the circumstances specified in Section 5.1 or 5.3 hereof that gave
rise to the Conversion of such Lender's Affected Loans pursuant to this
Section 5.4 no longer exist (which such Lender agrees to do promptly
upon such circumstances ceasing to exist) at a time when Loans of the
Affected Type made by other Lenders are outstanding, such Lender's Base
Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Loans of the
Affected Type, to the extent necessary so that, after giving effect
thereto, all Loans held by the Lenders holding Loans of the Affected
Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective
Revolving Credit Commitments.
5.5. Compensation . Upon the request of any Lender, the
Borrower shall pay to such Lender such amount or amounts as shall be
sufficient (in the reasonable opinion of such Lender) to compensate it
for any loss, cost, or expense (including loss of anticipated profits)
incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar
Rate Loan for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 10.1) on a date other
than the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Article VI to be satisfied) to borrow, Convert, Continue, or prepay an
Eurodollar Rate Loan on the date for such borrowing, Conversion,
Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this
Agreement.
5.6. Taxes . (a) Any and all payments by the Borrower to or
for the account of any Lender or the Agent hereunder or under any other
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Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Lender (or its Applicable
Lending Office) or the Agent (as the case may be) is organized or any
political subdivision thereof (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings, and liabilities
being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable under this Agreement or any other Loan Document to any Lender
or the Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions
applicable to additional sums payable under this Section 5.6) such
Lender or the Agent receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make
such deductions, (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance
with applicable law, and (iv) the Borrower shall furnish to the Agent,
at its address referred to in Section 12.2, the original or a certified
copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Agreement or any other Loan Document or from
the execution or delivery of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent
for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 5.6) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto. (d) Each Lender organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Lender listed on the
signature pages hereof and on or prior to the date on which it becomes
a Lender in the case of each other Lender, and from time to time
thereafter if requested in writing by the Borrower or the Agent (but
only so long as such Lender remains lawfully able to do so), shall
provide the Borrower and the Agent with (i) Internal Revenue Service
Form 1001 or 4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Lender is entitled
to benefits under an income tax treaty to which the United States is a
party which reduces the rate of withholding tax on payments of interest
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the
United States, (ii) Internal Revenue Service Form W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue
Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by Sections 871(h) and
881(c) of the Internal Revenue Code), certifying that such Lender is
entitled to an exemption from or a reduced rate of tax on payments
pursuant to this Agreement or any of the other Loan Documents.
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(e) For any period with respect to which a Lender has failed
to provide the Borrower and the Agent with the appropriate form
pursuant to Section 5.6(d) (unless such failure is due to a change in
treaty, law, or regulation occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 5.6(a), 5.6(b), or 5.6(c)
with respect to Taxes imposed by the United States; provided, however,
that should a Lender, which is otherwise exempt from or subject to a
reduced rate of withholding tax, become subject to Taxes because of its
failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such
Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to
or for the account of any Lender pursuant to this Section 5.6, then
such Lender will agree to use reasonable efforts to change the
jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Lender, is not otherwise
disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of
Taxes, the Borrower shall furnish to the Agent the original or a
certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 5.6 shall survive the termination of
the Revolving Credit Commitments and the payment in full of the Notes.
ARTICLE VI
Conditions to Making Loans and Issuing Letters of Credit
--------------------------------------------------------
6.1. Conditions of Initial Advance . The obligation of the
Lenders to continue to make Advances under the Revolving Credit
Facility, and of the Issuing Bank to continue to issue any Letter of
Credit, is subject to the conditions precedent that:
(a) NationsBank and NMS shall have received on the Closing
Date, in form and substance satisfactory to the Agent and Lenders, the
following:
(i) executed originals of each of this Agreement, the
Notes, the Facility Guaranty, the Security Instruments, the LC
Account Agreement and the other Loan Documents, together with
all schedules and exhibits thereto; and
(ii) the favorable written opinion or opinions with
respect to the Loan Documents and the transactions
contemplated thereby of special counsel to the Loan Parties
dated the Closing Date, addressed to the Agent and the Lenders
and satisfactory to Smith Helms Mulliss & Moore, L.L.P.,
special counsel to the Agent, substantially in the form of
Exhibit G; and
(iii) resolutions of the boards of directors or other
appropriate governing body (or of the appropriate committee
thereof) of each Loan Party certified by its secretary or
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assistant secretary as of the Closing Date, approving and
adopting the Loan Documents to be executed by such Person, and
authorizing the execution and delivery thereof; and
(iv) specimen signatures of officers of each Loan
Party executing the Loan Documents on behalf of such Loan
Party, certified by the secretary or assistant secretary of
such Loan Party; and
(v) the charter documents of each Loan Party
certified as of a recent date by the Secretary of State of its
state of organization or a certificate of the secretary or
assistant secretary of each Loan Party that there has been no
change in such charter documents since the date they were last
delivered to the Agent and such charter documents remain in
full force and effect; and
(vi) the bylaws of each Loan Party certified as of
the Closing Date as true and correct by its secretary or
assistant secretary or a certificate of the secretary or
assistant secretary of each Loan Party that there has been no
change in such bylaws since the date they were last delivered
to the Agent and such bylaws remain in full force and effect;
and
(vii) certificates issued as of a recent date by the
Secretaries of State of the respective jurisdictions of
formation of each Loan Party as to the due existence and good
standing of each Loan Party; and
(viii) appropriate certificates of qualification to
do business, good standing and, where appropriate, authority
to conduct business under assumed name, issued in respect of
each Loan Party as of a recent date by the Secretary of State
or comparable official of each jurisdiction in which the
failure to be qualified to do business or authorized so to
conduct business could have a Material Adverse Effect; and
(ix) a copy of the partnership agreement and
certificate of limited partnership of each Guarantor that is a
Partnership together with all necessary consents, certified as
to its correctness by the General Partner of such partnership
or a certificate of the General Partner that there has been no
change in such partnership agreement and certificate of
limited partnership since the date they were last delivered to
the Agent and such partnership documents remain in full force
and effect; and
(x) notice of appointment of the initial Authorized
Representative(s); and
(xi) certificate of an Authorized Representative
dated the Closing Date demonstrating compliance with the
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covenants contained in Sections 9.1(a) through 9.1(c), and
Section 9.5, as of March 31, 1998, substantially in the form
of Exhibit H; and
(xii) evidence of all insurance required by the Loan
Documents; and
(xiii) an initial Borrowing Notice, if any, and, if
elected by the Borrower, Interest Rate Selection Notice; and
(xiv) evidence of the filing of additional Uniform
Commercial Code financing statements, if any, reflecting the
filing in all places required by applicable law to perfect the
Liens of the Agent under the Security Instruments as a first
priority Lien as to items of Collateral in which a security
interest may be perfected by the filing of financing
statements, and such other documents and/or evidence of other
actions as may be necessary under applicable law to perfect
the Liens of the Agent under the Security Instruments as a
first priority Lien in and to such other Collateral as the
Agent may require, including without limitation:
(A)the delivery by the Borrower of all stock
certificates evidencing Pledged Stock and
certificates, if any, evidencing ownership of Pledged
Partnership Interests, accompanied in each case by
duly executed stock powers (or other appropriate
transfer documents) in blank affixed thereto; and
(B)the delivery by the Borrower of certificates of
the Registrar of each partnership Guarantor
evidencing the due registration on the registration
books of such partnership of the Lien in favor of the
Agent conferred under the Security Instruments; and
(xv) evidence that all fees payable by the Borrower
on the Closing Date to the Agent and the Lenders have been
paid in full; and
(xvi) the consolidated financial statements of the
Borrower and the Guarantors for the fiscal year 1997,
including balance sheets, statements of operations,
stockholders' equity, and cash flow statements, audited by
independent public accountants of national standing and
prepared in accordance with GAAP and on a Consistent Basis;
and
(xvii) financial projections of the Borrower and the
Guarantors for the next four (4) Fiscal Years, in such detail
and based on such assumptions as are acceptable to the Agent
in its sole discretion; and
(xviii) a schedule of the current ownership of the
Borrower; and
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(xix) such other documents, instruments, certificates
and opinions as the Agent or any Lender may reasonably request
on or prior to the Closing Date in connection with the
consummation of the transactions contemplated hereby; and
(b) In the good faith and reasonable judgment of the Agent and
the Lenders:
(i) Except as set forth on Schedule 6.1, there shall
not have occurred a material adverse change since December 31,
1997 in the business, assets, operations, condition (financial
or otherwise) or prospects of the Borrower and the Guarantors,
or in the facts and information regarding such entities
(including litigation) as represented to date; and
(ii) the absence of any action, suit, investigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental authority that purports to affect
the Borrower or the Guarantors (other than existing litigation
which shall be disclosed to, and in their discretion shall be
acceptable to, the Agent and the Lenders), or any transaction
contemplated hereby, or that could have a material adverse
effect on the Borrower or the Guarantors or any transaction
contemplated hereby or on the ability of the Borrower and the
Guarantors to perform their obligations under the Loan
Documents; and
(iii) the Borrower, the Guarantors and any other Loan
Party shall have received all approvals, consents and waivers,
and shall have made or given all necessary filings and notices
as shall be required to consummate the transactions
contemplated hereby without the occurrence of any default
under, conflict with or violation of (A) any applicable law,
rule, regulation, order or decree of any Governmental
Authority or arbitral authority or (B) any agreement, document
or instrument to which any of the Borrower or any Guarantor is
a party or by which any of them or their properties is bound;
and
(iv) the Borrower and the Guarantors shall be in
compliance with all existing financial obligations, including
the terms and conditions set forth in the Existing Agreement;
and
(v) the absence of any disruption or material adverse
change in market for syndicated bank credit facilities similar
in nature to the Revolving Credit Facility or a material
disruption of, or a material adverse change in, financial,
banking, or capital market conditions, in each case as
determined by NationsBank and NMS in their sole discretion
based on reasonable judgment; and
6.2. Conditions of Revolving Loans and Letter of Credit . The
obligations of the Lenders to make any Revolving Loans, and the Issuing
Bank to issue Letters of Credit, hereunder on or subsequent to the
Closing Date are subject to the satisfaction of the following
conditions:
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(a) the Agent shall have received a Borrowing Notice if
required by Article II; and
(b) the representations and warranties of the Borrower and the
Guarantors set forth in Article VII and in each of the other Loan
Documents shall be true and correct in all material respects on and as
of the date of such Advance or Letter of Credit issuance or renewal,
with the same effect as though such representations and warranties had
been made on and as of such date, except: (i) to the extent that such
representations and warranties expressly relate to an earlier date, and
(ii) that the financial statements referred to in Section 7.6(a) shall
be deemed to be those financial statements most recently delivered to
the Agent and the Lenders pursuant to Section 8.1 from the date
financial statements are delivered to the Agent and the Lenders in
accordance with such Section, and (iii) with respect to transactions
permitted hereunder; and
(c) in the case of the issuance of a Letter of Credit, the
Borrower shall have executed and delivered to the Issuing Bank an
Application and Agreement for Letter of Credit in form and content
acceptable to the Issuing Bank together with such other instruments and
documents as it shall request; and
(d) at the time of (and after giving effect to) each Advance
or the issuance of a Letter of Credit, no Default or Event of Default
specified in Article X shall have occurred and be continuing; and
(e) immediately after giving effect to:
(i) a Revolving Loan, the aggregate principal balance
of all outstanding Revolving Loans for each Lender shall not
exceed such Lender's Revolving Credit Commitment;
(ii) a Letter of Credit or renewal thereof, the
aggregate principal balance of all outstanding Participations
in Letters of Credit and Reimbursement Obligations (or in the
case of the Issuing Bank, its remaining interest after
deduction of all Participations in Letters of Credit and
Reimbursement Obligations of other Lenders) for each Lender
and in the aggregate shall not exceed, respectively, (X) such
Lender's Letter of Credit Commitment or (Y) the Total Letter
of Credit Commitment; and
(iii) a Revolving Loan or a Letter of Credit or
renewal thereof, the sum of Letter of Credit Outstandings plus
Revolving Credit Outstandings shall not exceed the Total
Revolving Credit Commitment.
3. ARTICLE
Representations and Warranties
------------------------------
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The Borrower represents and warrants with respect to itself and to the
Guarantors (which representations and warranties shall survive the delivery of
the documents mentioned herein and the making of Loans), that:
7.1. Organization and Authority .
(a) The Borrower and each Guarantor is a corporation
or partnership duly organized and validly existing under the
laws of the jurisdiction of its formation;
(b) The Borrower and each Guarantor (x) has the
requisite power and authority to own its properties and assets
and to carry on its business as now being conducted and as
contemplated in the Loan Documents, and (y) is qualified to do
business in every jurisdiction in which failure to so qualify
would have a Material Adverse Effect;
(c) The Borrower has the power and authority to
execute, deliver and perform this Agreement and the Notes, and
to borrow hereunder, and to execute, deliver and perform each
of the other Loan Documents to which it is a party;
(d) Each Guarantor has the power and authority to
execute, deliver and perform the Facility Guaranty and each of
the other Loan Documents to which it is a party; and
(e) When executed and delivered, each of the Loan
Documents to which the Borrower or any other Loan Party is a
party will be the legal, valid and binding obligation or
agreement, as the case may be, of the Borrower or such Loan
Party, enforceable against the Borrower or such Loan Party in
accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general
principles of equity (whether considered in a proceeding at
law or in equity);
7.2. Loan Documents . The execution, delivery and performance
by the Borrower and each other Loan Party of each of the Loan Documents
to which it is a party:
(a) have been duly authorized by all requisite
corporate action (including any required shareholder approval)
of the Borrower and each other Loan Party required for the
lawful execution, delivery and performance thereof;
(b) do not violate any provisions of (i) applicable
law, rule or regulation, (ii) any judgment, writ, order,
determination, decree or arbitral award of any Governmental
Authority or arbitral authority binding on the Borrower or any
Guarantor or its properties, or (iii) the charter documents or
bylaws of the Borrower or any other Loan Party;
(c) does not and will not be in conflict with, result
in a breach of or constitute an event of default, or an event
which, with notice or lapse of time or both, would constitute
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an event of default, under any contract, indenture, agreement
or other instrument or document to which Borrower or any
Guarantor is a party, or by which the properties or assets of
Borrower or any Guarantor are bound; and
(d) does not and will not result in the creation or
imposition of any Lien upon any of the properties or assets of
Borrower or any Guarantor except any Liens in favor of the
Agent and the Lenders created by the Security Instruments;
7.3. Solvency . The Borrower and each other Loan Party is
Solvent after giving effect to the transactions contemplated by the
Loan Documents;
7.4. Guarantors and Stockholders . The Borrower has no
Guarantors other than those Persons listed in Schedule 7.4 and
additional Subsidiaries or Guarantors created or acquired after the
Closing Date in compliance with Section 8.20; Schedule 7.4 states as of
the date hereof the organizational form of each entity, the authorized
and issued capitalization of each Guarantor listed thereon, the number
of shares or other equity interests of each class of capital stock or
interest issued and outstanding of each such Guarantor and the number
and/or percentage of outstanding shares or other equity interest
(including options, warrants and other rights to acquire any interest)
of each such class of capital stock or other equity interest owned by
Borrower or officers of the Borrower; the outstanding shares or other
equity interests of each such Guarantor have been duly authorized and
validly issued and are fully paid and nonassessable; and Borrower and
each such Guarantor owns beneficially and of record all the shares and
other interests it is listed as owning in Schedule 7.4, free and clear
of any Lien;
7.5. Ownership Interests . Borrower owns no interest in any
Person other than the Persons listed in Schedule 7.4, equity
investments in Persons not constituting Subsidiaries or Guarantors
permitted under Section 9.7 and additional Subsidiaries or Guarantors
created or acquired after the Closing Date in compliance with Section
8.20;
7.6. Financial Condition .
(a) The Borrower has heretofore furnished to each Lender an
audited consolidated balance sheet of the Borrower and the Guarantors
as at December 31, 1997 and the notes thereto and the related
consolidated statements of operation, stockholders' equity and cash
flows for the Fiscal Year then ended as examined and certified by
Arthur Andersen LLP. Except as set forth therein, such financial
statements (including the notes thereto) present fairly the financial
condition of the Borrower and the Guarantors as of the end of such
Fiscal Year and results of their operations and the changes in its
stockholders' equity for the Fiscal Year then ended, all in conformity
with GAAP applied on a Consistent Basis; and
(b) Except as set forth on Schedule 6.1, since December 31,
1997 there has been no material adverse change in the condition,
financial or otherwise, of the Borrower or any of the Guarantors or in
the businesses, properties, performance, prospects or operations of the
Borrower or the Guarantors, nor have such businesses or properties been
materially adversely affected as a result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers, flood,
embargo or act of God; and
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(c) except as set forth in the financial statements referred
to in Section 7.6(a) or in Schedule 9.5 or permitted by Section 9.5,
neither Borrower nor any Guarantor has incurred, other than in the
ordinary course of business, any material Indebtedness, Contingent
Obligation or other commitment or liability which remains outstanding
or unsatisfied;
7.7. Title to Properties . The Borrower and each of the
Guarantors has good and marketable title to all its real properties and
good title to all of its material personal properties, subject to no
transfer restrictions or Liens of any kind, except for the transfer
restrictions and Liens described in Schedule 7.7 and Liens permitted by
Section 9.4;
7.8. Taxes . Except as set forth in Schedule 7.8, the Borrower
and each of the Guarantors has filed or caused to be filed all federal,
state and local tax returns which are required to be filed by it and,
except for taxes and assessments being contested in good faith by
appropriate proceedings diligently conducted and against which reserves
reflected in the financial statements described in Section 7.6(a) and
satisfactory to the Borrower's independent certified public accountants
have been established, have paid or caused to be paid all taxes as
shown on said returns or on any assessment received by it, to the
extent that such taxes have become due;
7.9. Other Agreements . Neither the Borrower nor any Guarantor
is:
(a) a party to or subject to any judgment, order,
decree, agreement, lease or instrument, or subject to other
restrictions, which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect; or
(b) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in (i) any Medicaid Provider Agreement, Medicare
Provider Agreement or other agreement or instrument to which
the Borrower or any Guarantor is a party, which default has
resulted in, or if not remedied within any applicable grace
period could result in, the revocation, termination,
cancellation or suspension of Medicaid Certification or
Medicare Certification of Borrower or any Guarantor or (ii)
any other agreement or instrument to which the Borrower or any
Guarantor is a party, which default has, or if not remedied
within any applicable grace period could reasonably be likely
to have, a Material Adverse Effect;
7.10. Litigation . Except as set forth in Schedule 7.10, there
is no action, suit, investigation or proceeding at law or in equity or
by or before any governmental instrumentality or agency or arbitral
body pending, or, to the knowledge of the Borrower, threatened by or
against the Borrower, any Guarantor or any Contract Provider, or
affecting the Borrower or any Guarantor or any Contract Provider or any
properties or rights of the Borrower or any Guarantor or any Contract
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Provider, which could reasonably be expected (i) to result in the
revocation, termination, cancellation or suspension of Medicaid
Certification or Medicare Certification of such Person, or (ii) to have
a Material Adverse Effect;
7.11. Margin Stock . The proceeds of the borrowings made
hereunder will be used by the Borrower only for the purposes expressly
authorized herein. None of such proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin stock
or for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry margin stock or for any other
purpose which might constitute any of the Loans under this Agreement a
"purpose credit" within the meaning of said Regulation U or Regulation
X (12 C.F.R. Part 224) of the Board; provided however that the Borrower
may purchase its own stock as provided in Section 9.9(d) only so long
as the Loans are not considered "indirectly secured" by such stock
pursuant to Section 221.1(g)(2) of Regulation U. Neither the Borrower
nor any agent acting in its behalf has taken or will take any action
which might cause this Agreement or any of the documents or instruments
delivered pursuant hereto to violate any regulation of the Board or to
violate the Securities Exchange Act of 1934, as amended, or the
Securities Act of 1933, as amended, or any state securities laws, in
each case as in effect on the date hereof;
7.12. Investment Company . Neither the Borrower nor any
Guarantor is an "investment company," or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as
amended (15 U.S.C. ss. 80a-1, et seq.). The application of the proceeds
of the Loans and repayment thereof by the Borrower and the performance
by the Borrower and the other Loan Parties of the transactions
contemplated by the Loan Documents will not violate any provision of
said Act, or any rule, regulation or order issued by the Securities and
Exchange Commission thereunder, in each case as in effect on the date
hereof;
7.13. Patents, Etc. The Borrower and each other Loan Party
owns or has the right to use, under valid license agreements or
otherwise, all material patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, trade secrets and
copyrights necessary to or used in the conduct of its businesses as now
conducted and as contemplated by the Loan Documents, without known
conflict with any patent, license, franchise, trademark, trade secret,
trade name, copyright, other proprietary right of any other Person;
7.14. No Untrue Statement . Neither (a) this Agreement nor any
other Loan Document or certificate or document executed and delivered
by or on behalf of the Borrower or any Guarantor in accordance with or
pursuant to any Loan Document nor (b) any statement, representation, or
warranty provided to the Agent in connection with the negotiation or
preparation of the Loan Documents contains any misrepresentation or
untrue statement of material fact or omits to state a material fact
necessary, in light of the circumstance under which it was made, in
order to make any such warranty, representation or statement contained
therein not misleading;
7.15. No Consents, Etc. Except for certain service and payor
contracts which may require the parties' consent to assignment thereto
which consent has not been required and which assignment pursuant to
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Security Instruments shall not be required to the extent prohibited by
such contract, neither the respective businesses or properties of the
Borrower or any Guarantor, nor any relationship between the Borrower or
any Guarantor and any other Person, nor any circumstance in connection
with the execution, delivery and performance of the Loan Documents and
the transactions contemplated thereby, is such as to require a consent,
approval or authorization of, or filing, registration or qualification
with, any Governmental Authority or any other Person on the part of the
Borrower or any Guarantor as a condition to the execution, delivery and
performance of, or consummation of the transactions contemplated by the
Loan Documents, which, if not obtained or effected, would be reasonably
likely to have a Material Adverse Effect, or if so, such consent,
approval, authorization, filing, registration or qualification has been
duly obtained or effected, as the case may be;
7.16.Employee Benefit Plans .
(a) The Borrower and each ERISA Affiliate is in
compliance with all applicable provisions of ERISA and the
regulations and published interpretations thereunder and in
compliance with all Foreign Benefit Laws with respect to all
Employee Benefit Plans except for any required amendments for
which the remedial amendment period as defined in Section
401(b) of the Code has not yet expired. Each Employee Benefit
Plan that is intended to be qualified under Section 401(a) of
the Code has been determined by the Internal Revenue Service
to be so qualified, and each trust related to such plan has
been determined to be exempt under Section 501(a) of the Code.
No material liability has been incurred by the Borrower or any
ERISA Affiliate which remains unsatisfied for any taxes or
penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan;
(b) Neither the Borrower nor any ERISA Affiliate has
(i) engaged in a nonexempt prohibited transaction described in
Section 4975 of the Code or Section 406 of ERISA affecting any
of the Employee Benefit Plans or the trusts created thereunder
which could subject any such Employee Benefit Plan or trust to
a material tax or penalty on prohibited transactions imposed
under Internal Revenue Code Section 4975 or ERISA, (ii)
incurred any accumulated funding deficiency with respect to
any Employee Benefit Plan, whether or not waived, or any other
liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which
are due and unpaid, (iii) failed to make a required
contribution or payment to a Multiemployer Plan, or (iv)
failed to make a required installment or other required
payment under Section 412 of the Code, Section 302 of ERISA or
the terms of such Employee Benefit Plan;
(c) No Termination Event has occurred or is
reasonably expected to occur with respect to any Pension Plan
or Multiemployer Plan, and neither the Borrower nor any ERISA
Affiliate has incurred any unpaid withdrawal liability with
respect to any Multiemployer Plan;
(d) The present value of all vested accrued benefits
under each Employee Benefit Plan which is subject to Title IV
of ERISA, did not, as of the most recent valuation date for
each such plan, exceed the then current value of the assets of
such Employee Benefit Plan allocable to such benefits;
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(e) To the best of the Borrower's knowledge, each
Employee Benefit Plan subject to Title IV of ERISA, maintained
by the Borrower or any ERISA Affiliate, has been administered
in accordance with its terms in all material respects and is
in compliance in all material respects with all applicable
requirements of ERISA and other applicable laws, regulations
and rules;
(f) The consummation of the Loans and the issuance of
the Letters of Credit provided for herein will not involve any
prohibited transaction under ERISA which is not subject to a
statutory or administrative exemption; and
(g) No material proceeding, claim, lawsuit and/or
investigation exists or, to the best knowledge of the Borrower
after due inquiry, is threatened concerning or involving any
Employee Benefit Plan;
7.17. No Default . As of the date hereof, there does not exist
any Default or Event of Default hereunder;
7.18. Hazardous Materials . The Borrower and each Guarantor is
in compliance with all applicable Environmental Laws in all material
respects. Neither the Borrower nor any Guarantor has been notified of
any action, suit, proceeding or investigation which, and neither the
Borrower nor any Guarantor is aware of any facts which, (i) calls into
question, or could reasonably be expected to call into question,
compliance by the Borrower or any Guarantor with any Environmental
Laws, (ii) which seeks, or could reasonably be expected to form the
basis of a meritorious proceeding, to suspend, revoke or terminate any
license, permit or approval necessary for the generation, handling,
storage, treatment or disposal of any Hazardous Material, or (iii)
seeks to cause, or could reasonably be expected to form the basis of a
meritorious proceeding to cause, any property of the Borrower or any
Guarantor to be subject to any restrictions on ownership, use,
occupancy or transferability under any Environmental Law;
7.19. Employment Matters . (a) None of the employees of the
Borrower or any Guarantor is subject to any collective bargaining
agreement and there are no strikes, work stoppages, election or
decertification petitions or proceedings, unfair labor charges, equal
opportunity proceedings, or other material labor/employee related
controversies or proceedings pending or, to the best knowledge of the
Borrower, threatened against the Borrower or any Guarantor or between
the Borrower or any Guarantor and any of its employees, other than
employee grievances arising in the ordinary course of business which
could not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect; and
(b) Except to the extent a failure to maintain compliance
would not have a Material Adverse Effect, the Borrower and each
Guarantor is in compliance in all respects with all applicable laws,
rules and regulations pertaining to labor or employment matters,
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including without limitation those pertaining to wages, hours,
occupational safety and taxation and there is neither pending or
threatened any litigation, administrative proceeding nor, to the
knowledge of the Borrower, any investigation, in respect of such
matters which, if decided adversely, could reasonably be likely,
individually or in the aggregate, to have a Material Adverse Effect;
and
7.20. RICO . Neither the Borrower nor any Guarantor is engaged
in or has engaged in any course of conduct that could subject any of
their respective properties to any Lien, seizure or other forfeiture
under any criminal law, racketeer influenced and corrupt organizations
law, civil or criminal, or other similar laws.
7.21. Reimbursement from Third Party Payors . The accounts
receivable of the Borrower and each Guarantor have been and will
continue to be adjusted to reflect the reimbursement policies (both
those most recently published in writing as well as those not in
writing which have been verbally communicated)of third party payors
such as Medicare, Medicaid, Blue Cross/Blue Shield, private insurance
companies, health maintenance organizations, preferred provider
organizations, alternative delivery systems, managed care systems,
government contracting agencies and other third party payors. In
particular, accounts receivable relating to such third party payors do
not and shall not exceed amounts any obligee is entitled to receive
under any capitation arrangement, fee schedule, discount formula,
cost-based reimbursement or other adjustment or limitation to its usual
charges.
7.22. Fraud and Abuse . Neither the Borrower nor any Guarantor
nor, to the knowledge of Borrower's officers, any of its stockholders,
officers or directors, or any Contract Provider, have engaged in any
activities which are prohibited under federal Medicare and Medicaid
statutes, 42 U.S.C. ss.1320a-7b, or the regulations promulgated
pursuant to such statutes or related state or local statutes or
regulations, or which are prohibited by binding rules or professional
conduct, including but not limited to the following: (i) knowingly and
willfully making or causing to be made a false statement or
representation of a material fact in any applications for any benefit
or payment; (ii) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in
determining rights to any benefit or payment; (iii) failing to disclose
knowledge by a claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf
or on behalf of another, with intent to secure such benefit or payment
fraudulently; (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay
such remuneration (a) in return for referring an individual to a Person
for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by Medicare,
Medicaid or other applicable third party payors, or (b) in return for
purchasing, leasing or ordering or arranging for or recommending the
purchasing, leasing or ordering of any good, facility, service, or item
for which payment may be made in whole or in part by Medicare, Medicaid
or other applicable third party payors.
7.23. Licensing and Accreditation . Each of the Borrower and
the Guarantors and, to the knowledge of Borrower's officers, each
Contract Provider, has, to the extent applicable: (i) obtained (or been
duly assigned) all required certificates of need or determinations of
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need as required by the relevant state Governmental Authority for the
acquisition, construction, expansion of, investment in or operation of
its businesses as currently operated; (ii) obtained and maintains in
good standing all required licenses; (iii) to the extent prudent and
customary in the industry in which it is engaged, obtained and
maintains accreditation from all generally recognized accrediting
agencies; (iv) obtained and maintains Medicaid Certification and
Medicare Certification; and (v) entered into and maintains in good
standing its Medicare Provider Agreement and its Medicaid Provider
Agreement. To the knowledge of Borrower's officers, each Contract
Provider is duly licensed (where license is required) by each state or
state agency or commission, or any other Governmental Authority having
jurisdiction over the provisions of such services by such Person in the
locations in which the Borrower or such Guarantor conduct business,
required to enable such Person to provide the professional services
provided by such Person and otherwise as is necessary to enable the
Borrower or such Guarantor to operate as currently operated and as
presently contemplated to be operated. To the knowledge of Borrower's
officers, all such required licenses are in full force and effect on
the date hereof and have not been revoked or suspended or otherwise
limited.
ARTICLE VIII
Affirmative Covenants
---------------------
Until the Facility Termination Date, unless the Required
Lenders shall otherwise consent in writing, the Borrower will, and
where applicable will cause each Guarantor to:
8.1. Financial Reports, Etc.
(a) As soon as practical and in any event within 90
days after the end of each Fiscal Year of the Borrower,
deliver or cause to be delivered to the Agent and each Lender
(i) consolidated and consolidating balance sheets of the
Borrower and the Guarantors as at the end of such Fiscal Year,
and the notes thereto, and the related consolidated and
consolidating statements of operations, stockholders' equity
and cash flows, and the respective notes thereto, for such
Fiscal Year, setting forth (other than for consolidating
statements) comparative financial statements for the preceding
Fiscal Year, all prepared in accordance with GAAP applied on a
Consistent Basis and containing, with respect to the
consolidated financial statements, opinions of Arthur Andersen
LLP, or other such independent certified public accountants
selected by the Borrower and approved by the Agent, which are
unqualified as to the scope of the audit performed and as to
the "going concern" status of the Borrower and without any
exception not acceptable to the Lenders, and (ii) a
certificate of an Authorized Representative demonstrating
compliance with Sections 9.1(a) through 9.1(c) and 9.5, which
certificate shall be in the form of Exhibit H;
(b) as soon as practical and in any event within 45
days after the end of each fiscal quarter (except the last
fiscal quarter of the Fiscal Year), deliver to the Agent and
each Lender (i) consolidated and consolidating balance sheets
of the Borrower and the Guarantors as at the end of such
fiscal quarter, and the related consolidated and consolidating
statements of operations, stockholders' equity and cash flows
for such fiscal quarter and for the period from the beginning
of the then current Fiscal Year through the end of such
reporting period, and accompanied by a certificate of an
Authorized Representative to the effect that such financial
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statements present fairly the financial position of the
Borrower and the Guarantors as of the end of such fiscal
period and the results of their operations and the changes in
their financial position for such fiscal period, in conformity
with the standards set forth in Section 7.6(a) with respect to
interim financial statements, and (ii) a certificate of an
Authorized Representative containing computations for such
quarter comparable to that required pursuant to Section
8.1(a)(ii);
(c) together with each delivery of the financial
statements required by Section 8.1(a)(i), deliver to the Agent
and each Lender a letter from the Borrower's accountants
specified in Section 8.1(a)(i) stating that in performing the
audit necessary to render an opinion on the financial
statements delivered under Section 8.1(a)(i), they obtained no
knowledge of any Default or Event of Default by the Borrower
in the fulfillment of the terms and provisions of this
Agreement insofar as they relate to financial matters (which
at the date of such statement remains uncured); or if the
accountants have obtained knowledge of such Default or Event
of Default, a statement specifying the nature and period of
existence thereof;
(d) promptly upon their becoming available to the
Borrower, the Borrower shall deliver to the Agent and each
Lender a copy of (i) all regular or special reports or
effective registration statements which Borrower or any
Guarantor shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities
exchange, (ii) any proxy statement distributed by the Borrower
or any Guarantor to its shareholders, bondholders or the
financial community in general, (iii) any management letter or
other report submitted to the Borrower or any Guarantor by
independent accountants in connection with any annual, interim
or special audit of the Borrower or any Guarantor; and (iv)
all material reports and other statements (other than routine
reports and other statements prepared in the ordinary course
of business that would not result in adverse action) that the
Borrower or any Guarantor may render to or file with any
Governmental Authority, including without limitation HCFA; and
(e) together with each delivery of the financial
statements required by Section 8.1(a)(i), deliver to the Agent
and each Lender a capital budget for the following twelve
month period, together with financial projections for the
Borrower and the Guarantors, on a consolidated basis, with
respect to each fiscal year through the Stated Termination
Date, or budgets or related items as the Agent may reasonably
request including, without limitation, a breakdown of revenue
and direct expenses for each hospital-based contract and for
each practice; and
(f) together with each delivery of the financial
statements received by Section 8.1(a) and (b) deliver to the
Agent a then-current listing of each Guarantor, indicating if
such Guarantor is a Material Guarantor;
(g) promptly, from time to time, deliver or cause to
be delivered to the Agent and each Lender such other
information regarding Borrower's and any Guarantor's
operations, business affairs and financial condition as the
Agent or such Lender may reasonably request;
The Agent and the Lenders are hereby authorized to deliver a
copy of any such financial or other information delivered hereunder to
the Lenders (or any affiliate of any Lender) or to the Agent, to any
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Governmental Authority having jurisdiction over the Agent or any of the
Lenders pursuant to any written request therefor or in the ordinary
course of examination of loan files, or to any other Person who shall
acquire or consider the assignment of, or acquisition of any
participation interest in, any Obligation permitted by this Agreement;
8.2. Maintain Properties . Maintain all properties necessary
to its operations in good working order and condition, make all needed
repairs, replacements and renewals to such properties, and maintain
free from Liens all trademarks, trade names, patents, copyrights, trade
secrets, know-how, and other intellectual property and proprietary
information (or adequate licenses thereto), in each case as are
reasonably necessary to conduct its business as currently or hereafter
conducted or as contemplated hereby, all in accordance with customary
and prudent business practices;
8.3. Existence, Qualification, Etc. Except as otherwise
expressly permitted under Section 9.8, do or cause to be done all
things necessary to preserve and keep in full force and effect its
existence and all material rights and franchises, and maintain its
license or qualification to do business as a foreign corporation and
good standing in each jurisdiction in which its ownership or lease of
property or the nature of its business makes such license or
qualification necessary and the failure to do so would have a Material
Adverse Effect;
8.4. Regulations and Taxes . Comply in all material respects
with or contest in good faith all statutes and governmental regulations
and pay all taxes, assessments, governmental charges, claims for labor,
supplies, rent and any other obligation which, if unpaid, would become
a Lien against any of its properties except liabilities being contested
in good faith by appropriate proceedings diligently conducted and
against which adequate reserves acceptable to the Borrower's
independent certified public accountants have been established unless
and until any Lien resulting therefrom attaches to any of its property
and becomes enforceable against its creditors;
8.5. Insurance . (a) Keep all of its insurable properties
adequately insured at all times with responsible insurance carriers
against loss or damage by fire and other hazards to the extent and in
the manner as are customarily insured against by similar businesses
owning such properties similarly situated, (b) maintain general public
liability insurance at all times with responsible insurance carriers
against liability on account of damage to persons and property, and (c)
maintain insurance under all applicable workers' compensation laws (or
in the alternative, maintain required reserves if self-insured for
workers' compensation purposes) such policies of insurance to have such
limits, deductibles, exclusions, co-insurance and other provisions
providing no less coverages than that specified in Schedule 8.5, such
insurance policies to be in form reasonably satisfactory to the Agent.
Each of the policies of insurance described in this Section 8.5 shall
provide that the insurer shall give the Agent not less than thirty (30)
days' prior written notice before any such policy shall be terminated,
lapse or be altered in any manner. Each insurance policy provided to
the Agent by the Borrower shall be written by an insurer having no less
than "A-X1" Best's Rating according to the most current edition of
Best's Key Rating Guide;
8.6. True Books . Keep true books of record and account in
which full, true and correct entries will be made of all of its
dealings and transactions, and set up on its books such reserves as may
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be required by GAAP with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims and with respect to its
business in general, and include such reserves in interim as well as
year-end financial statements;
8.7. Right of Inspection . Permit any Person designated by any
Lender or the Agent to visit and inspect any of the properties,
corporate books and financial reports of the Borrower or any Guarantor
and to discuss its affairs, finances and accounts with its principal
officers and independent certified public accountants, all at
reasonable times, at reasonable intervals, with reasonable prior
notice, and without unreasonable interference with the conduct of
business operations;
8.8. Observe all Laws . Conform to and duly observe, and cause
all Contract Providers to conform to and duly observe, in all material
respects all laws, rules and regulations and all other valid
requirements of any regulatory authority with respect to the conduct of
its business, including without limitation Titles XVIII and XIX of the
Social Security Act, Medicare Regulations, Medicaid Regulations, and
all laws, rules and regulations of Governmental Authorities pertaining
to the licensing of professional and other health care providers;
notwithstanding the foregoing, if a Contract Provider fails to comply
with this Section 8.8 and neither the Borrower nor Guarantors are
liable therefor, such violation of this Section 8.8 by such Contract
Provider shall not be a Default or Event of Default hereunder.
8.9. Governmental Licenses . Obtain and maintain, and cause
all Contract Providers during periods when performing services for the
Borrower or a Guarantor to obtain and maintain, all licenses, permits,
certifications and approvals of all applicable Governmental Authorities
as are required for the conduct of its business as currently conducted
and herein contemplated, including without limitation professional
licenses, Medicaid Certifications and Medicare Certifications and the
failure to do so would have a Material Adverse Effect;
8.10. Covenants Extending to Other Persons . Cause each of the
Guarantors to do with respect to itself, its business and its assets,
each of the things required of the Borrower in Sections 8.2 through
8.9, and 8.18 inclusive;
8.11. Knowledge of Default . Upon any officer of the Borrower
obtaining knowledge of any Default or Event of Default hereunder or
under any other obligation of the Borrower or any Guarantor to any
Lender, or any event, development or occurrence which could reasonably
be expected to have a Material Adverse Effect, cause such officer or an
Authorized Representative to promptly notify the Agent of the nature
thereof, the period of existence thereof, and what action the Borrower
or such Guarantor proposes to take with respect thereto;
8.12. Suits or Other Proceedings . Upon any officer of the
Borrower obtaining knowledge of any actual or threatened litigation or
other proceedings being instituted (i) against the Borrower or any
Guarantor, or any attachment, levy, execution or other process being
instituted against any assets of the Borrower or any Guarantor or other
Loan Party, in an aggregate amount greater than $200,000 not otherwise
covered by insurance, or (ii) against the Borrower, any Guarantor or
any Contract Provider to suspend, revoke or terminate any Medicaid
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Provider Agreement, Medicaid Certification, Medicare Provider
Agreement, Medicare Certification or other federal or state health care
payor program, promptly deliver to the Agent written notice thereof
stating the nature and status of such litigation, dispute, proceeding,
levy, execution or other process;
8.13. Notice of Discharge of Hazardous Material or
Environmental Complaint . Promptly provide to the Agent true, accurate
and complete copies of any and all notices, complaints, orders,
directives, claims, or citations received by the Borrower or any
Guarantor relating to any (a) violation or alleged violation by the
Borrower or any Guarantor of any applicable Environmental Law, (b)
release or threatened release by the Borrower or any Guarantor, or at
any facility or property owned or leased or operated by the Borrower or
any Guarantor, of any Hazardous Material, except where occurring
legally, or (c) liability or alleged liability of the Borrower or any
Guarantor for the costs of cleaning up, removing, remediating or
responding to a release of Hazardous Materials; provided that so long
as there is no suspension of operations, such notice is required only
when the aggregate cost of compliance or remedy exceeds $100,000 in the
aggregate.
8.14 Environmental Compliance . If the Borrower or any
Guarantor shall receive any letter, notice, complaint, order,
directive, claim or citation alleging that the Borrower or and
Guarantor has violated any Environmental Law or is liable for the costs
of cleaning up, removing, remediating or responding to a release of
Hazardous Materials, the Borrower shall, within the time period
permitted by the applicable Environmental Law or the Governmental
Authority responsible for enforcing such Environmental Law, remove or
remedy, or cause the applicable Guarantor to remove or remedy, such
violation or release or satisfy such liability unless and only during
the period that the applicability of the Environmental Law, the fact of
such violation or liability or what is required to remove or remedy
such violation is being contested by the Borrower or the applicable
Guarantor by appropriate proceedings diligently conducted and all
reserves with respect thereto as may be required under Generally
Accepted Accounting Principles, if any, have been made, and no Lien in
connection therewith shall have attached to any property of the
Borrower or the applicable Guarantor which shall have become
enforceable against creditors of such Person;
8.15. Indemnification . Without limiting the generality of
Section 12.9, the Borrower hereby agrees to indemnify and hold the
Agent and the Lenders, and their respective officers, directors,
employees and agents, harmless from and against any and all claims,
losses, penalties, liabilities, damages and expenses (including
assessment and cleanup costs and reasonable attorneys' fees and
disbursements) arising directly or indirectly from, out of or by reason
of (a) the violation of any Environmental Law by the Borrower or any
Guarantor or with respect to any property owned, operated or leased by
the Borrower or any Guarantor or (b) the handling, storage, treatment,
emission or disposal of any Hazardous Materials by or on behalf of the
Borrower or any Guarantor or on or with respect to property owned or
leased or operated by the Borrower or any Guarantor. Notwithstanding
the foregoing, this Section 8.15 shall not apply to violations caused
by the Agent when the Collateral is in the possession and control of
the Agent. The provisions of this Section 8.15 shall survive the
Facility Termination Date and expiration or termination of this
Agreement;
8.16 Further Assurances . At the Borrower's cost and expense,
upon request of the Agent, duly execute and deliver or cause to be duly
executed and delivered, to the Agent such further instruments,
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documents, certificates, financing and continuation statements, and do
and cause to be done such further acts that may be reasonably necessary
or advisable in the reasonable opinion of the Agent to carry out more
effectively the provisions and purposes of this Agreement, the Security
Instruments and the other Loan Documents;
8.17. Employee Benefit Plans .
(a) With reasonable promptness, and in any event
within thirty (30) days thereof, give notice to the Agent of
(a) the establishment of any new Pension Plan (which notice
shall include a copy of such plan), (b) the commencement of
contributions to any Employee Benefit Plan to which the
Borrower or any of its ERISA Affiliates was not previously
contributing, (c) any material increase in the benefits of any
existing Employee Benefit Plan, (d) each funding waiver
request filed with respect to any Employee Benefit Plan and
all communications received or sent by the Borrower or any
ERISA Affiliate with respect to such request and (e) the
failure of the Borrower or any ERISA Affiliate to make a
required installment or payment under Section 302 of ERISA or
Section 412 of the Code by the due date; and
(b) Promptly and in any event within fifteen (15)
days of becoming aware of the occurrence or forthcoming
occurrence of any (a) Termination Event or (b) nonexempt
"prohibited transaction," as such term is defined in Section
406 of ERISA or Section 4975 of the Code, in connection with
any Pension Plan or any trust created thereunder, deliver to
the Agent a notice specifying the nature thereof, what action
the Borrower or any ERISA Affiliate has taken, is taking or
proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service,
the Department of Labor or the PBGC with respect thereto; and
(c) With reasonable promptness but in any event
within fifteen (15) days for purposes of clauses (a), (b) and
(c), deliver to the Agent copies of (a) any unfavorable
determination letter from the Internal Revenue Service
regarding the qualification of an Employee Benefit Plan under
Section 401(a) of the Code, (b) all notices received by the
Borrower or any ERISA Affiliate of the PBGC's intent to
terminate any Pension Plan or to have a trustee appointed to
administer any Pension Plan, (c) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by
the Borrower or any ERISA Affiliate with the Internal Revenue
Service with respect to each Pension Plan and (d) all notices
received by the Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount
of withdrawal liability pursuant to Section 4202 of ERISA. The
Borrower will notify the Agent in writing within five (5)
Business Days of the Borrower or any ERISA Affiliate obtaining
knowledge or reason to know that the Borrower or any ERISA
Affiliate has filed or intends to file a notice of intent to
terminate any Pension Plan under a distress termination within
the meaning of Section 4041(c) of ERISA;
8.18. Continued Operations . At all times continue to conduct
its business and engage principally in the same line or lines of
business substantially as heretofore conducted;
8.19. Patents, Etc. Maintain at all times the right to use,
under valid license agreements or otherwise, all material patents,
licenses, franchises, trademarks, trademark rights, trade names, trade
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name rights, trade secrets and copyrights necessary to or used in the
conduct of its businesses as now conducted and as contemplated by the
Loan Documents, without known conflict with any patent, license,
franchise, trademark, trade secret, trade name, copyright, or other
proprietary right of any other Person;
8.20. New Guarantors . Simultaneously with the acquisition or
creation of any Guarantor, cause to be delivered to the Agent for the
benefit of the Lenders each of the following:
(i) a Facility Guaranty executed by such Guarantor
substantially in the form of Exhibit I;
(ii) a Security Agreement of such Guarantor
substantially in the form of Exhibit J, together with such Uniform
Commercial Code financing statements on Form UCC-1 or otherwise duly
executed by such Guarantor as "Debtor" and naming the Agent for the
benefit of the Lenders as "Secured Party", in form, substance and
number sufficient in the reasonable opinion of the Agent and its
special counsel to be filed in all Uniform Commercial Code filing
offices in all jurisdictions in which filing is necessary or
advisable to perfect in favor of the Agent for the benefit of the
Lenders the Lien on Collateral conferred under such Security
Instrument to the extent such Lien may be perfected by Uniform
Commercial Code filing;
(iii) if such Guarantor is a corporation or is a
partnership that has issued certificates evidencing ownership of
Partnership Interests, (A) the Pledged Stock or, if applicable,
certificates of ownership of such Partnership Interests, together
with duly executed stock powers or powers of assignment in blank
affixed thereto, and (B) the Securities Pledge Agreement Supplement
if such Guarantor is a party to the Pledge Agreement, or a Pledge
Agreement substantially in the form of Exhibit L if the Guarantor
has not executed and delivered to the Agent a Pledge Agreement;
(iv) if such Guarantor is a partnership not described
in clause (iii) immediately above, (A) the certificate of the
Registrar of such partnership with respect to the registration of
the Lien on Partnership Interests, which certificate shall be in the
form of Exhibit K and (B) the Securities Pledge Agreement Supplement
if such Guarantor is a party to the Pledge Agreement, or a Pledge
Agreement substantially in the form of Exhibit L if the Guarantor
has not executed and delivered to the Agent a Pledge Agreement;
(v) a supplement to Schedule 4.3 and the appropriate
schedule attached to the appropriate Security Instruments listing
the additional Collateral, certified as true, correct and complete
by the Authorized Representative (provided that the failure to
deliver such supplement shall not impair the rights conferred under
the Security Instruments in after acquired Collateral);
(vi) if the Guarantor is a Material Guarantor, an
opinion of counsel to the Guarantor dated as of the date of delivery
of the Facility Guaranty and other Loan Documents provided for in
this Section 8.20 and addressed to the Agent and the Lenders, in
form and substance reasonably acceptable to the Agent (which opinion
may include assumptions and qualifications of similar effect to
those contained in the opinions of counsel delivered pursuant to
Section 6.1(a)(ii)), to the effect that:
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(A) such Guarantor is duly organized, validly
existing and in good standing in the jurisdiction of its
formation, has the requisite power and authority to own its
properties and conduct its business as then owned and then
conducted and proposed to be conducted, and is duly qualified
to transact business and is in good standing as a foreign
corporation or partnership in each other jurisdiction in which
the character of the properties owned or leased, or the
business carried on by it, requires such qualification and the
failure to be so qualified would reasonably be likely to
result in a Material Adverse Effect;
(B) the execution, delivery and performance of the
Facility Guaranty and other Loan Documents described in this
Section 8.20 to which such Guarantor is a signatory have been
duly authorized by all requisite corporate or partnership
action (including any required shareholder or partner
approval), each of such agreements has been duly executed and
delivered and constitutes the valid and binding agreement of
such Guarantor, enforceable against such Guarantor in
accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general
principles of equity (whether considered in a proceeding at
law or in equity); and
(C) the Uniform Commercial Code financing statements
on Form UCC-1 delivered to the Agent by the Guarantor in
connection with the delivery of the Security Instruments of
such Guarantor have been duly executed by the Guarantor and
are in form, substance and number sufficient for filing in all
Uniform Commercial Code filing offices in all jurisdictions in
which filing is necessary to perfect in favor of the Agent for
the benefit of the Lenders the Lien on Collateral conferred
under such Security Instruments to the extent such Lien may be
perfected by Uniform Commercial Code filing;
(vii) current copies of the charter documents,
including partnership agreements and certificate of limited
partnership, if applicable, and bylaws of such Guarantor, minutes of
duly called and conducted meetings (or duly effected consent
actions) of the Board of Directors, partners, or appropriate
committees thereof (and, if required by such charter documents,
bylaws or by applicable law, of the shareholders) of such Guarantor
authorizing the actions and the execution and delivery of documents
described in this Section 8.20.
ARTICLE IX
Negative Covenants
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Until the Obligations have been paid and satisfied in full, no
Letters of Credit remain outstanding and this Agreement has been
terminated in accordance with the terms hereof, unless the Required
Lenders shall otherwise consent in writing, the Borrower will not, nor
will it permit any Guarantor to:
9.1. Financial Covenants .
(a) Consolidated Net Worth. Permit Consolidated Net
Worth to be less than (i) $35, 847,500 at the Closing Date and
through June 29, 1998, and (ii) as at the last day of each
succeeding fiscal quarter of the Borrower and until (but
excluding) the last day of the next following fiscal quarter
of the Borrower, the sum of (A) the amount of Consolidated Net
Worth required to be maintained pursuant to this Section
9.1(a) as at the end of the immediately preceding fiscal
quarter, plus (B) 50% of Consolidated Net Income (with no
reduction for net losses during any period) for the fiscal
quarter of the Borrower ending on such day (including within
"Consolidated Net Income" certain items otherwise excluded, as
provided for in the definition of "Consolidated Net Income"),
plus (c) 100% of the Net Proceeds of any Equity Offering.
(b) Consolidated Leverage Ratio. Permit the
Consolidated Leverage Ratio as of the end of any Four-Quarter
Period to be greater than 3.00 to 1.00.
(c) Consolidated Fixed Charge Ratio. Permit the
Consolidated Fixed Charge Ratio to be less than that set forth
opposite each such period:
Four-Quarter Period Ending Consolidated Fixed Charge Ratio
Closing - September 30, 1998 2.00 to 1.00
October 1, 1998 - September 30, 1999 2.25 to 1.00
Thereafter 2.75 to 1.00
9.2. Acquisitions . Enter into any agreement, contract,
binding commitment or other arrangement providing for any Acquisition,
or take any action to solicit the tender of securities or proxies in
respect thereof in order to effect any Acquisition, unless:
(a) the Person to be (or whose assets are to be)
acquired does not oppose such Acquisition and the line or lines of
business of the Person to be acquired are substantially the same as one
or more line or lines of business conducted by the Borrower and the
Guarantors, and
(b) no Default or Event of Default shall have
occurred and be continuing either immediately prior to or immediately
after giving effect to such Acquisition and the Borrower shall have
furnished to the Agent (A) pro forma historical financial statements as
of the end of the most recently completed Fiscal Year of the Borrower
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and most recent interim fiscal quarter, if applicable, giving effect to
such Acquisition and (B) a certificate in the form of Exhibit H
prepared on a historical pro forma basis giving effect to such
Acquisition, which certificate shall demonstrate that no Default or
Event of Default would exist immediately after giving effect thereto,
(c) the Person acquired shall be a Guarantor, or be
merged into the Borrower or a Guarantor, immediately upon consummation
of the Acquisition (or if assets are being acquired, the acquiror shall
be the Borrower or a Guarantor), and
(d) if the Cost of Acquisition shall (A) exceed
$10,000,000 in cash, or (B) exceed $12,500,000 in the aggregate, or (C)
cause the aggregate Cost of Acquisitions incurred in any Fiscal Year to
exceed $40,000,000, the Required Lenders shall consent to such
Acquisition in their discretion; provided that all Acquisitions
completed before the Closing Date shall not be counted toward the
limitation in clause (C) for Fiscal Year 1998.
9.3 [Reserved] .
9.4. Liens . Incur, create or permit to exist any Lien, charge
or other encumbrance of any nature whatsoever with respect to any
property or assets now owned or hereafter acquired by the Borrower or
any Guarantor, other than the following (collectively, the "Permitted
Liens"):
(a) Liens created under the Security Instruments in
favor of the Agent and the Lenders, and otherwise existing as of the
date hereof and as set forth in Schedule 7.7;
(b) Liens imposed by law for taxes, assessments or
charges of any Governmental Authority for claims not yet due or
which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
GAAP and which Liens are not yet enforceable against other
creditors;
(c) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law or created in the ordinary course of business and in
existence less than 90 days from the date of creation thereof for
amounts not yet due or which are being contested in good faith by
appropriate proceedings diligently conducted and with respect to
which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP and which Liens are not yet
enforceable against other creditors;
(d) Liens incurred or deposits made in the ordinary
course of business (including, without limitation, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for
the repayment of Indebtedness), statutory obligations and other
similar obligations or arising as a result of progress payments
under government contracts;
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(e) easements (including reciprocal easement
agreements and utility agreements), rights-of-way, covenants,
consents, reservations, encroachments, variations and zoning and
other restrictions, charges or encumbrances (whether or not
recorded), which do not interfere materially with the ordinary
conduct of the business of the Borrower or any Subsidiary and which
do not materially detract from the value of the property to which
they attach or materially impair the use thereof to the Borrower or
any Guarantor;
(f) purchase money Liens to secure Indebtedness
permitted under Section 9.5(f) and incurred to purchase fixed
assets, provided such Indebtedness represents not less than 75% of
the purchase price of such assets as of the date of purchase thereof
and no property other than the assets so purchased secures such
Indebtedness; and
(g) Liens arising in connection with Capital Leases
permitted under Section 9.5(g); provided that no such Lien shall
extend to any Collateral or to any other property other than the
assets subject to such Capital Leases;
9.5 Indebtedness . Incur, create, assume or permit to exist
any Indebtedness of the Borrower, howsoever evidenced, except:
(a) Indebtedness existing as of the Closing Date as
set forth in Schedule 9.5; provided, none of the instruments and
agreements evidencing or governing such Indebtedness shall be
amended, modified or supplemented after the Closing Date to change
any terms of subordination, repayment or rights of conversion, put,
exchange or other rights from such terms and rights as in effect on
the Closing Date;
(b) Indebtedness owing to the Agent or any Lender in
connection with this Agreement, any Note or other Loan Document;
(c) the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course
of business;
(d) additional unsecured Indebtedness for Money
Borrowed and not otherwise covered by clauses (a) through (c) above;
provided that the aggregate outstanding principal amount of all such
other Indebtedness permitted under this clause (d) and Sections
9.5(e), (f), (g), and (h) shall in no event exceed $10,00,000 in the
aggregate at any time;
(e) Indebtedness arising from Rate Hedging
Obligations permitted under Section 9.15; provided that the
aggregate outstanding risk-adjusted principal amount as determined
by the Agent of all such Rate Hedging Obligations and of all
Indebtedness permitted under this clause (e) and Sections 9.5(d),
(f), (g), and (h) shall in no event exceed $10,000,000 in the
aggregate at any time;
(f) purchase money Indebtedness described in Section
9.4(f); provided that the aggregate outstanding principal amount of
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all such purchase money Indebtedness permitted under this clause (f)
and of all Indebtedness permitted under Sections 9.5(d), (e), (g),
and (h) shall in no event exceed $10,000,000 in the aggregate at any
time;
(g) Indebtedness for Money Borrowed arising from
Capital Leases described in Section 9.4(g); provided that the
aggregate outstanding principal amount of such Indebtedness for
Money Borrowed arising from Capital Leases permitted under this
clause (g) and of all Indebtedness permitted under Sections 9.5(d),
(e), (f), and (h) shall in no event exceed $10,000,000 in the
aggregate at any time;
(h) Indebtedness for Money Borrowed arising from
insurance premium financing plans that fully amortize within one
year; provided that the aggregate outstanding principal amount of
such Indebtedness for Money Borrowed arising from such insurance
premium financing plans permitted under this clause (h) and of all
Indebtedness permitted under Sections 9.5(d), (e), (f), and (g)
shall in no event exceed $10,000,000 in the aggregate at any time;
(i) Deferred Excess Compensation.
9.6. Transfer of Assets . Sell, lease, transfer or otherwise
dispose of any assets of Borrower or any Guarantor in excess of
$250,000 per Fiscal Year other than (a) dispositions of inventory in
the ordinary course of business, (b) dispositions of property that is
substantially worn, damaged, obsolete or, in the judgment of the
Borrower, no longer best used or useful in its business or that of any
Guarantor, (c) transfers of assets necessary to give effect to merger,
sale or consolidation transactions permitted by Section 9.8, (d) the
disposition of Eligible Securities in the ordinary course of management
of the investment portfolio of the Borrower and the Guarantors, and (e)
transfers of assets from one Guarantor to another or to the Borrower so
long as after giving effect thereto the Agent shall have a first
priority perfected security interest in such assets;
9.7. Investments . Purchase, own, invest in or otherwise
acquire, directly or indirectly, any stock or other securities, or make
or permit to exist any interest whatsoever in any other Person or
permit to exist any loans or advances to any Person, except that
Borrower may maintain investments or invest in:
(a) securities of any Person acquired in an
Acquisition permitted hereunder;
(b) Eligible Securities;
(c) investments existing as of the date hereof and as
set forth in Schedule 7.4;
(d) receivable arising and trade credit granted in
the ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof in connection
with accounts of financially troubled Persons to the extent
reasonably necessary in order to prevent or limit loss; and
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(e) investments in or loans to Guarantors;
(f) other loans, advances and investments in an
aggregate principal amount at any time outstanding not to
exceed $500,000;
9.8. Merger or Consolidation . (a) Consolidate with or merge
into any other Person, or (b) permit any other Person to merge into it,
or (c) liquidate, wind-up or dissolve or sell, transfer or lease or
otherwise dispose of all or a substantial part of its assets (other
than sales permitted under Section 9.6 (a), (b) and (d)); provided,
however, (i) any Guarantor may merge or transfer all or substantially
all of its assets into or consolidate with the Borrower or any
Guarantor, and (ii) any other Person may merge into or consolidate with
the Borrower or any Guarantor and any Guarantor may merge into or
consolidate with any other Person in order to consummate an Acquisition
permitted by Section 9.2, provided further, that any resulting or
surviving entity shall execute and deliver such agreements and other
documents, including a Facility Guaranty, and take such other action as
the Agent may require to evidence or confirm its express assumption of
the obligations and liabilities of its predecessor entities under the
Loan Documents;
9.9. Restricted Payments . Make any Restricted Payment or
apply or set apart any of their assets therefor or agree to do any of
the foregoing except;
(a) any Guarantor may make Restricted Payments to the
Borrower; or
(b) any Guarantor may make Restricted Payments to
another Guarantor; or
(c) those distributions set forth on Schedule 9.9; or
(d) subject to the limitation of Section 7.11, if the
Consolidated Leverage Ratio is less than 2.50 to 1.00 as of
the end of the previous fiscal quarter, the Borrower may
purchase its own stock so long as the aggregate value (as
quoted by a national securities exchange on any date) held as
treasury stock does not at any time exceed $2,000,000;
9.10. Transactions with Affiliates . Other than transactions
permitted under Sections 9.7 and 9.8, and transactions with Guarantors,
enter into any transaction after the Closing Date, including, without
limitation, the purchase, sale, lease or exchange of property, real or
personal, or the rendering of any service, with any Affiliate of the
Borrower, except (a) that such Persons may render services to the
Borrower or the Guarantors for compensation at the same rates generally
paid by Persons engaged in the same or similar businesses for the same
or similar services, (b) that the Borrower or any Guarantor may render
services to such Persons for compensation at the same rates generally
charged by the Borrower or such Guarantor and (c) in either case in the
ordinary course of business and pursuant to the reasonable requirements
of the Borrower's (or any Guarantor's) business consistent with past
practice of the Borrower and the Guarantors and upon fair and
reasonable terms no less favorable to the Borrower (or any Guarantor)
than would be obtained in a comparable arm's-length transaction with a
Person not an Affiliate;
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9.11 Compliance with ERISA . With respect to any Pension Plan,
Employee Benefit Plan or Multiemployer Plan:
(a) permit the occurrence of any Termination Event
which would result in a liability on the part of the Borrower
or any ERISA Affiliate to the PBGC; or
(b) permit the present value of all benefit
liabilities under all Pension Plans to exceed the current
value of the assets of such Pension Plans allocable to such
benefit liabilities; or
(c) permit any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code)
with respect to any Pension Plan, whether or not waived; or
(d) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any ERISA Affiliate
may be required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto; or
(e) engage, or permit any Borrower or any ERISA
Affiliate to engage, in any prohibited transaction under
Section 406 of ERISA or Sections 4975 of the Code for which a
civil penalty pursuant to Section 502(I) of ERISA or a tax
pursuant to Section 4975 of the Code may be imposed; or
(f) establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or
amend any Employee Benefit Plan which establishment or
amendment could result in liability to the Borrower or any
ERISA Affiliate or increase the obligation of the Borrower or
any ERISA Affiliate to a Multiemployer Plan which liability or
increase, individually or together with all similar
liabilities and increases, is in excess of $50,000; or
(g) fail, or permit the Borrower or any ERISA
Affiliate to fail, to establish, maintain and operate each
Employee Benefit Plan in compliance in all material respects
with the provisions of ERISA, the Code, all applicable Foreign
Benefit Laws and all other applicable laws and the regulations
and interpretations thereof;
9.12. Fiscal Year . Change its Fiscal Year;
9.13. Dissolution, etc. Wind up, liquidate or dissolve
(voluntarily or involuntarily) or commence or suffer any proceedings
seeking any such winding up, liquidation or dissolution, except in
connection with a merger or consolidation permitted pursuant to Section
9.8;
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9.14. Change in Control . Cause, suffer or permit to exist or
occur any Change of Control;
9.15. Rate Hedging Obligations . Incur any Rate Hedging
Obligations or enter into any agreements, arrangements, devices or
instruments relating to Rate Hedging Obligations, except for Rate
Hedging Obligations incurred to limit risks of currency or interest
rate fluctuations to which the Borrower and the Guarantors are subject
by virtue of the Indebtedness evidenced by the Notes.
9.16. Negative Pledge Clauses . Enter into or cause, suffer or
permit to exist any agreement with any Person other than the Agent and
the Lenders pursuant to this Agreement or any other Loan Documents
which prohibits or limits the ability of any of the Borrower or any
Guarantor to create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter
acquired, provided that the Borrower and any Guarantor may enter into
such an agreement in connection with property subject to any Lien
permitted by this Agreement and not released after the date hereof,
when such prohibition or limitation is by its terms effective only
against the assets subject to such Lien;
ARTICLE X
Events of Default and Acceleration
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10.1. Events of Default . If any one or more of the following
events (herein called "Events of Default") shall occur for any reason
whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any Governmental Authority),
that is to say:
(a) if default shall be made in the due and punctual
payment of the principal of any Loan, Reimbursement Obligation
or other Obligation, when and as the same shall be due and
payable whether pursuant to any provision of Article II or
Article III, at maturity, by acceleration or otherwise; or
(b) if default shall be made in the due and punctual
payment of any amount of interest on any Loan, Reimbursement
Obligation or other Obligation or of any fees or other amounts
payable to any of the Lenders or the Agent on the date on
which the same shall be due and payable and such default shall
continue for four (4) or more days; or
(c) if default shall be made in the performance or
observance of any covenant set forth in Section 8.7, 8.11,
8.20, or Article IX;
(d) if a default shall be made in the performance or
observance of, or shall occur under, any covenant, agreement
or provision contained in this Agreement or the Notes (other
than as described in clauses (a), (b) or (c) above) and such
default shall continue for 30 or more days after the earlier
of receipt of notice of such default by the Authorized
Representative from the Agent or an officer of the Borrower
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becomes aware of such default, or if a default shall be made
in the performance or observance of, or shall occur under, any
covenant, agreement or provision contained in any of the other
Loan Documents (beyond any applicable grace period, if any,
contained therein) or in any instrument or document evidencing
or creating any obligation, guaranty, or Lien in favor of the
Agent or any of the Lenders or delivered to the Agent or any
of the Lenders in connection with or pursuant to this
Agreement or any of the Obligations, or if any Loan Document
ceases to be in full force and effect (other than by reason of
any action by the Agent), or if without the written consent of
the Lenders, this Agreement or any other Loan Document shall
be disaffirmed or shall terminate, be terminable or be
terminated or become void or unenforceable for any reason
whatsoever (other than in accordance with its terms in the
absence of default or by reason of any action by the Lenders
or the Agent); or
(e) if there shall occur (i) a default, which is not
waived, in the payment of any principal, interest, premium or
other amount with respect to any Indebtedness (other than the
Loans and other Obligations) of the Borrower or any Guarantor
in an amount not less than $100,000 in the aggregate
outstanding, or (ii) a default, which is not waived, in the
performance, observance or fulfillment of any term or covenant
contained in any agreement or instrument under or pursuant to
which any such Indebtedness may have been issued, created,
assumed, guaranteed or secured by the Borrower or any
Guarantor, or (iii) any other event of default as specified in
any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed,
guaranteed or secured by the Borrower or any Guarantor, and
such default or event of default shall continue for more than
the period of grace, if any, therein specified, or such
default or event of default shall permit the holder of any
such Indebtedness (or any agent or trustee acting on behalf of
one or more holders) to accelerate the maturity thereof; or
(f) if any representation, warranty or other
statement of fact contained in any Loan Document or in any
writing, certificate, report or statement at any time
furnished to the Agent or any Lender by or on behalf of the
Borrower or any other Loan Party pursuant to or in connection
with any Loan Document, or otherwise, shall be false or
misleading in any material respect when given; or
(g) if the Borrower or any Guarantor or other Loan
Party shall be unable to pay its debts generally as they
become due; file a petition to take advantage of any
insolvency statute; make an assignment for the benefit of its
creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of
the whole or any substantial part of its property; file a
petition or answer which in either case seeks liquidation,
reorganization or arrangement or similar relief under the
federal bankruptcy laws or any other applicable law or
statute; or
(h) if a court of competent jurisdiction shall enter
an order, judgment or decree appointing a custodian, receiver,
trustee, liquidator or conservator of the Borrower or any
Guarantor or of the whole or any substantial part of its
properties and such order, judgment or decree continues
unstayed and in effect for a period of sixty (60) days, or
approve a petition filed against the Borrower or any Guarantor
seeking liquidation, reorganization or arrangement or similar
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relief under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any state, which petition is not dismissed or stayed within
sixty (60) days; or if, under the provisions of any other law
for the relief or aid of debtors, a court of competent
jurisdiction shall assume custody or control of the Borrower
or any Guarantor or of the whole or any substantial part of
its properties, which control is not relinquished within sixty
(60) days; or if there is commenced against the Borrower or
any Guarantor any proceeding or petition seeking
reorganization, arrangement or similar relief under the
federal bankruptcy laws or any other applicable law or statute
of the United States of America or any state which proceeding
or petition remains undismissed for a period of sixty (60)
days; or if the Borrower or any Guarantor takes any action to
indicate its consent to or approval of any such proceeding or
petition; or
(i) if (i) one or more judgments or orders where the
amount not covered by insurance (or the amount as to which the
insurer denies liability) is in excess of $100,000 is rendered
against the Borrower or any Guarantor, or (ii) there is any
attachment, injunction or execution against any of the
Borrower's or Guarantors' properties for any amount in excess
of $100,000 in the aggregate; and such judgment, attachment,
injunction or execution remains unpaid, unstayed,
undischarged, unbonded or undismissed for a period of thirty
(30) days; or
(j) if the Borrower or any Guarantor shall, other
than in the ordinary course of business (as determined by past
practices), suspend all or any part of its operations material
to the conduct of the business of the Borrower and such
Guarantor, taken as a whole, for a period of more than 30
days; or
(k) if the Borrower or any Guarantor shall breach any
of the material terms or conditions of any agreement under
which any Rate Hedging Obligations permitted hereby is created
and such breach shall continue beyond any grace period, if
any, relating thereto pursuant to the terms of such agreement,
or if the Borrower or any Guarantor shall disaffirm or seek to
disaffirm any such agreement or any of its obligations
thereunder; or
(l) if there shall occur and not be waived an Event
of Default as defined in any of the other Loan Documents;
(m) (i) cancellation, revocation, suspension or
termination of any Medicare Certification, Medicare Provider
Agreement, Medicaid Certification or Medicaid Provider
Agreement affecting the Borrower, any Guarantor or any
Contract Provider, or (ii) the loss of any other permits,
licenses, authorizations, certifications or approvals from any
federal, state or local Governmental Authority or termination
of any contract with any such authority, in either case which
cancellation, revocation, suspension, termination or loss (X)
in the case of any suspension or temporary loss only,
continues for a period greater than 60 days and (Y) results in
the suspension or termination of operations of the Borrower or
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any Guarantor or in the failure of the Borrower or any
Guarantors or any Contract Provider to be eligible to
participate in Medicare or Medicaid programs or to accept
assignments of rights to reimbursement under Medicaid
Regulations or Medicare Regulations; provided that any such
events described in this Section 10.1(m) shall result either
singly or in the aggregate in the termination, cancellation,
suspension or material impairment of operations or rights to
reimbursement which produce 5% or more of the Borrower's gross
revenues (on an annualized basis);
(n) if there shall occur any Termination Event;
(o) any actual or asserted invalidity (other than by
the Agent and Lenders) of any of the Loan Documents;
then, and in any such event and at any time thereafter, if such Event
of Default or any other Event of Default shall have not been waived,
(A) either or both of the following actions may
be taken: (i) the Agent, with the consent of the
Required Lenders, may, and at the direction of the
Required Lenders shall, declare any obligation of the
Lenders and the Issuing Bank to make further Revolving
Loans or to issue additional Letters of Credit
terminated, whereupon the obligation of each Lender to
make further Revolving Loans and of the Issuing Bank to
issue additional Letters of Credit, hereunder shall
terminate immediately, and (ii) the Agent shall at the
direction of the Required Lenders, at their option,
declare by notice to the Borrower any or all of the
Obligations to be immediately due and payable, and the
same, including all interest accrued thereon and all
other obligations of the Borrower to the Agent and the
Lenders, shall forthwith become immediately due and
payable without presentment, demand, protest, notice or
other formality of any kind, all of which are hereby
expressly waived, anything contained herein or in any
instrument evidencing the Obligations to the contrary
notwithstanding; provided, however, that
notwithstanding the above, if there shall occur an
Event of Default under clause (g) or (h) above, then
the obligation of the Lenders to make Revolving Loans
and of the Issuing Bank to issue Letters of Credit
hereunder shall automatically terminate and any and all
of the Obligations shall be immediately due and payable
without the necessity of any action by the Agent or the
Required Lenders or notice to the Agent or the Lenders;
(B) the Borrower shall, upon demand of the
Agent or the Required Lenders, deposit cash with the
Agent in an amount equal to the amount of any Letter of
Credit Outstandings, as collateral security for the
repayment of any future drawings or payments under such
Letters of Credit, and such amounts shall be held by
the Agent pursuant to the terms of the LC Account
Agreement; and
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(C) the Agent and each of the Lenders shall
have all of the rights and remedies available under the
Loan Documents or under any applicable law.
10.2. Agent to Act. In case any one or more Events of Default
shall occur and not have been waived, the Agent may, and at the
direction of the Required Lenders shall, proceed to protect and enforce
their rights or remedies either by suit in equity or by action at law,
or both, whether for the specific performance of any covenant,
agreement or other provision contained herein or in any other Loan
Document, or to enforce the payment of the Obligations or any other
legal or equitable right or remedy.
10.3. Cumulative Rights. No right or remedy herein conferred
upon the Lenders or the Agent is intended to be exclusive of any other
rights or remedies contained herein or in any other Loan Document, and
every such right or remedy shall be cumulative and shall be in addition
to every other such right or remedy contained herein and therein or now
or hereafter existing at law or in equity or by statute, or otherwise.
10.4. No Waiver. No course of dealing between the Borrower and
any Lender or the Agent or any failure or delay on the part of any
Lender or the Agent in exercising any rights or remedies under any Loan
Document or otherwise available to it shall operate as a waiver of any
rights or remedies and no single or partial exercise of any rights or
remedies shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder or of the same right or remedy on a
future occasion.
10.5. Allocation of Proceeds. If an Event of Default has
occurred and not been waived, and the maturity of the Notes has been
accelerated pursuant to Article X hereof, all payments received by the
Agent hereunder, in respect of any principal of or interest on the
Obligations or any other amounts payable by the Borrower hereunder,
shall be applied by the Agent in the following order:
(a) amounts due to the Lenders pursuant to Sections
2.10, 3.3, 3.4 and 12.5;
(b) amounts due to the Agent pursuant to Section
11.8;
(c) payments of interest on Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the
Lenders;
(d) payments of principal of Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the
Lenders;
(e) payments of cash amounts to the Agent in respect
of outstanding Letters of Credit pursuant to Section 10.1(B);
(f) amounts due to the Lenders pursuant to Sections
3.2(g), 8.15 and 12.9;
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(g) payments of all other amounts due under any of
the Loan Documents, if any, to be applied for the ratable
benefit of the Lenders;
(h) amounts due to any of the Lenders in respect of
Obligations consisting of liabilities under any Swap Agreement
with any of the Lenders on a pro rata basis according to the
amounts owed; and
(i) any other Indebtedness.
ARTICLE XI
The Agent
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11.1. Appointment, Powers, and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under
this Agreement and the other Loan Documents with such powers and
discretion as are specifically delegated to the Agent by the terms of
this Agreement and the other Loan Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 11.5 and the first sentence of
Section 11.6 hereof shall include its affiliates and its own and its
affiliates' officers, directors, employees, and agents): (a) shall not
have any duties or responsibilities except those expressly set forth in
this Agreement and shall not be a trustee or fiduciary for any Lender;
(b) shall not be responsible to the Lenders for any recital, statement,
representation, or warranty (whether written or oral) made in or in
connection with any Loan Document or any certificate or other document
referred to or provided for in, or received by any of them under, any
Loan Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of any Loan Document, or any other
document referred to or provided for therein or for any failure by any
Loan Party or any other Person to perform any of its obligations
thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Loan Party or the satisfaction of any
condition or to inspect the property (including the books and records)
of any Loan Party or any of its Subsidiaries or affiliates; (d) shall
not be required to initiate or conduct any litigation or collection
proceedings under any Loan Document; and (e) shall not be responsible
for any action taken or omitted to be taken by it under or in
connection with any Loan Document, except for its own gross negligence
or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
11.2. Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice, instrument, writing, or other
communication (including, without limitation, any thereof by telephone
or telefacsimile) believed by it to be genuine and correct and to have
been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including
counsel for any Loan Party), independent accountants, and other experts
selected by the Agent. The Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until the
Agent receives and accepts an Assignment and Acceptance executed in
accordance with Section 12.1 hereof. As to any matters not expressly
provided for by this Agreement, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to
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act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding on all of the Lenders;
provided, however, that the Agent shall not be required to take any
action that exposes the Agent to personal liability or that is contrary
to any Loan Document or applicable law or unless it shall first be
indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking
any such action.
11.3. Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default or Event of Default
unless the Agent has received written notice from a Lender or the
Borrower specifying such Default or Event of Default and stating that
such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default or Event of
Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall (subject to Section 11.2 hereof) take such action with
respect to such Default or Event of Default as shall reasonably be
directed by the Required Lenders, provided that, unless and until the
Agent shall have received such directions, the Agent may (but shall not
be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
11.4. Rights as Lender. With respect to its Commitment and the
Loans made by it, NationsBank (and any successor acting as Agent) in
its capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as
though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. NationsBank (and any successor acting
as Agent) and its affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to, make investments in,
provide services to, and generally engage in any kind of lending,
trust, or other business with any Loan Party or any of its Subsidiaries
or affiliates as if it were not acting as Agent, and NationsBank (and
any successor acting as Agent) and its affiliates may accept fees and
other consideration from any Loan Party or any of its Subsidiaries or
affiliates for services in connection with this Agreement or otherwise
without having to account for the same to the Lenders.
11.5. Indemnification. The Lenders agree to indemnify the
Agent (to the extent not reimbursed under Section 12.9 hereof, but
without limiting the obligations of the Borrower under such Section)
ratably in accordance with their respective Revolving Credit
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, reasonable costs and expenses
(including attorneys' fees), or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the
Agent (including by any Lender) in any way relating to or arising out
of any Loan Document or the transactions contemplated thereby or any
action taken or omitted by the Agent under any Loan Document; provided
that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the
Person to be indemnified. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its
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ratable share of any costs or expenses payable by the Borrower under
Section 12.5, to the extent that the Agent is not promptly reimbursed
for such costs and expenses by the Borrower. The agreements contained
in this Section shall survive payment in full of the Loans and all
other amounts payable under this Agreement.
11.6. Non-Reliance on Agent and Other Lenders. Each Lender
agrees that it has, independently and without reliance on the Agent or
any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Loan Parties
and their Subsidiaries and decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents.
Except for notices, reports, and other documents and information
expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the
affairs, financial condition, or business of any Loan Party or any of
its Subsidiaries or affiliates that may come into the possession of the
Agent or any of its affiliates.
11.7 Resignation of Agent. The Agent may resign at any time by
giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a
successor Agent subject to the approval of the Borrower so long as no
Default or Event of Default shall have occurred and be continuing, such
approval not to be unreasonably withheld. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial
bank organized under the laws of the United States of America having
combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor, such
successor shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges, and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Article XI shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
11.8. Fees. The Borrower agrees to pay to the Agent, for its
individual account, an annual Administrative Agent's fee as from time
to time agreed to by the Borrower and Agent in writing.
ARTICLE XII
Miscellaneous
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12.1. Assignments and Participations . (a) Each Lender may
assign to one or more Eligible Assignees all or a portion of its rights
and obligations under this Agreement (including, without limitation,
all or a portion of its Loans, its Note, and its Revolving Credit
Commitment); provided, however, that
(i) each such assignment shall be to an Eligible
Assignee;
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(ii) except in the case of an assignment to another
Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, any such partial assignment
shall be in an amount at least equal to $5,000,000 or an
integral multiple of $1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a
constant, and not varying, percentage of all of its rights and
obligations under this Agreement and the Note; and
(iv) the parties to such assignment shall execute and
deliver to the Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit B hereto, together with any
Note subject to such assignment and a processing fee of
$3,500.
Upon execution, delivery, and acceptance of such Assignment
and Acceptance, the assignee thereunder shall be a party
hereto and, to the extent of such assignment, have the
obligations, rights, and benefits of a Lender hereunder and
the assigning Lender shall, to the extent of such assignment,
relinquish its rights and be released from its obligations
under this Agreement. Upon the consummation of any assignment
pursuant to this Section, the assignor, the Agent and the
Borrower shall make appropriate arrangements so that, if
required, new Notes are issued to the assignor and the
assignee. If the assignee is not incorporated under the laws
of the United States of America or a state thereof, it shall
deliver to the Borrower and the Agent certification as to
exemption from deduction or withholding of Taxes in accordance
with Section 5.6.
(b) The Agent shall maintain at its address referred to in Section 12.2
a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
B hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
(d) Each Lender may sell participations to one or more Persons in all
or a portion of its rights and obligations or rights and obligations under
this Agreement (including all or a portion of its Revolving Credit
Commitment or its Loans); provided, however, that (i) any such
participation shall be in an amount at least equal to $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (ii)such Lender*s
obligations under this Agreement shall remain unchanged, (iii) such Lender
shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iv) the participant shall be entitled to
the benefit of the yield protection provisions contained in Article V and
the right of set-off contained in Section 12.3, and (v) the Borrower shall
continue to deal solely and directly with such Lender in connection with
such Lender*s rights and obligations under this Agreement, and such Lender
shall retain the sole right to enforce the obligations of the Borrower
relating to its Loans and its Note and to approve any amendment,
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modification, or waiver of any provision of this Agreement (other than
amendments, modifications, or waivers decreasing the amount of principal
of or the rate at which interest is payable on such Loans or Note,
extending any scheduled principal payment date or date fixed for the
payment of interest on such Loans or Note, or extending its Revolving
Credit Commitment).
(e) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its
Loans and its Note to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Lender from
its obligations hereunder.
(f) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 12.15
hereof.
12.2. Notices. Any notice shall be conclusively deemed to have
been received by any party hereto and be effective (i) on the day on
which delivered (including hand delivery by commercial courier service)
to such party (against receipt therefor), (ii) on the date of receipt
at such address, telefacsimile number or telex number as may from time
to time be specified by such party in written notice to the other
parties hereto or otherwise received), in the case of notice by
telegram, telefacsimile or telex, respectively (where the receipt of
such message is verified by return), or (iii) on the fifth Business Day
after the day on which mailed, if sent prepaid by certified or
registered mail, return receipt requested, in each case delivered,
transmitted or mailed, as the case may be, to the address, telex number
or telefacsimile number, as appropriate, set forth below or such other
address or number as such party shall specify by notice hereunder:
(a) if to the Borrower or any Guarantor:
Sheridan Healthcare, Inc.
4561 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn: Mitchell Eisenberg, M.D., President
Telephone: (954) 986-7550
Telefacsimile: (954) 987-8359
with a copy to:
Sheridan Healthcare, Inc.
4561 Sheridan Street, Suite 400
Hollywood, Florida 33021
Attn:Jay A. Martus, Esquire, Vice President and General Counsel
Telephone: (954) 986-7770
Telefacsimile: (954) 987-8359
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(b) if to the Agent:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telephone: (704) 388-3916
Telefacsimile: (704) 386-9923
with a copy to:
NationsBank, National Association
100 North Tryon Street, 8th Floor
Charlotte, North Carolina 28255
Attention: Michael A. Crabb, III
Telephone: (704) 388-6000
Telefacsimile: (704) 388-6002
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance.
12.3. Right of Setoff; Adjustments . (a) Upon the occurrence
and during the continuance of any Event of Default, each Lender (and
each of its affiliates) is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by
such Lender (or any of its affiliates) to or for the credit or the
account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement and the Note
held by such Lender, irrespective of whether such Lender shall have
made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower after any such set-off and application made by such Lender;
provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each
Lender under this Section 12.3 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that
such Lender may have.
(b) If any Lender (a "benefitted Lender") shall at any time
receive any payment of all or part of the Loans owing to it, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, or otherwise), in a greater
proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans owing to it, or
interest thereon, such benefitted Lender shall purchase for cash from
the other Lenders a participating interest in such portion of each such
other Lender's Loans owing to it, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess
payment or benefits of such collateral or proceeds ratably with each of
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the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without
interest. The Borrower agrees that any Lender so purchasing a
participation from a Lender pursuant to this Section 12.3 may, to the
fullest extent permitted by law, exercise all of its rights of payment
(including the right of set-off) with respect to such participation as
fully as if such Person were the direct creditor of the Borrower in the
amount of such participation.
12.4. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the
Loans and the issuance of the Letters of Credit and the execution and
delivery to the Lenders of this Agreement and the Notes and shall
continue in full force and effect so long as any of Obligations remain
outstanding or any Lender has any commitment hereunder or the Borrower
has continuing obligations hereunder unless otherwise provided herein.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and permitted
assigns of such party and all covenants, provisions and agreements by
or on behalf of the Borrower which are contained in the Loan Documents
shall inure to the benefit of the successors and permitted assigns of
the Lenders or any of them.
12.5. Expenses. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Agent in connection with the
syndication, preparation, execution, and delivery of this Agreement,
the other Loan Documents, and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Agent with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under the
Loan Documents. The Borrower further agrees to pay on demand all
reasonable costs and expenses of the Agent, including without
limitation, the reasonable fees and expenses of counsel for the Agent,
in connection with any future modification or amendment of this
Agreement, the other Loan Documents, and the other documents delivered
hereunder. The Borrower further agrees to pay on demand all costs and
expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable attorneys' fees and expenses), in connection
with the enforcement (whether through negotiations, legal proceedings,
or otherwise) of the Loan Documents and the other documents to be
delivered hereunder. Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of
the Borrower contained in this Section 12.5 shall survive the payment
in full of the Loans and all other amounts payable under this
Agreement.
12.6. Amendments and Waivers . Any provision of this Agreement
or any other Loan Document may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the Borrower
and the Required Lenders (and, if Article XI or the rights or duties of
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the Agent are affected thereby, by the Agent); provided that no such
amendment or waiver shall, unless signed by all the Lenders, (i)
increase the Revolving Credit Commitments of the Lenders, (ii) reduce
the principal of or rate of interest on any Loan or any fees or other
amounts payable hereunder, (iii) postpone any date fixed for the
payment of any scheduled installment of principal of or interest on any
Loan or any fees or other amounts payable hereunder or for termination
of any Revolving Credit Commitment, (iv) change the percentage of the
Revolving Credit Commitments or of the unpaid principal amount of the
Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action under this Section or any
other provision of this Agreement or (v) release any Guarantor or all
or substantially all of the Collateral.
12.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered
shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
fully-executed counterpart.
12.8. Termination. The termination of this Agreement shall not
affect any rights of the Borrower, the Lenders or the Agent or any
obligation of the Borrower, the Lenders or the Agent, arising prior to
the effective date of such termination, and the provisions hereof shall
continue to be fully operative until all transactions entered into or
rights created or obligations incurred prior to such termination have
been fully disposed of, concluded or liquidated and the Obligations
arising prior to or after such termination have been irrevocably paid
in full. The rights granted to the Agent for the benefit of the Lenders
under the Loan Documents shall continue in full force and effect,
notwithstanding the termination of this Agreement, until all of the
Obligations have been paid in full after the termination hereof (other
than Obligations in the nature of continuing indemnities or expense
reimbursement obligations not yet due and payable, which shall
continue) or the Borrower has furnished the Lenders and the Agent with
an indemnification satisfactory to the Agent and each Lender with
respect thereto. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until
payment in full of the Obligations unless otherwise provided herein.
Notwithstanding the foregoing, if after receipt of any payment of all
or any part of the Obligations, any Lender is for any reason compelled
to surrender such payment to any Person because such payment is
determined to be void or voidable as a preference, impermissible
setoff, a diversion of trust funds or for any other reason, this
Agreement shall continue in full force and the Borrower shall be liable
to, and shall indemnify and hold the Agent or such Lender harmless for,
the amount of such payment surrendered until the Agent or such Lender
shall have been finally and irrevocably paid in full. The provisions of
the foregoing sentence shall be and remain effective notwithstanding
any contrary action which may have been taken by the Agent or the
Lenders in reliance upon such payment, and any such contrary action so
taken shall be without prejudice to the Agent or the Lenders' rights
under this Agreement and shall be deemed to have been conditioned upon
such payment having become final and irrevocable.
12.9. Indemnification; Limitation of Liability. In
consideration of the execution and delivery of this Agreement by the
Agent and each Lender and the extension of credit under the Loans, the
Borrower hereby indemnifies, exonerates and holds the Agent and each
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Lender and each of their respective affiliates, officers, directors,
employees, agents and advisors (collectively, the "Indemnified
Parties") free and harmless from and against any and all claims,
actions, causes of action, suits, losses, costs, liabilities and
damages, and expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys'
fees and disbursements (collectively, the "Indemnified Liabilities")
that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or by reason
of, or in connection with the execution, delivery, enforcement,
performance or administration of this Agreement and the other Loan
Documents, or any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan or Letter
of Credit, whether or not such action is brought against the Agent or
any Lender, the shareholders or creditors of the Agent or any Lender or
an Indemnified Party or an Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated herein are
consummated, except to the extent such claim, damage, loss, liability
or expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct, and if and to the extent that
the foregoing undertaking may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower agrees that no
Indemnified Party shall have any liability (whether direct or indirect,
in contract or tort or otherwise) to it, any of the Guarantors, any
Loan Party, or any security holders or creditors thereof arising out
of, related to or in connection with the transactions contemplated
herein, except to the extent that such liability is found in a final
non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful
misconduct; provided, however, in no event shall any Indemnified Party
be liable for consequential, indirect or special, as opposed to direct,
damages. Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 12.9 shall survive the payment in full of the
Loans and all other amounts payable under this Agreement.
12.10. Severability. If any provision of this Agreement or the
other Loan Documents shall be determined to be illegal or invalid as to
one or more of the parties hereto, then such provision shall remain in
effect with respect to all parties, if any, as to whom such provision
is neither illegal nor invalid, and in any event all other provisions
hereof shall remain effective and binding on the parties hereto.
12.11. Entire Agreement. This Agreement, together with the
other Loan Documents, constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all
previous proposals, negotiations, representations, commitments and
other communications between or among the parties, both oral and
written, with respect thereto.
12.12. Agreement Controls. In the event that any term of any
of the Loan Documents other than this Agreement conflicts with any
express term of this Agreement, the terms and provisions of this
Agreement shall control to the extent of such conflict.
12.13. Usury Savings Clause. Notwithstanding any other
provision herein, the aggregate interest rate charged under any of the
Notes, including all charges or fees in connection therewith deemed in
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the nature of interest under applicable law shall not exceed the
Highest Lawful Rate (as such term is defined below). If the rate of
interest (determined without regard to the preceding sentence) under
this Agreement at any time exceeds the Highest Lawful Rate (as defined
below), the outstanding amount of the Loans made hereunder shall bear
interest at the Highest Lawful Rate until the total amount of interest
due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement
had at all times been in effect. In addition, if when the Loans made
hereunder are repaid in full the total interest due hereunder (taking
into account the increase provided for above) is less than the total
amount of interest which would have been due hereunder if the stated
rates of interest set forth in this Agreement had at all times been in
effect, then to the extent permitted by law, the Borrower shall pay to
the Agent an amount equal to the difference between the amount of
interest paid and the amount of interest which would have been paid if
the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of the Lenders and
the Borrower to conform strictly to any applicable usury laws.
Accordingly, if any Lender contracts for, charges, or receives any
consideration which constitutes interest in excess of the Highest
Lawful Rate, then any such excess shall be cancelled automatically and,
if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the
Borrower. As used in this paragraph, the term "Highest Lawful Rate"
means the maximum lawful interest rate, if any, that at any time or
from time to time may be contracted for, charged, or received under the
laws applicable to such Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate
than applicable laws now allow.
12.14. Governing Law; Waiver of Jury Trial .
(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE
THAT THEY SHALL BE GOVERNED BY THE LAWS OF ANOTHER
JURISDICTION) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA APPLICABLE
TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH
STATE, NOTWITHSTANDING ITS EXECUTION AND DELIVERY OUTSIDE SUCH
STATE.
(b) EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY
AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY
STATE OR FEDERAL COURT SITTING IN THE COUNTY OF BROWARD, STATE
OF FLORIDA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS
PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR
PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY SUBMITS
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GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(c) EACH PARTY HEREBY AGREES THAT SERVICE OF PROCESS
MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND
COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE
PREPAID) TO THE ADDRESS OF THE BORROWER PROVIDED IN SECTION
12.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE
APPLICABLE LAWS IN EFFECT IN THE STATE OF FLORIDA.
(d) NOTHING CONTAINED IN SUBSECTIONS (a) OR (b)
HEREOF SHALL PRECLUDE ANY PARTY FROM BRINGING ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT
IN THE COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF
THE BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO
THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH
JURISDICTION, EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN
RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO
THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY
SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE
AVAILABLE UNDER APPLICABLE LAW.
(e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT
OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION
THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY
AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO
TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING.
12.15. Confidentiality. The Agent and each Lender (each, a
"Lending Party") agrees to keep confidential any information furnished
or made available to it by the Borrower pursuant to this Agreement;
provided that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any
affiliate of any Lending Party, or any officer, director, employee,
agent or advisor of any Lending Party or affiliate of any Lending
Party, (b) to any other Person who agrees to comply with the terms of
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this Section 12.15 if reasonably incidental to the administration of
the credit facility provided herein, (c) as required by any law, rule,
or regulation, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any regulator agency or
authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a
disclosure by any Lending Party prohibited by this Agreement, (g) in
connection with any litigation to which such Lending Party or any of
its affiliates may be a party, (h) to the extent necessary in
connection with the exercise of any remedy under this Agreement or any
other Loan Document, and (i) subject to provisions substantially
similar to those contained in this Section, to any actual or proposed
assignee.
12.16 Payments. All principal, interest, and other amounts to
be made by the Borrower under this Agreement and the other Loan
Documents shall be made to the Agent at the Principal Office in Dollars
and in immediately available funds, without setoff, deduction or
counterclaim. Subject to the definition of "Interest Period" herein,
whenever any payment under this Agreement or any other Loan Document
shall be stated to be due on a day this is not a Business Day, such
payment may be made on the next succeeding Business Day, and such
extension of time in such case shall be included in the computation of
interest and fees, as applicable, and as the case may be.
[Signatures on following pages]
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
SHERIDAN HEALTHCARE, INC.
WITNESS:
s/Wade M. Kennedy By: s/Jay A. Martus, V.P.
- - ------------------ ------------------------------
Name: Jay A. Martus
s/Lucy L. Tate Title: Vice President
WITNESS: NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
s/Kimberly Saltrick By: s/Michael S. Sylvester
- - -------------------- ----------------------
Name: Michael S. Sylvester
s/Lucy L. Tate Title: Vice President
- - --------------------
NATIONSBANK, NATIONAL ASSOCIATION
By: s/Michael S. Sylvester
-------------------------------
Name: Michael S. Sylvester
Title: Vice President
Applicable Lending Office:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telephone: (704) 388-3916
Facsimile: (704) 386-9923
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: s/J. Walter Bland
------------------------------
Name: J. Walter Bland
------------------------------
Title: Vice President
------------------------------
By: s/Robert B. Benoit
------------------------------
Name: Robert B. Benoit
------------------------------
Title: Senior Vice President
------------------------------
<PAGE>
Applicable Lending Office:
1201 W. Peachtree Street, Suite 3450
Atlanta, Georgia 30309
Attention: Mr. Walter Bland, Vice President
Telephone: (404) 877-9113
Facsimile: (404) 877-9150
FIRST UNION NATIONAL BANK
By: s/Joseph H. Towell
Name: Joseph H. Towell
Title: Senior Vice President
Applicable Lending Office:
One First Union Center
Charlotte, North Carolina 28288-0735
Attention: Mr. Rodney Carson, Vice President
Telephone: (704) 383-4097
Facsimile: (704) 383-9144
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: s/Janet P. Sammons
Name: Janet P. Sammons
Title: Vice President
Applicable Lending Office:
200 S. Orange Avenue, Mail Code: 0-1101
Orlando, Florida 32802
Attention: Ms. Karen George, Executive Vice President
Telephone: (407) 237-4541
Facsimile: (407) 237-5489
BANKBOSTON, N.A.
By: s/Walter J. Marullo
Name: Walter J. Marullo
Title: Vice President
Applicable Lending Office:
100 Federal Street, MS 01-08-06
Boston, Massachusetts 02110
Attention: Mr. Walter J. Marullo, Vice President
Telephone: (617) 434-2308
Facsimile: (617) 434-0819
<PAGE>
LASALLE NATIONAL BANK
By: s/Jody M. Staszesky
Name: Jody M. Staszesky
Title: First Vice President
Applicable Lending Office:
135 S. LaSalle Street
Chicago, Illinois 60603
Attention: Ms. Jody M. Staszesky
Telephone: (312) 904-5416
Facsimile: (312) 904-6457
UNION BANK OF CALIFORNIA, N.A.
By: s/Jennifer L. Banks
Name: Jennifer L. Banks
Title: Vice President
Applicable Lending Office:
445 S. Figueroa Street
Los Angeles, California 90071
Attention: Mr. Ted Scribner, Credit Officer
Telephone: (213) 236-6918
Facsimile: (213) 236-7636
<PAGE>
Form of Note
Promissory Note
(Revolving Loan)
$--------------- ---------, --------------
April 30, 1998
FOR VALUE RECEIVED, SHERIDAN HEALTHCARE, INC., a Delaware corporation
having its principal place of business located in Hollywood, Florida (the
"Borrower"), hereby promises to pay to the order of
__________________________________________ (the "Lender"), in its individual
capacity, in care of NATIONSBANK, NATIONAL ASSOCIATION, as agent for the Lenders
(the "Agent"), at One Independence Center, 101 North Tryon Street,
NC1-001-15-04, Charlotte, North Carolina 28255 (or at such other place or places
as the Agent may designate in writing) pursuant to the Second Amended and
Restated Credit Agreement dated as of April___, 1998 among the Borrower, the
financial institutions party thereto (collectively, the "Lenders") and the Agent
(the "Agreement" -- all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement), in lawful money of the
United States of America, in immediately available funds, the principal amount
of ___________ DOLLARS ($__________) or, if less than such principal amount, the
aggregate unpaid principal amount of all Revolving Loans made by the Lender to
the Borrower pursuant to the Agreement on the Revolving Credit Termination Date
or such earlier date as may be required pursuant to the terms of the Agreement,
and to pay interest from the date hereof on the unpaid principal amount hereof,
in like money, at said office, on the dates and at the rates provided in Article
II of the Agreement. All or any portion of the principal amount of Loans may be
prepaid or required to be prepaid as provided in the Agreement.
If payment of all sums due hereunder is accelerated under the terms of
the Agreement, the then remaining principal amount and accrued but unpaid
interest shall bear interest which shall be payable on demand at the rates per
annum set forth in the proviso to Section 2.2 (a) of the Agreement. Further, in
the event of such acceleration, this Note shall become immediately due and
payable, without presentation, demand, protest or notice of any kind, all of
which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest due hereunder thereon at the rates set forth above.
Interest hereunder shall be computed as provided in the Agreement.
This Note is one of the Notes referred to in the Agreement and is
issued pursuant to and entitled to the benefits and security of the Agreement to
which reference is hereby made for a more complete statement of the terms and
conditions upon which the Revolving Loans evidenced hereby were or are made and
are to be repaid. This Note is subject to certain restrictions on transfer or
assignment as provided in the Agreement.
<PAGE>
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, Guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, also their right, if
any, to require the holder hereof to hold as security for this Note any
collateral deposited by any of said Persons as security. Protest, notice of
protest, notice of dishonor, diligence or any other formality are hereby waived
by all parties bound hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
<PAGE>
SHERIDAN HEALTHCARE, INC.
WITNESS:
- - ---------------------- By:
--------------------------------
- - ---------------------- Name:
-----------------------------
Title:
----------------------------
SHERIDAN HEALTHCARE, INC.
Third Amended and Restated 1995 Stock Option Plan
1. Purpose
This Third Amended and Restated 1995 Stock Option Plan (the "Plan"),
which was first adopted as the SAMA Holdings, Inc. 1995 Stock Option Plan
effective as of April 27, 1995 and first amended and restated on July 27, 1995,
is intended as a performance incentive for officers, employees, consultants,
directors and other key persons of Sheridan Healthcare, Inc. (the "Company"),
its Subsidiaries (as hereinafter defined) or their Affiliates (as hereinafter
defined) to enable the persons to whom options are granted (the "Optionees") to
acquire or increase a proprietary interest in the success of the Company. The
Company intends that this purpose will be effected by the granting of "incentive
stock options" ("Incentive Options") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("Nonqualified Options"). The term "Subsidiaries" includes any corporations in
which stock possessing fifty percent or more of the total combined voting power
of all classes of stock is owned directly or indirectly by the Company. The term
"Affiliates" includes all corporations or other entities controlling, controlled
by or under common control with the Company or any of its Subsidiaries and
includes any physician, professional corporation or other person to whom or
which the Company or any of its Subsidiaries provides services pursuant to a
management services agreement or similar arrangements.
2. Options to be Granted; Administration of the Plan
(a) Options granted under the Plan may be either Incentive
Options or Nonqualified Options, and shall be designated as such at the
time of grant. To the extent that any option intended to be an
Incentive Option shall fail to qualify as an "incentive stock option"
under the Code, such option shall be deemed to be a Nonqualified
Option. Each option granted hereunder shall be embodied in a written
agreement, as described in Section 4 hereof, that is signed by the
Optionee and an authorized officer of the Company.
(b) The Plan shall be administered either by the Board of
Directors of the Company (the "Board of Directors") or by a committee
(the "Option Committee") of not fewer than two directors of the Company
appointed by the Board of Directors (in either case, the
"Administrator"). None of the members of the Option Committee shall be
an officer or other full-time employee of the Company. It is the
intention of the Company that each member of the Option Committee shall
be a "Non-Employee Director" as that term is defined and interpreted
pursuant to Rule 16b-3(b)(3)(i) or any successor rule thereto
promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"), and that, on and after the date the Plan becomes subject to
Section 162(m) of the Code, each member of the Option Committee shall
be an "outside director" as that term is defined and interpreted
pursuant to Section 162(m) of the Code and the regulations promulgated
thereunder. Subject to the foregoing requirements of Section 2(b), the
Compensation Committee of the Board of Directors may serve as the
Option Committee. Action by the Option Committee shall require the
affirmative vote of a majority of all its members.
<PAGE>
(c) Subject to the terms and conditions of the Plan, the
Administrator shall have the power:
(i) To determine from time to time the options to be
granted to eligible persons under the Plan and to prescribe
the terms and provisions (which need not be identical) of
options (including without limitation, the number of shares
subject to each such option, the effects upon such options of
any change in control of the Company and any vesting
provisions with respect to such options) granted under the
Plan to such persons;
(ii) To construe and interpret the Plan and grants
thereunder and to establish, amend, and revoke rules and
regulations for administration of the Plan (including to
correct any defect or supply any omission, or reconcile any
inconsistency in the Plan, in any option agreement, or in any
related agreements, in the manner and to the extent the
Administrator shall deem necessary or expedient to make the
Plan fully effective);
(iii) To amend from time to time, as the
Administrator may determine is in the best interests of the
Company, the terms of any outstanding options, including
without limitation, to modify the vesting schedule, exercise
price or expiration date thereof in a manner not inconsistent
with the terms of the Plan; and
(iv) Generally, to exercise such powers and to
perform such acts as are deemed necessary or expedient to
promote the best interests of the Company with respect to the
Plan.
All decisions and determinations by the Administrator in the exercise
of these powers shall be final and binding upon the Company and the
Optionees.
(d) Delegation of Authority to Grant Options. The
Administrator, in its discretion, may delegate to the Chief Executive
Officer of the Company or any Subsidiary all or part of the
Administrator's authority and duties with respect to Options, including
the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act and, on and
after the date the Plan becomes subject to Section 162(m) of the Code,
who also are not "covered employees" within the meaning of Section
162(m) of the Code. The Administrator may revoke or amend the terms of
a delegation at any time, but such action shall not invalidate any
prior actions of the Administrator's delegate or delegates that were
consistent with the terms of the Plan.
3. Stock Subject to the Options
The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued Common
Stock, par value $.01 per share (the "Common Stock"), which may either be
authorized but unissued shares or treasury shares or shares previously reserved
for issuance upon exercise of options under the Plan, and allocable to one or
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<PAGE>
more options (or portions of options) which have expired or been canceled or
terminated (other than by exercise). The total number of shares that may be
issued under the Plan shall not exceed an aggregate of 1,750,000 shares of
Common Stock. Options with respect to no more than 250,000 shares of Common
Stock may be granted to any one individual during any one calendar year period.
Such number of shares shall be subject to adjustment as provided in Section 7
hereof.
4. Eligibility
(a) Incentive Options may be granted only to employees of the
Company or its Subsidiaries, including members of the Board of
Directors who are also employees of the Company or its Subsidiaries,
who are eligible to receive an Incentive Stock Option under the Code.
Nonqualified Options may be granted to officers, other employees and
directors of the Company or its Subsidiaries, and to consultants and
other key persons who provide services to the Company or its
Subsidiaries or their Affiliates (regardless of whether they are also
employees) and to such other persons as the Administrator may select
from time to time, provided, however, that no Nonqualified Options may
be granted under the Plan to any person while serving as a member of
the Option Committee except as provided in Section 4(d) hereof.
(b) No person shall be eligible to receive any Incentive
Option under the Plan if, at the date of grant, such person
beneficially owns stock representing in excess of ten percent of the
voting power of all outstanding capital stock of the Company, unless
notwithstanding anything in this Plan to the contrary (i) the purchase
price for Common Stock subject to such option is at least 110% of the
fair market value of such Common Stock at the time of the grant and
(ii) the option by its terms is not exercisable more than five years
from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, the
aggregate fair market value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Options
are exercisable for the first time by any individual during any
calendar year (under all plans of the Company and its parent and
Subsidiaries) shall not exceed $100,000. Any option granted under the
Plan in excess of the foregoing limitations shall be deemed to be a
Nonqualified Option.
(d) (i) (A) Each non-employee member of the
Board of Directors of the Company serving in
such capacity upon consummation of the
Company's initial public offering shall
automatically be granted on such date a
Nonqualified Option to purchase 7,500 shares
of Common Stock.
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<PAGE>
(B) Each person who first becomes a
non-employee member of the Board of
Directors of the Company after the
consummation of the Company's initial public
offering shall automatically be granted on
the date such person first becomes a
director a Nonqualified Option to purchase
7,500 shares of Common Stock.
(C) Each non-employee member of the Board of
Directors of the Company serving in such
capacity on the fifth business day after
each annual meeting of stockholders,
beginning with the 1996 annual meeting,
shall automatically be granted on such day a
Nonqualified Option to purchase 2,500 shares
of Common Stock.
(ii) The purchase price per share of Common Stock of
each Nonqualified Option granted to a member of the Board of
Directors pursuant to this Section 4(d) shall be the fair
market value of the Common Stock on the date the option is
granted.
(iii) Options granted under this Section 4(d) shall
become exercisable in three equal installments, with one-third
becoming exercisable on the date of grant and an additional
one-third on each of the two successive anniversaries thereof
and shall expire no later than the tenth anniversary of the
grant date.
(iv) The provisions of this Section 4(d) shall apply
only to automatic grants of Nonqualified Options to
non-employee directors, and shall not be deemed to modify,
limit or otherwise apply to any other provisions of the Plan
or to any option granted thereunder to any other person,
including options granted to non-employee directors otherwise
than pursuant to this Section 4(d).
5. Terms of the Option Agreements
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Administrator shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any
other provision of the Plan or of any option agreement, each option
shall expire not later than the date specified in the option agreement,
which date in the case of any Incentive Option shall not be later than
the tenth anniversary of the date on which the option was granted. If
an Optionee's employment with the Company and its Subsidiaries
terminates for any reason, the Administrator may in its discretion
provide, at any time, that any outstanding option granted to such
Optionee under the Plan shall be exercisable for such period following
termination of employment as may be specified by the Administrator,
subject to the expiration date of such option.
4
<PAGE>
(b) Exercise. Each option shall be exercisable in such
installments (which need not be equal) and at such times as may be
designated by the Administrator. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part,
at any time after becoming exercisable, but not later than the date the
option expires.
(c) Purchase Price. The purchase price per share of Common
Stock subject to each option shall be determined by the Administrator;
provided, however, that the purchase price per share of Common Stock
subject to each Incentive Option shall be not less than the fair market
value of the Common Stock on the date such Incentive Option is granted.
For the purposes of the Plan, the fair market value of the Common Stock
shall be determined in good faith by the Administrator; provided,
however, that (i) if the Common Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") Small-Cap Market on the date the option is granted, the fair
market value shall not be less than the average of the highest bid and
lowest asked prices of the Common Stock on NASDAQ reported for such
date, (ii) if the Common Stock is admitted to trading on a national
securities exchange or the NASDAQ National Market on the date the
option is granted, the fair market value shall not be less than the
closing price reported for the Common Stock on such exchange or system
for such date or, if no sales were reported for such date, for the last
date preceding such date for which a sale was reported, and (iii) the
fair market value of the Common Stock on the effective date of the
registration statement for the Company's initial public offering shall
be the initial offering price.
(d) Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any shares of Common Stock subject to any
option unless and until (i) the option shall have been exercised
pursuant to the terms thereof, (ii) all requirements under applicable
law and regulations shall have been complied with to the satisfaction
of the Company, (iii) the Company shall have issued and delivered the
shares to the Optionee, and (iv) the Optionee's name shall have been
entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such shares of Common Stock.
(e) Transfer. No option granted hereunder shall be
transferable by the Optionee other than by will or by the laws of
descent and distribution, and such option may be exercised during the
Optionee's lifetime only by the Optionee, or his or her guardian or
legal representative. Notwithstanding the foregoing, the Administrator
may permit an optionee to transfer, without consideration for the
transfer, a Nonqualified Option to members of his immediate family, to
trusts for the benefit of such family members, to partnerships in which
such family members are the only partners, or to charitable
organizations, provided that the transferee agrees in writing with the
Company to be bound by all of the terms and conditions of this Plan and
the applicable option agreement.
5
<PAGE>
6. Method of Exercise; Payment of Purchase Price
(a) Any option granted under the Plan may be exercised by the
Optionee in whole or in part by delivering to the Company on any
business day a written notice specifying the number of shares of Common
Stock the Optionee then desires to purchase (the "Notice").
(b) Payment for the shares of Common Stock purchased pursuant
to the exercise of an option shall be made either: (i) in cash, or by
certified or bank check or other payment acceptable to the Company,
equal to the option exercise price for the number of shares specified
in the Notice (the "Total Option Price"); (ii) if authorized by the
applicable option agreement and if permitted by law, by delivery of
shares of Common Stock that the optionee may freely transfer having a
fair market value, determined by reference to the provisions of Section
5(c) hereof, equal to or less than the Total Option Price, plus cash in
an amount equal to the excess, if any, of the Total Option Price over
the fair market value of such shares of Common Stock; or (iii) by the
Optionee delivering the Notice to the Company together with irrevocable
instructions to a broker to promptly deliver the Total Option Price to
the Company in cash or by other method of payment acceptable to the
Company; provided, however, that the Optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity
or other agreements as the Company shall prescribe as a condition of
payment under this clause (iii).
(c) The delivery of certificates representing shares of Common
Stock to be purchased pursuant to the exercise of an option will be
contingent upon the Company's receipt of the Total Option Price and of
any written representations from the Optionee required by the
Administrator, and the fulfillment of any other requirements contained
in the option agreement or applicable provisions of law (including
payment of any amount required to be withheld by the Company pursuant
to applicable law).
7. Adjustment Upon Changes in Capitalization
(a) If the shares of the Company's Common Stock as a whole are
increased, decreased, changed into or exchanged for a different number
or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification,
stock dividend, stock split, combination of shares, exchange of shares,
change in corporate structure or the like, an appropriate and
proportionate adjustment shall be made in the number and kind of shares
subject to the Plan, and in the number, kind, and per share exercise
price of shares subject to unexercised options or portions thereof
granted prior to any such change. In the event of any such adjustment
in an outstanding option, the Optionee thereafter shall have the right
to purchase the number of shares under such option at the per share
price, as so adjusted, which the Optionee could purchase at the total
purchase price applicable to the option immediately prior to such
adjustment.
6
<PAGE>
(b) Adjustments under this Section 7 shall be determined by
the Administrator and such determinations shall be conclusive. The
Administrator shall have the discretion and power in any such event to
determine and to make effective provision for acceleration of the time
or times at which any option or portion thereof shall become
exercisable. No fractional shares of Common Stock shall be issued under
the Plan on account of any adjustment specified above.
8. Effect of Certain Transactions
(a) In the case of a Change of Control (as defined below), all
outstanding options shall automatically become fully exercisable
whether or not such options were exercisable immediately prior thereto.
Unless provision is made in connection with such Change of Control for
the assumption of options theretofore granted, or the substitution for
such options of new options of the successor entity or parent thereof
(with appropriate adjustment as to the number and kind of shares and
the per share exercise prices, as provided in Section 7), the Plan and
the options issued hereunder shall terminate upon the effectiveness of
such Change of Control. In the event of such termination, all
outstanding options shall be exercisable in full for at least fifteen
days prior to the date of such termination whether or not otherwise
exercisable during such period.
(b) "Change of Control" shall mean the occurrence of any one
of the following events:
(i) any "person," as such term is used in Sections
13(d) and 14(d) of the Act (other than the Company, any of its
Subsidiaries, or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or
trust of the Company of any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
the Company representing in excess of 50% of either (A) the
combined voting power of the Company's then outstanding
securities having the right to vote in an election of the
Company's Board of Directors ("Voting Securities") or (B) the
then outstanding shares of Common Stock of the Company (in
either such case other than as a result of an acquisition of
securities directly from the Company); or
(ii) persons who, as of the effective date of the
Plan, constitute the Company's Board of Directors (the
"Incumbent Directors") cease for any reason, including,
without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least
a majority of the Board, provided that any person becoming a
director of the Company subsequent to the Effective Date whose
election or nomination for election was approved by a vote of
at least a majority of the Incumbent Directors shall, for
purposes of this Plan, be considered an Incumbent Director;
or,
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<PAGE>
(iii) the stockholders of the Company shall approve
(A) any consolidation or merger of the Company or any
Subsidiary where the stockholders of the Company immediately
prior to the consolidation or merger, would not, immediately
after the consolidation or merger, beneficially own (as such
term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 80% or more
of the voting shares of the corporation issuing cash or
securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (B) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all
or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the
Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Common Stock or other Voting Securities outstanding,
increases (x) the proportionate number of shares of Common Stock beneficially
owned by any person in excess of 50% or more of the shares of Common Stock then
outstanding or (y) the proportionate voting power represented by the Voting
Securities beneficially owned by any person in excess of 50% or more of the
combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change of Control" shall be deemed to
have occurred for purposes of the foregoing clause (i).
9. Tax Withholding
(a) Payment by Optionee. Each Optionee shall, no later than
the date as of which the value of any option granted hereunder or of
any Common Stock issued upon the exercise of such option first becomes
includible in the gross income of the Optionee for federal income tax
purposes (the "Tax Date"), pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of any federal,
state, or local taxes of any kind required by law to be withheld with
respect to such income. In the event that an Optionee has not made the
arrangements described in this Section 9(a) and has not made an
election under this Section 9(b) on or before the Tax Date, the Company
is hereby authorized to withhold the amount of any federal, state or
local taxes of any kind required by law with respect to such income
from any payment otherwise due to the Optionee.
(b) Payment in Shares. Subject to approval by the
Administrator, an Optionee may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant
to an option exercise a number of shares with an aggregate fair market
value (determined by the Administrator in accordance with Section 5(c)
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<PAGE>
as of the date the withholding is effected) that would satisfy the
withholding amount due, or (ii) transferring to the Company shares of
Common Stock owned by the Optionee with an aggregate fair market value
(determined by the Administrator in accordance with Section 5(c) as of
the date the withholding is effected) that would satisfy the
withholding amount due.
10. Amendment of the Plan
The Board of Directors may discontinue the Plan or amend the Plan at
any time, and from time to time, subject to any required regulatory approval,
provided that any such amendment is also approved by the stockholders of the
Company if it would materially increase the benefits accruing to Optionees under
the Plan, or to the extent required by the Code to ensure that Incentive Options
granted under the Plan are qualified under Section 422 of the Code or if
determined by the Administrator to be necessary or advisable for purposes of the
Act or otherwise. Except as otherwise provided, an amendment shall be binding
upon options previously granted under the Plan unless the amendment adversely
affects the rights of an Optionee, in which event the consent of the Optionee
shall be required with respect to any portion of such amendment having such
effect.
11. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan nor any option granted hereunder shall be
deemed to confer upon any employee any right to continued employment with the
Company or its Subsidiaries or their Affiliates.
12. Government and Other Regulations; Governing Law
(a) The obligation of the Company to sell and deliver shares
of Common Stock with respect to options granted under the Plan shall be
subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all
such approvals by governmental agencies as may be deemed necessary or
appropriate by the Administrator.
(b) The Plan shall be governed by Delaware law, except to the
extent that such law is preempted by federal law.
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<PAGE>
3. Effective Date of the Plan; Stockholder Approval
The Plan shall become effective upon the date that it is approved by
the Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations within twelve months of such effective date. No
options granted under the Plan prior to such stockholder approval may be
exercised until such approval has been obtained. No options may be granted under
the Plan after the tenth anniversary of the effective date of the Plan.
* * * * *
Approved by Board of Directors: July 27, 1995
Approved by Stockholders: August 17, 1995
Amended by Board of Directors: February 26, 1997
Approved by Stockholders: May 15, 1997
Approved by Stockholders: June 24, 1998
10
<PAGE>
AMENDMENT No. 3 to
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 3 (the "Amendment"), dated and effective as of
August 15, 1998 (the "Commencement Date"), by and among Sheridan Healthcare,
Inc. (formerly SAMA Holdings, Inc.), a Delaware corporation ("Holdings"),
Sheridan Healthcorp, Inc. (formerly Southeastern Anesthesia Management
Associates, Inc.), a Florida corporation (the "Company"), and Mitchell
Eisenberg, M.D. (the "Executive"), amends the Executive Employment Agreement,
dated as of January 1995 and entered into by and among Holdings, the Company and
the Executive (the "Employment Agreement").
PRELIMINARY STATEMENTS
1. The Executive is and has been an employee of the Company and the
parties entered into the Employment Agreement to assure the ongoing services of
the Executive.
2. The parties entered into amendments to the Agreement, dated as of
August 1, 1995 (the "First Amendment") and dated as of June 30, 1997 (the
"Second Amendment"). The Agreement, the First Amendment, the Second Amendment
and this Third Amendment shall be collectively, the "Agreement". All capitalized
terms not defined in this Third Amendment shall have the meanings given them in
the Agreement.
3. The parties desire to assure the ongoing services of the Executive
and to further amend the Employment Agreement as described in this Third
Amendment.
4. The Employment Agreement provides in Section 16 that it may be
amended by an agreement in writing signed by each of the parties.
In consideration of the mutual promises and covenants contained in this
Third Amendment, the parties agree as follows:
AGREEMENT
1. The first two sentences of Section 3 of the Agreement, entitled Term of
Employment, is deleted in its entirety and is replaced by the following
sentence:
Subject to the provisions of this Agreement, the term of the Executive's
employment pursuant to this agreement shall remain effective until July
31, 2003 (the "Expiration Date").
Page 1 of 8
<PAGE>
2. At the end of Section 4 of the Agreement, entitled Duties, add the following
sentence:
Notwithstanding anything in the Agreement, the Executive's principal
place of employment shall be within Broward County and no further than
fifteen miles from 4651 Sheridan Street, Hollywood, Florida and, the
Executive shall not be required to travel area to fulfill his duties
under the Agreement except for ordinary course business travel.
3. The first sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following:
During the Term of Employment, beginning on the Commencement
Date, the Company shall pay the Executive as compensation for the
performance of his duties under this Agreement, a salary at an annual
rate of Three Hundred Twenty Five Thousand Dollars ($325,000.00) per
annum (the "Base Salary").
Each calendar year during the term of the Executive's
Employment Agreement, the Company's Board of Directors shall establish
an earnings per share target for the Company (the "Target"). The Target
should be a reasonable growth amount in earnings per share when
compared with the Company's preceding years' actual earnings per share.
A bonus pool (the "Pool") shall be established for each calendar year
for at least thirty percent (30%) of the amount of the Company's
earnings, if any, in excess of the Target (the "Excess Amount"). During
the term of their respective employment agreements with the Company and
during any time period which that person is eligible to receive
severance payments, the persons who shall be eligible to participate in
the Pool shall be Mitchell Eisenberg, Lewis Gold, Jay Martus and
Michael Schundler. Additionally, from time to time, any or all of the
following persons or their replacements or substitutes may be
designated, during the term of their employment with the Company, by
Mitchell Eisenberg, in his discretion as it may be exercised from time
to time, to also participate in the Pool: Robert Coward, Gilbert
Drozdow and/or Mary Kittle. Eisenberg, Gold and Schundler shall each be
entitled to a maximum portion of the Pool up to an amount equal to
thirty percent (30%) of their then current base salaries (the "Maximum
Portion" and Martus shall each be entitled to a maximum portion of the
Pool up to fifteen percent (15%) of his then current base salary (also,
the "Maximum Portion"). Coward, Drozdow and Kittle, if included in the
Pool by Eisenberg, shall each be entitled to a maximum portion of the
Pool up to an amount equal to fifteen percent (15%) of their then
current base salaries (also, the "Maximum Portion"). Provided they each
remain eligible to participate in the Pool, the "Pool Participants"
shall be: Eisenberg, Gold, Martus and Schundler and to the extent
selected by Eisenberg in any calendar year: Coward, Drozdow and Kittle.
A Pool Participant's portion of the Pool in a given calendar year shall
be determined as follows: (i) multiply the Pool Participant's then
current base salary times their Maximum Portion (the product of that
calculation is the, "Maximum Target Bonus"); then (ii) divide the
Executive's Maximum Target Bonus by the sum of all of that calendar
year's Pool Participants' (including the Executive) then current
Maximum Target Bonuses. The Company shall pay to each Pool Participant
their portion of the Pool on or before the March 1 in the immediately
succeeding calendar year from the calendar year the bonus was based
upon.
Page 2 of 8
<PAGE>
4. The second sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following sentences:
The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time, but in no event shall the
Base Salary be reduced below the sum of Three Hundred Twenty Five
Thousand Dollars ($325,000.00), plus the sum of all Cost of Living
Adjustments (as defined below). In addition, on each anniversary of the
Commencement Date of this Agreement, the Base Salary shall be
increased, but shall not be decreased, by that percentage by which the
Consumer Price Index, for the Miami-Fort Lauderdale, Florida area
published by the United States government (the "Index") for the
immediately preceding calendar year exceeds such index for the next
preceding calendar year (the sum of these increases are collectively,
the "Cost of Living Adjustments"). If publication of the Index is
discontinued, the parties hereto shall accept comparable statistics on
the cost of living for the Miami-Fort Lauderdale, Florida area as
computed and published by an agency of the United States government, or
if no such agency computes and publishes such statistics, by any
regularly published national financial periodical that does compute and
publish such statistics.
5. At the end of Section 5 of the Agreement, entitled Compensation, add
this new subsection (d):
(d) Certain Additional Payments by the Company.
(i) notwithstanding anything in this Agreement, in the event
it shall be determined that any payment, distribution or other
action by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, (a
"Payment") would be subject to an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any other provision of applicable federal,
state or local law that is in addition to income taxes
generally applicable to the Payment, or any interest or
penalties are incurred by the Executive with respect to any
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), the Company shall make an additional
payment to the Executive (a "Gross-Up Payment") in an amount
such that the net amount retained by the Executive after
deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Payment and any federal, state and
local income tax and Excise Tax imposed upon the Gross-Up
Payment shall be equal to the original amount of the Payment,
prior to deduction of any Excise Tax imposed with respect to
the Payment.
(ii) The Executive shall appoint a nationally recognized
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
Page 3 of 8
<PAGE>
"Accounting Firm". Subject to the provisions of paragraph
(iii) of this Section 5 (d), all determinations required to be
made under this Section, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report
the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made under this Agreement. In the
event that the Company exhausts its remedies pursuant to this
Section and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be paid by the Company to or for the
benefit of the Executive within five days of Executive written
request.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
reasonably practicable after the Executive is informed in
writing of such claim and shall apprize the Company of the
nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim,
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
Pg 4 of 8
<PAGE>
respect to such claim by an attorney reasonably
selected by the Company, (c) cooperate with the
Company in good faith in order effectively to contest
such claim, and
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
Page 5 of 8
<PAGE>
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. The first sentence of Section 6 (a) of the Agreement, entitled Benefits, is
deleted in its entirety and is replaced by the following sentence:
During the Term of Employment and as otherwise provided in this
Agreement, the Executive shall be entitled to participate in any and
all pension, profit sharing, medical, dental and/or life insurance
plans (collectively, the "Benefits") as may be in effect for senior
employees of the Company.
7. The first sentence of Section 7 (d) of the Agreement, entitled Termination of
the Employment of the Executive, is deleted in its entirety and is replaced by
the following sentence:
At any time by the Executive upon thirty (30) days prior written notice
to the Company.
8. The second sentence of Section 7 (e) of the Agreement, entitled Termination
of the Employment of the Executive, is deleted in its entirety and is replaced
by the following sentence:
In the event of termination of the Executive by the Company pursuant to
this Section 7 (e), by the Executive under Section 7 (f) or (h), or if
the Company fails to offer to renew this Agreement upon the expiration
of its Term on the same or better terms and conditions , the Company
shall (i) pay the Executive the Executive's salary according to the
terms of Section 5 (a) of this Agreement from the effective date of
termination through the date that is two years from the effective date
of termination, (ii) continue the Executive's benefits as provided in
Section 6 of this Agreement from the effective date of termination
through the date that is two years from the effective date of
termination; and (iii) each and every option to acquire Company
securities granted to the Executive during the Term, notwithstanding
the terms of any agreement or plan documents whatsoever, shall
automatically, without any action required whatsoever, become
immediately and fully vested and exercisable without any restrictions
whatsoever.
9. Add a new subsection (h) to Section 7 of the Agreement, entitled Termination
of the Employment of the Executive, as follows:
(h) This Agreement shall be terminated, at any time within ninety
days of the effective date of a Change In Control, upon the
delivery of a written notice from the Executive to the Company
terminating his employment with the Company.
10. The first sentence of Section 8 (b) of the Agreement, entitled
Non-Competition, is deleted in its entirety and is replaced by the following
sentence:
Notwithstanding anything in this Agreement, during the Non-Competition
Period, in addition to all sums due to Executive from Company under
this Agreement, including without limitation, in addition to the sums
Page 6 of 8
<PAGE>
due Executive under Section 7, the Company shall pay Executive an
additional amount mutually agreed upon between the Executive and the
Company or if no amount can be mutually agree upon, then Executive
shall not be subject to the restrictive covenants contained in Section
8 of this Agreement.
11. At the end of Section 8 (c) of the Agreement, entitled Non-Competition,
add the following sentence:
Notwithstanding anything in this Agreement, in the event of a Change in
Control (as defined in Section 18 of the Agreement) the term
Competitive Enterprise shall be limited to entities or individuals who
engage in the provision of goods or services to entities or individuals
which were doing business with the Company immediately prior to the
Change of Control.
12. In Section 8 (d) of the Agreement, entitled Non-Competition, delete the
following words:
"and the Non-Competition Period"
13. Add a new Section 18 as follows:
18. Change In Control.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(i) Approval by the shareholders of the Company of (x) a
reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case,
with respect to which persons who were the shareholders of the
Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the
assets of the Company; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the
Page 7 of 8
<PAGE>
Incumbent Board; or
(iii) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act,
(excluding, for this purpose, the Company or its Subsidiaries,
or any employee benefit plan of the Company or its
Subsidiaries which acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act) of 20% or more of either the then outstanding
shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors.
14. Except as set forth in paragraph 1 - 12 of this Third Amendment, the
Employment Agreement shall remain in full force and effect.
15. This Third Amendment shall be governed by and construed under the laws and
solely in the courts of the State of Florida, without regard to the conflicts of
law provisions thereof. This Third Amendment may be executed in two or more
counterparts, each of which shall constitute an original.
The parties have executed this Third Amendment as of September 15,
1998.
COMPANY:
SHERIDAN HEALTHCORP, INC.
By:
---------------------------------------
Lewis D. Gold, Executive Vice President
HOLDINGS:
SHERIDAN HEALTHCARE, INC.
By:
---------------------------------------
Lewis D. Gold, Executive Vice President
EXECUTIVE:
----------------------------------------
Mitchell Eisenberg, M.D.
Page 8 of 8
<PAGE>
AMENDMENT No. 3 to
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 3 (the "Amendment"), dated and effective as of
August 15, 1998 (the "Commencement Date"), by and among Sheridan Healthcare,
Inc. (formerly SAMA Holdings, Inc.), a Delaware corporation ("Holdings"),
Sheridan Healthcorp, Inc. (formerly Southeastern Anesthesia Management
Associates, Inc.), a Florida corporation (the "Company"), and Lewis D. Gold (the
"Executive"), amends the Executive Employment Agreement, dated as of January
1995 and entered into by and among Holdings, the Company and the Executive (the
"Employment Agreement").
PRELIMINARY STATEMENTS
1. The Executive is and has been an employee of the Company and the
parties entered into the Employment Agreement to assure the ongoing services of
the Executive.
2. The parties entered into amendments to the Agreement, dated as of
August 1, 1995 (the "First Amendment") and dated as of June 30, 1997 (the
"Second Amendment"). The Agreement, the First Amendment, the Second Amendment
and this Third Amendment shall be collectively, the "Agreement". All capitalized
terms not defined in this Third Amendment shall have the meanings given them in
the Agreement.
3. The parties desire to assure the ongoing services of the Executive
and to further amend the Employment Agreement as described in this Third
Amendment.
4. The Employment Agreement provides in Section 16 that it may be
amended by an agreement in writing signed by each of the parties.
In consideration of the mutual promises and covenants contained in this
Third Amendment, the parties agree as follows:
AGREEMENT
1. The first two sentences of Section 3 of the Agreement, entitled Term of
Employment, is deleted in its entirety and is replaced by the following
sentence:
Subject to the provisions of this Agreement, the term of the
Executive's employment pursuant to this agreement shall remain
effective until July 31, 2003 (the "Expiration Date").
Page 1 of 8
<PAGE>
2. At the end of Section 4 of the Agreement, entitled Duties, add the following
sentence:
Notwithstanding anything in the Agreement, the Executive's principal
place of employment shall be within Broward County and no further than
fifteen miles from 4651 Sheridan Street, Hollywood, Florida and, the
Executive shall not be required to travel area to fulfill his duties
under the Agreement except for ordinary course business travel.
3. The first sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following:
During the Term of Employment, beginning on the Commencement Date, the
Company shall pay the Executive as compensation for the performance of
his duties under this Agreement, a salary at an annual rate of Three
Hundred Thousand Dollars ($300,000.00) per annum (the "Base Salary").
Each calendar year during the term of the Executive's
Employment Agreement, the Company's Board of Directors shall establish
an earnings per share target for the Company (the "Target"). The Target
should be a reasonable growth amount in earnings per share when
compared with the Company's preceding years' actual earnings per share.
A bonus pool (the "Pool") shall be established for each calendar year
for at least thirty percent (30%) of the amount of the Company's
earnings, if any, in excess of the Target (the "Excess Amount"). During
the term of their respective employment agreements with the Company and
during any time period which that person is eligible to receive
severance payments, the persons who shall be eligible to participate in
the Pool shall be Mitchell Eisenberg, Lewis Gold, Jay Martus and
Michael Schundler. Additionally, from time to time, any or all of the
following persons or their replacements or substitutes may be
designated, during the term of their employment with the Company, by
Mitchell Eisenberg, in his discretion as it may be exercised from time
to time, to also participate in the Pool: Robert Coward, Gilbert
Drozdow and/or Mary Kittle. Eisenberg, Gold and Schundler shall each be
entitled to a maximum portion of the Pool up to an amount equal to
thirty percent (30%) of their then current base salaries (the "Maximum
Portion" and Martus shall each be entitled to a maximum portion of the
Pool up to fifteen percent (15%) of his then current base salary (also,
the "Maximum Portion"). Coward, Drozdow and Kittle, if included in the
Pool by Eisenberg, shall each be entitled to a maximum portion of the
Pool up to an amount equal to fifteen percent (15%) of their then
current base salaries (also, the "Maximum Portion"). Provided they each
remain eligible to participate in the Pool, the "Pool Participants"
shall be: Eisenberg, Gold, Martus and Schundler and to the extent
selected by Eisenberg in any calendar year: Coward, Drozdow and Kittle.
A Pool Participant's portion of the Pool in a given calendar year shall
be determined as follows: (i) multiply the Pool Participant's then
current base salary times their Maximum Portion (the product of that
calculation is the, "Maximum Target Bonus"); then (ii) divide the
Executive's Maximum Target Bonus by the sum of all of that calendar
year's Pool Participants' (including the Executive) then current
Maximum Target Bonuses. The Company shall pay to each Pool Participant
their portion of the Pool on or before the March 1 in the immediately
succeeding calendar year from the calendar year the bonus was based
upon.
Page 2 of 8
<PAGE>
4. The second sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following sentences:
The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time, but in no event shall the
Base Salary be reduced below the sum of Three Hundred Thousand Dollars
($300,000.00), plus the sum of all Cost of Living Adjustments (as
defined below). In addition, on each anniversary of the Commencement
Date of this Agreement, the Base Salary shall be increased, but shall
not be decreased, by that percentage by which the Consumer Price Index,
for the Miami-Fort Lauderdale, Florida area published by the United
States government (the "Index") for the immediately preceding calendar
year exceeds such index for the next preceding calendar year (the sum
of these increases are collectively, the "Cost of Living Adjustments").
If publication of the Index is discontinued, the parties hereto shall
accept comparable statistics on the cost of living for the Miami-Fort
Lauderdale, Florida area as computed and published by an agency of the
United States government, or if no such agency computes and publishes
such statistics, by any regularly published national financial
periodical that does compute and publish such statistics.
5. At the end of Section 5 of the Agreement, entitled Compensation, add this
new subsection (d):
(d) Certain Additional Payments by the Company.
(i) notwithstanding anything in this Agreement, in the event
it shall be determined that any payment, distribution or other
action by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, (a
"Payment") would be subject to an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any other provision of applicable federal,
state or local law that is in addition to income taxes
generally applicable to the Payment, or any interest or
penalties are incurred by the Executive with respect to any
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), the Company shall make an additional
payment to the Executive (a "Gross-Up Payment") in an amount
such that the net amount retained by the Executive after
deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Payment and any federal, state and
local income tax and Excise Tax imposed upon the Gross-Up
Payment shall be equal to the original amount of the Payment,
prior to deduction of any Excise Tax imposed with respect to
the Payment.
(ii) The Executive shall appoint a nationally recognized
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
Page 3 of 8
<PAGE>
"Accounting Firm". Subject to the provisions of paragraph
(iii) of this Section 5 (d), all determinations required to be
made under this Section, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report
the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made under this Agreement. In the
event that the Company exhausts its remedies pursuant to this
Section and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be paid by the Company to or for the
benefit of the Executive within five days of Executive written
request.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
reasonably practicable after the Executive is informed in
writing of such claim and shall apprize the Company of the
nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim,
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
Page 4 of 8
<PAGE>
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(iv). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
Page 5 of 8
<PAGE>
6. The first sentence of Section 6 (a) of the Agreement, entitled Benefits, is
deleted in its entirety and is replaced by the following sentence:
During the Term of Employment and as otherwise provided in this
Agreement, the Executive shall be entitled to participate in any and
all pension, profit sharing, medical, dental and/or life insurance
plans (collectively, the "Benefits") as may be in effect for senior
employees of the Company.
7. The first sentence of Section 7 (d) of the Agreement, entitled Termination of
the Employment of the Executive, is deleted in its entirety and is replaced by
the following sentence:
At any time by the Executive upon thirty (30) days prior written notice
to the Company.
8. The second sentence of Section 7 (e) of the Agreement, entitled Termination
of the Employment of the Executive, is deleted in its entirety and is replaced
by the following sentence:
In the event of termination of the Executive by the Company pursuant to
this Section 7 (e), by the Executive under Section 7 (f) or 7 (h), or
if the Company fails to offer to renew this Agreement upon the
expiration of its Term on the same or better terms and conditions , the
Company shall (i) pay the Executive the Executive's salary according to
the terms of Section 5 (a) of this Agreement from the effective date of
termination through the date that is two years from the effective date
of termination, (ii) continue the Executive's benefits as provided in
Section 6 of this Agreement from the effective date of termination
through the date that is two years from the effective date of
termination; and (iii) each and every option to acquire Company
securities granted to the Executive during the Term, notwithstanding
the terms of any agreement or plan documents whatsoever, shall
automatically, without any action required whatsoever, become
immediately and fully vested and exercisable without any restrictions
whatsoever.
9. Add a new subsection (h) to Section 7 of the Agreement, entitled Termination
of the Employment of the Executive, as follows:
(h) This Agreement shall be terminated, at any time within ninety
days of the effective date of a Change In Control, upon the
delivery of a written notice from the Executive to the Company
terminating his employment with the Company.
10. The first sentence of Section 8 (b) of the Agreement, entitled
Non-Competition, is deleted in its entirety and is replaced by the following
sentence:
Notwithstanding anything in this Agreement, during the
Non-Competition Period, in addition to all sums due to
Executive from Company under this Agreement, including without
limitation, in addition to the sums due Executive under
Section 7, the Company shall pay Executive an additional
Page 6 of 8
<PAGE>
amount mutually agreed upon between the Executive and the
Company or if no amount can be mutually agree upon, then
Executive shall not be subject to the restrictive covenants
contained in Section 8 of this Agreement.
11. At the end of Section 8 (c) of the Agreement, entitled Non-Competition, add
the following sentence:
Notwithstanding anything in this Agreement, in the event of a Change in
Control (as defined in Section 18 of the Agreement) the term
Competitive Enterprise shall be limited to entities or individuals who
engage in the provision of goods or services to entities or individuals
which were doing business with the Company immediately prior to the
Change of Control.
12. In Section 8 (d) of the Agreement, entitled Non-Competition, delete the
following words:
"and the Non-Competition Period"
13. Add a new Section 18 as follows:
18. Change In Control.
For purposes of this Agreement, the term "Change in Control" shall
mean:
(i) Approval by the shareholders of the Company of (x) a
reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case,
with respect to which persons who were the shareholders of the
Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the
assets of the Company; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board; or
Page 7 of 8
<PAGE>
(iii) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act,
(excluding, for this purpose, the Company or its Subsidiaries,
or any employee benefit plan of the Company or its
Subsidiaries which acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act) of 20% or more of either the then outstanding
shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors.
14. Except as set forth in paragraph 1 - 12 of this Third Amendment, the
Employment Agreement shall remain in full force and effect.
15. This Third Amendment shall be governed by and construed under the laws and
solely in the courts of the State of Florida, without regard to the conflicts of
law provisions thereof. This Third Amendment may be executed in two or more
counterparts, each of which shall constitute an original.
The parties have executed this Third Amendment as of September 15,
1998.
COMPANY:
SHERIDAN HEALTHCORP, INC.
By:
------------------------------------
Mitchell Eisenberg, President
HOLDINGS:
SHERIDAN HEALTHCARE, INC.
By:
------------------------------------
Mitchell Eisenberg, President
EXECUTIVE:
---------------------------------------
Lewis D. Gold, M.D.
Page 8 of 8
AMENDMENT No. 2 to
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 2 (the "Amendment"), dated and effective as of
August 15, 1998 (the "Commencement Date"), by and among Sheridan Healthcare,
Inc. (formerly SAMA Holdings, Inc.), a Delaware corporation ("Holdings"),
Sheridan Healthcorp, Inc. (formerly Southeastern Anesthesia Management
Associates, Inc.), a Florida corporation (the "Company"), and Jay A. Martus (the
"Executive"), amends the Executive Employment Agreement, dated as of January 1,
1995 and entered into by and among Holdings, the Company and the Executive (the
"Employment Agreement").
PRELIMINARY STATEMENTS
1. The Executive is and has been an employee of the Company and the
parties entered into the Employment Agreement to assure the ongoing services of
the Executive.
2. The parties entered into an amendment to the Agreement, dated as of
August 1, 1995 (the "First Amendment"). The Agreement, the First Amendment and
this Second Amendment shall be collectively, the "Agreement". All capitalized
terms not defined in this Second Amendment shall have the meanings given them in
the Agreement.
3. The parties desire to assure the ongoing services of the Executive
and to further amend the Employment Agreement as described in this Second
Amendment.
4. The Employment Agreement provides in Section 16 that it may be
amended by an agreement in writing signed by each of the parties.
In consideration of the mutual promises and covenants contained in this
Second Amendment, the parties agree as follows:
AGREEMENT
1. The first two sentences of Section 3 of the Agreement, entitled Term of
Employment, is deleted in its entirety and is replaced by the following
sentence:
Subject to the provisions of this Agreement, the term of the
Executive's employment pursuant to this agreement shall remain
effective until July 31, 2003 (the "Expiration Date").
2. At the end of Section 4 of the Agreement, entitled Duties, add the following
sentence:
Notwithstanding anything in the Agreement, the Executive's principal
place of employment shall be within Broward County and no further than
Page 1 of 8
<PAGE>
fifteen miles from 4651 Sheridan Street, Hollywood, Florida and, the
Executive shall not be required to travel area to fulfill his duties
under the Agreement except for ordinary course business travel.
3. The first sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following:
During the Term of Employment, beginning on the Commencement Date, the
Company shall pay the Executive as compensation for the performance of
his duties under this Agreement, a salary at an annual rate of Two
Hundred Twenty Thousand Dollars ($220,000.00) per annum (the "Base
Salary").
Each calendar year during the term of the Executive's
Employment Agreement, the Company's Board of Directors shall establish
an earnings per share target for the Company (the "Target"). The Target
should be a reasonable growth amount in earnings per share when
compared with the Company's preceding years' actual earnings per share.
A bonus pool (the "Pool") shall be established for each calendar year
for at least thirty percent (30%) of the amount of the Company's
earnings, if any, in excess of the Target (the "Excess Amount"). During
the term of their respective employment agreements with the Company and
during any time period which that person is eligible to receive
severance payments, the persons who shall be eligible to participate in
the Pool shall be Mitchell Eisenberg, Lewis Gold, Jay Martus and
Michael Schundler. Additionally, from time to time, any or all of the
following persons or their replacements or substitutes may be
designated, during the term of their employment with the Company, by
Mitchell Eisenberg, in his discretion as it may be exercised from time
to time, to also participate in the Pool: Robert Coward, Gilbert
Drozdow and/or Mary Kittle. Eisenberg, Gold and Schundler shall each be
entitled to a maximum portion of the Pool up to an amount equal to
thirty percent (30%) of their then current base salaries (the "Maximum
Portion" and Martus shall each be entitled to a maximum portion of the
Pool up to fifteen percent (15%) of his then current base salary (also,
the "Maximum Portion"). Coward, Drozdow and Kittle, if included in the
Pool by Eisenberg, shall each be entitled to a maximum portion of the
Pool up to an amount equal to fifteen percent (15%) of their then
current base salaries (also, the "Maximum Portion"). Provided they each
remain eligible to participate in the Pool, the "Pool Participants"
shall be: Eisenberg, Gold, Martus and Schundler and to the extent
selected by Eisenberg in any calendar year: Coward, Drozdow and Kittle.
A Pool Participant's portion of the Pool in a given calendar year shall
be determined as follows: (i) multiply the Pool Participant's then
current base salary times their Maximum Portion (the product of that
calculation is the, "Maximum Target Bonus"); then (ii) divide the
Executive's Maximum Target Bonus by the sum of all of that calendar
year's Pool Participants' (including the Executive) then current
Maximum Target Bonuses. The Company shall pay to each Pool Participant
their portion of the Pool on or before the March 1 in the immediately
succeeding calendar year from the calendar year the bonus was based
upon.
Page 2 of 8
<PAGE>
4. The second sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following sentences:
The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time, but in no event shall the
Base Salary be reduced below the sum of Two Hundred Twenty Thousand
Dollars ($220,000.00), plus the sum of all Cost of Living Adjustments
(as defined below). In addition, on each anniversary of the
Commencement Date of this Agreement, the Base Salary shall be
increased, but shall not be decreased, by that percentage by which the
Consumer Price Index, for the Miami-Fort Lauderdale, Florida area
published by the United States government (the "Index") for the
immediately preceding calendar year exceeds such index for the next
preceding calendar year (the sum of these increases are collectively,
the "Cost of Living Adjustments"). If publication of the Index is
discontinued, the parties hereto shall accept comparable statistics on
the cost of living for the Miami-Fort Lauderdale, Florida area as
computed and published by an agency of the United States government, or
if no such agency computes and publishes such statistics, by any
regularly published national financial periodical that does compute and
publish such statistics.
5. At the end of Section 5 of the Agreement, entitled Compensation, add this new
subsection (d):
(d) Certain Additional Payments by the Company.
(i) notwithstanding anything in this Agreement, in the event
it shall be determined that any payment, distribution or other
action by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, (a
"Payment") would be subject to an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any other provision of applicable federal,
state or local law that is in addition to income taxes
generally applicable to the Payment, or any interest or
penalties are incurred by the Executive with respect to any
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), the Company shall make an additional
payment to the Executive (a "Gross-Up Payment") in an amount
such that the net amount retained by the Executive after
deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Payment and any federal, state and
local income tax and Excise Tax imposed upon the Gross-Up
Payment shall be equal to the original amount of the Payment,
prior to deduction of any Excise Tax imposed with respect to
the Payment.
Page 3 of 8
<PAGE>
(ii) The Executive shall appoint a nationally recognized
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
"Accounting Firm". Subject to the provisions of paragraph
(iii) of this Section 5 (d), all determinations required to be
made under this Section, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report
the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made under this Agreement. In the
event that the Company exhausts its remedies pursuant to this
Section and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be paid by the Company to or for the
benefit of the Executive within five days of Executive written
request.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
reasonably practicable after the Executive is informed in
writing of such claim and shall apprize the Company of the
nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim,
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
Page 4 of 8
<PAGE>
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(iv). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
Page 5 of 8
<PAGE>
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. The first sentence of Section 6 (a) of the Agreement, entitled Benefits, is
deleted in its entirety and is replaced by the following sentence:
During the Term of Employment and as otherwise provided in this
Agreement, the Executive shall be entitled to participate in any and
all pension, profit sharing, medical, dental and/or life insurance
plans (collectively, the "Benefits") as may be in effect for senior
employees of the Company.
7. The first sentence of Section 7 (d) of the Agreement, entitled Termination of
the Employment of the Executive, is deleted in its entirety and is replaced by
the following sentence:
At any time by the Executive upon thirty (30) days prior written notice
to the Company.
8. The second sentence of Section 7 (e) of the Agreement, entitled Termination
of the Employment of the Executive, is deleted in its entirety and is replaced
by the following sentence:
In the event of termination of the Executive by the Company pursuant to
this Section 7 (e), by the Executive under Section 7 (f) or 7 (h), or
if the Company fails to offer to renew this Agreement upon the
expiration of its Term on the same or better terms and conditions , the
Company shall (i) pay the Executive the Executive's salary according to
the terms of Section 5 (a) of this Agreement from the effective date of
termination through the date that is one year from the effective date
of termination, (ii) continue the Executive's benefits as provided in
Section 6 of this Agreement from the effective date of termination
through the date that is one year from the effective date of
termination; and (iii) each and every option to acquire Company
securities granted to the Executive during the Term, notwithstanding
the terms of any agreement or plan documents whatsoever, shall
automatically, without any action required whatsoever, become
immediately and fully vested and exercisable without any restrictions
whatsoever.
9. Add a new subsection (h) to Section 7 of the Agreement, entitled Termination
of the Employment of the Executive, as follows:
(h) This Agreement shall be terminated, at any time within ninety
days of the effective date of a Change In Control, upon the
delivery of a written notice from the Executive to the Company
terminating his employment with the Company.
10. At the end of Section 8 (c) of the Agreement, entitled Non-Competition, add
the following sentence:
Page 6 of 8
<PAGE>
Notwithstanding anything in this Agreement, in the event of a Change in
Control (as defined in Section 18 of the Agreement) the term
Competitive Enterprise shall be limited to entities or individuals who
engage in the provision of goods or services to entities or individuals
which were doing business with the Company immediately prior to the
Change of Control.
11. In Section 8 (d) of the Agreement, entitled Non-Competition, delete the
following words:
"and the Non-Competition Period"
12. Add a new Section 18 as follows:
18. Change In Control.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(i) Approval by the shareholders of the Company of (x) a
reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case,
with respect to which persons who were the shareholders of the
Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the
assets of the Company; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
Page 7 of 8
<PAGE>
majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board; or
(iii) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act,
(excluding, for this purpose, the Company or its Subsidiaries,
or any employee benefit plan of the Company or its
Subsidiaries which acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act) of 20% or more of either the then outstanding
shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors.
13. Except as set forth in paragraph 1 - 11 of this Second Amendment, the
Employment Agreement shall remain in full force and effect.
14. This Second Amendment shall be governed by and construed under the laws and
solely in the courts of the State of Florida, without regard to the conflicts of
law provisions thereof. This Second Amendment may be executed in two or more
counterparts, each of which shall constitute an original.
The parties have executed this Second Amendment as of September 15,
1998.
COMPANY:
SHERIDAN HEALTHCORP, INC.
By:
------------------------------------
Mitchell Eisenberg, President
HOLDINGS:
SHERIDAN HEALTHCARE, INC.
By:
------------------------------------
Mitchell Eisenberg, President
EXECUTIVE:
---------------------------------------
Jay A. Martus, Esq.
Page 8 of 8
AMENDMENT No. 1 to
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment"), dated and effective as of
August 15, 1998 (the "Commencement Date"), by and among Sheridan Healthcare,
Inc. (formerly SAMA Holdings, Inc.), a Delaware corporation ("Holdings"),
Sheridan Healthcorp, Inc. (formerly Southeastern Anesthesia Management
Associates, Inc.), a Florida corporation (the "Company"), and Michael F.
Schundler (the "Executive"), amends the Executive Employment Agreement, dated as
of August 9, 1996 entered into by and among Holdings, the Company and the
Executive (the "Employment Agreement").
PRELIMINARY STATEMENTS
1. The Executive is and has been an employee of the Company and the
parties entered into the Employment Agreement to assure the ongoing services of
the Executive.
2. All capitalized terms not defined in this First Amendment shall have
the meanings given them in the Agreement.
3. The parties desire to assure the ongoing services of the Executive
and to further amend the Employment Agreement as described in this First
Amendment.
4. The Employment Agreement provides in Section 15 (b) that it may be
amended by an agreement in writing signed by each of the parties.
In consideration of the mutual promises and covenants contained in this
First Amendment, the parties agree as follows:
AGREEMENT
1. The first sentence of Section 3 of the Agreement, entitled Term of
Employment, is deleted in its entirety and is replaced by the following
sentence:
Subject to the provisions of this Agreement, the term of the
Executive's employment pursuant to this agreement shall remain
effective until July 31, 2003 (the "Expiration Date").
2. At the end of Section 4 of the Agreement, entitled Duties, add the following
sentence:
Notwithstanding anything in the Agreement, the Executive's principal
place of employment shall be within Broward County and no further than
fifteen miles from 4651 Sheridan Street, Hollywood, Florida and, the
Executive shall not be required to travel area to fulfill his duties
under the Agreement except for ordinary course business travel.
Page 1 of 8
<PAGE>
3. The first sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following:
During the Term of Employment, beginning on the Commencement Date, the
Company shall pay the Executive as compensation for the performance of
his duties under this Agreement, a salary at an annual rate of Two
Hundred Fifty Thousand Dollars ($250,000.00) per annum (the "Base
Salary").
Each calendar year during the term of the Executive's
Employment Agreement, the Company's Board of Directors shall establish
an earnings per share target for the Company (the "Target"). The Target
should be a reasonable growth amount in earnings per share when
compared with the Company's preceding years' actual earnings per share.
A bonus pool (the "Pool") shall be established for each calendar year
for at least thirty percent (30%) of the amount of the Company's
earnings, if any, in excess of the Target (the "Excess Amount"). During
the term of their respective employment agreements with the Company and
during any time period which that person is eligible to receive
severance payments, the persons who shall be eligible to participate in
the Pool shall be Mitchell Eisenberg, Lewis Gold, Jay Martus and
Michael Schundler. Additionally, from time to time, any or all of the
following persons or their replacements or substitutes may be
designated, during the term of their employment with the Company, by
Mitchell Eisenberg, in his discretion as it may be exercised from time
to time, to also participate in the Pool: Robert Coward, Gilbert
Drozdow and/or Mary Kittle. Eisenberg, Gold and Schundler shall each be
entitled to a maximum portion of the Pool up to an amount equal to
thirty percent (30%) of their then current base salaries (the "Maximum
Portion" and Martus shall each be entitled to a maximum portion of the
Pool up to fifteen percent (15%) of his then current base salary (also,
the "Maximum Portion"). Coward, Drozdow and Kittle, if included in the
Pool by Eisenberg, shall each be entitled to a maximum portion of the
Pool up to an amount equal to fifteen percent (15%) of their then
current base salaries (also, the "Maximum Portion"). Provided they each
remain eligible to participate in the Pool, the "Pool Participants"
shall be: Eisenberg, Gold, Martus and Schundler and to the extent
selected by Eisenberg in any calendar year: Coward, Drozdow and Kittle.
A Pool Participant's portion of the Pool in a given calendar year shall
be determined as follows: (i) multiply the Pool Participant's then
current base salary times their Maximum Portion (the product of that
calculation is the, "Maximum Target Bonus"); then (ii) divide the
Executive's Maximum Target Bonus by the sum of all of that calendar
year's Pool Participants' (including the Executive) then current
Maximum Target Bonuses. The Company shall pay to each Pool Participant
their portion of the Pool on or before the March 1 in the immediately
succeeding calendar year from the calendar year the bonus was based
upon.
4. The second sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following sentences:
Page 2 of 8
<PAGE>
The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time, but in no event shall the
Base Salary be reduced below the sum of Two Hundred Fifty Thousand
Dollars ($250,000.00), plus the sum of all Cost of Living Adjustments
(as defined below). In addition, on each anniversary of the
Commencement Date of this Agreement, the Base Salary shall be
increased, but shall not be decreased, by that percentage by which the
Consumer Price Index, for the Miami-Fort Lauderdale, Florida area
published by the United States government (the "Index") for the
immediately preceding calendar year exceeds such index for the next
preceding calendar year (the sum of these increases are collectively,
the "Cost of Living Adjustments"). If publication of the Index is
discontinued, the parties hereto shall accept comparable statistics on
the cost of living for the Miami-Fort Lauderdale, Florida area as
computed and published by an agency of the United States government, or
if no such agency computes and publishes such statistics, by any
regularly published national financial periodical that does compute and
publish such statistics.
5. At the end of Section 5 of the Agreement, entitled Compensation, add this new
subsection (d):
(d) Certain Additional Payments by the Company.
(i) notwithstanding anything in this Agreement, in the event
it shall be determined that any payment, distribution or other
action by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, (a
"Payment") would be subject to an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any other provision of applicable federal,
state or local law that is in addition to income taxes
generally applicable to the Payment, or any interest or
penalties are incurred by the Executive with respect to any
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), the Company shall make an additional
payment to the Executive (a "Gross-Up Payment") in an amount
such that the net amount retained by the Executive after
deduction from the Payment and the Gross-Up Payment of any
Excise Tax imposed upon the Payment and any federal, state and
local income tax and Excise Tax imposed upon the Gross-Up
Payment shall be equal to the original amount of the Payment,
prior to deduction of any Excise Tax imposed with respect to
the Payment.
(ii) The Executive shall appoint a nationally recognized
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
"Accounting Firm". Subject to the provisions of paragraph
(iii) of this Section 5 (d), all determinations required to be
made under this Section, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which
Page 3 of 8
<PAGE>
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that failure to report
the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made under this Agreement. In the
event that the Company exhausts its remedies pursuant to this
Section and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be paid by the Company to or for the
benefit of the Executive within five days of Executive written
request.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
reasonably practicable after the Executive is informed in
writing of such claim and shall apprize the Company of the
nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim,
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
Page 4 of 8
<PAGE>
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(iv). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section, a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
Page 5 of 8
<PAGE>
6. The first sentence of Section 6 (a) of the Agreement, entitled Benefits, is
deleted in its entirety and is replaced by the following sentence:
During the Term of Employment and as otherwise provided in this
Agreement, the Executive shall be entitled to participate in any and
all pension, profit sharing, medical, dental and/or life insurance
plans (collectively, the "Benefits") as may be in effect for senior
employees of the Company.
7. The first sentence of Section 7 (d) of the Agreement, entitled Termination of
the Employment of the Executive, is deleted in its entirety and is replaced by
the following sentence:
At any time by the Executive upon thirty (30) days prior written notice
to the Company.
8. The second sentence of Section 7 (e) of the Agreement, entitled Termination
of the Employment of the Executive, is deleted in its entirety and is replaced
by the following sentence:
In the event of termination of the Executive by the Company pursuant to
this Section 7 (e), by the Executive under Section 7 (f) or 7 (h), or
if the Company fails to offer to renew this Agreement upon the
expiration of its Term on the same or better terms and conditions, the
Company shall (i) pay the Executive the Executive's salary according to
the terms of Section 5 (a) of this Agreement from the effective date of
termination through the date that is one year from the effective date
of termination, (ii) continue the Executive's benefits as provided in
Section 6 of this Agreement from the effective date of termination
through the date that is one year from the effective date of
termination; and (iii) each and every option to acquire Company
securities granted to the Executive during the Term, notwithstanding
the terms of any agreement or plan documents whatsoever, shall
automatically, without any action required whatsoever, become
immediately and fully vested and exercisable without any restrictions
whatsoever.
9. Add a new subsection (h) to Section 7 of the Agreement, entitled Termination
of the Employment of the Executive, as follows:
(h) This Agreement shall be terminated, at any time within ninety
days of the effective date of a Change In Control, upon the
delivery of a written notice from the Executive to the Company
terminating his employment with the Company.
10. At the end of Section 8 (c) of the Agreement, entitled Non-Competition, add
the following sentence:
Notwithstanding anything in this Agreement, in the event of a Change in
Control (as defined in Section 17 of the Agreement) the term
Competitive Enterprise shall be limited to entities or individuals who
engage in the provision of goods or services to entities or individuals
which were doing business with the Company immediately prior to the
Change of Control.
11. In Section 8 (d) of the Agreement, entitled Non-Competition, delete the
following words:
"and the Non-Competition Period"
12. Add a new Section 17 as follows:
17. Change In Control.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(i) Approval by the shareholders of the Company of (x) a
reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case,
with respect to which persons who were the shareholders of the
Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, or (y) a liquidation or dissolution of the
Company or (z) the sale of all or substantially all of the
assets of the Company; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board; or
(iii) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act,
(excluding, for this purpose, the Company or its Subsidiaries,
or any employee benefit plan of the Company or its
Subsidiaries which acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act) of 20% or more of either the then outstanding
shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors.
13. Except as set forth in paragraph 1 - 11 of this First Amendment, the
Employment Agreement shall remain in full force and effect.
Page 7 of 8
<PAGE>
14. This First Amendment shall be governed by and construed under the laws and
solely in the courts of the State of Florida, without regard to the conflicts of
law provisions thereof. This First Amendment may be executed in two or more
counterparts, each of which shall constitute an original.
The parties have executed this First Amendment as of September 17,
1998.
COMPANY:
SHERIDAN HEALTHCORP, INC.
By:
------------------------------------
Mitchell Eisenberg, President
HOLDINGS:
SHERIDAN HEALTHCARE, INC.
By:
------------------------------------
Mitchell Eisenberg, President
EXECUTIVE:
---------------------------------------
Michael F. Schundler
Page 8 of 8
AMENDMENT No. 3 to
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 3 (the "Third Amendment"), dated and effective as of
October 12, 1998 (the "Commencement Date"), by and among Sheridan Healthcare,
Inc. (formerly SAMA Holdings, Inc.), a Delaware corporation ("Holdings"),
Sheridan Healthcorp, Inc. (formerly Southeastern Anesthesia Management
Associates, Inc.), a Florida corporation (the "Company"), and Jay A. Martus (the
"Executive"), amends the Executive Employment Agreement, dated as of January 1,
1995 and entered into by and among Holdings, the Company and the Executive (the
"Employment Agreement").
PRELIMINARY STATEMENTS
1. The Executive is and has been an employee of the Company and the
parties entered into the Employment Agreement to assure the ongoing services of
the Executive.
2. The parties entered into an amendment to the Agreement, dated as of
August 1, 1995 (the "First Amendment"). The parties also entered into an second
amendment to the Agreement, dated as of August 15, 1998 (the "Second Amendment")
The Agreement, the First Amendment, Second Amendment and this Third Amendment
shall be collectively, the "Agreement". All capitalized terms not defined in
this Second Amendment shall have the meanings given them in the Agreement.
3. The parties desire to assure the ongoing services of the Executive
and to further amend the Employment Agreement as described in this Third
Amendment.
4. The Employment Agreement provides in Section 16 that it may be
amended by an agreement in writing signed by each of the parties.
In consideration of the mutual promises and covenants contained in this
Second Amendment, the parties agree as follows:
AGREEMENT
1. At the end of Section 4 of the Agreement, entitled Duties, add the following
sentence:
The Executive shall administer the Company's risk management program,
including supervision of claims, procurement of insurance, coordination
of outside litigation and arbitration counsel (collectively, the Risk
Management Services"). In the event the Executive determines not to
continue to administer the Risk Management Services, the Executive
shall provide the Company, at least thirty days prior to the date (the
"Termination Date") the Executive will be terminating his provision of
Risk Management Services, with a written notice of the Executive's
election to discontinue the Risk Management Services.
Page 1 of 3
<PAGE>
2. The first sentence of Section 5 of the Agreement, entitled Compensation, is
deleted in its entirety and is replaced by the following:
During the Term of Employment, beginning on October 4, 1998, the
Company shall pay the Executive as compensation for the performance of
his duties under this Agreement, a salary at an annual rate of Two
Hundred Forty Five Thousand Dollars ($245,000.00) per annum (the "Base
Salary"). In the event the Executive determines not to continue to
administer the Risk Management Services, then upon the Termination
Date, the Base Salary shall be reduced by Twenty Five Thousand Dollars
($25,000.00).
Each calendar year during the term of the Executive's
Employment Agreement, the Company's Board of Directors shall establish
an earnings per share target for the Company (the "Target"). The Target
should be a reasonable growth amount in earnings per share when
compared with the Company's preceding years' actual earnings per share.
A bonus pool (the "Pool") shall be established for each calendar year
for at least thirty percent (30%) of the amount of the Company's
earnings, if any, in excess of the Target (the "Excess Amount"). During
the term of their respective employment agreements with the Company and
during any time period which that person is eligible to receive
severance payments, the persons who shall be eligible to participate in
the Pool shall be Mitchell Eisenberg, Lewis Gold, Jay Martus and
Michael Schundler. Additionally, from time to time, any or all of the
following persons or their replacements or substitutes may be
designated, during the term of their employment with the Company, by
Mitchell Eisenberg, in his discretion as it may be exercised from time
to time, to also participate in the Pool: Robert Coward, Gilbert
Drozdow and/or Mary Kittle. Eisenberg, Gold and Schundler shall each be
entitled to a maximum portion of the Pool up to an amount equal to
thirty percent (30%) of their then current base salaries (the "Maximum
Portion" and Martus shall each be entitled to a maximum portion of the
Pool up to fifteen percent (15%) of his then current base salary (also,
the "Maximum Portion"). Coward, Drozdow and Kittle, if included in the
Pool by Eisenberg, shall each be entitled to a maximum portion of the
Pool up to an amount equal to fifteen percent (15%) of their then
current base salaries (also, the "Maximum Portion"). Provided they each
remain eligible to participate in the Pool, the "Pool Participants"
shall be: Eisenberg, Gold, Martus and Schundler and to the extent
selected by Eisenberg in any calendar year: Coward, Drozdow and Kittle.
A Pool Participant's portion of the Pool in a given calendar year shall
be determined as follows: (i) multiply the Pool Participant's then
current base salary times their Maximum Portion (the product of that
calculation is the, "Maximum Target Bonus"); then (ii) divide the
Executive's Maximum Target Bonus by the sum of all of that calendar
year's Pool Participants' (including the Executive) then current
Maximum Target Bonuses. The Company shall pay to each Pool Participant
their portion of the Pool on or before the March 1 in the immediately
succeeding calendar year from the calendar year the bonus was based
upon.
3. Except as set forth in paragraph 1 - 2 of this Third Amendment, the
Employment Agreement shall remain in full force and effect.
Page 2 of 3
<PAGE>
4. This Third Amendment shall be governed by and construed under the laws and
solely in the courts of the State of Florida, without regard to the conflicts of
law provisions thereof. This Third Amendment may be executed in two or more
counterparts, each of which shall constitute an original.
The parties have executed this Third Amendment as of October 12, 1998.
COMPANY:
SHERIDAN HEALTHCORP, INC.
By:
------------------------------------
Mitchell Eisenberg, President
HOLDINGS:
SHERIDAN HEALTHCARE, INC.
By:
------------------------------------
Mitchell Eisenberg, President
EXECUTIVE:
---------------------------------------
Jay A. Martus, Esq.
Page 3 of 3
AMENDMENT AGREEMENT NO. 1
TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 1 TO THE SECOND AMENDED AND RESTATED
CREDIT AGREEMENT (the "Amendment Agreement"), dated as of September 23, 1998 is
made by and among SHERIDAN HEALTHCARE, INC., a Delaware corporation having its
principal place of business in Hollywood, Florida (the "Borrower"), NATIONSBANK,
NATIONAL ASSOCIATION, a national banking association organized and existing
under the laws of the United States, as Lender, and NATIONSBANK, NATIONAL
ASSOCIATION, in its capacity as agent for the Lenders (in such capacity, the
"Agent"). Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into that
certain Second Amended and Restated Credit Agreement dated as of April 30, 1998
( the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Agent and the Lenders
amend the Credit Agreement; and
WHEREAS, upon the terms and conditions contained herein, the Agent and
the Lenders are willing to amend the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and conditions herein
set forth, it is hereby agreed as follows:
1. Credit Agreement Amendment. Subject to the conditions hereof, the
Credit Agreement is hereby amended, effective as of the date hereof as follows:
(a) Section 7.11 is hereby amended by deleting the proviso in the
second sentence thereof.
(b) Section 9.5(d) is hereby amended by deleting the figure
"$2,000,000" and placing in lieu thereof the figure "$10,000,000".
(c) Section 9.9(d) is hereby amended in its entirety so that as amended
it shall read as follows:
"(d) the Borrower may purchase during the term of this Agreement an
aggregate of up to $10,000,000 of its own stock so long as (i) such
repurchased stock is immediately retired and not held in treasury stock
and (ii) the Consolidated Leverage Ratio shall be not more than 2.75 to
1.00 immediately prior to such purchase and immediately after giving
effect to such purchase on a pro forma basis."
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower and
that except as disclosed by the Borrower in writing to the Lenders as of the
date hereof except:
(a) The representations and warranties made by the Borrower in
Article VII thereof are true on and as of the date hereof except that
the financial statements referred to in Section 7.6 shall be those most
recently furnished to the Agent pursuant to Section 8.1;
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
date of the most recent financial reports of the Borrower delivered to
the Agent under Section 8.1 thereof, other than changes in the ordinary
course of business, none of which has been a material adverse change;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent financial
reports of the Borrower delivered to the Agent under Section 8.1
thereof, have not been, adversely affected in any substantial way as
the result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo, riot, activities of
armed forces, war or acts of God or the public enemy, or cancellation
or loss of any major contracts; and
(d) After giving effect to this Amendment Agreement, no condition
exists which, upon the effectiveness of the amendment contemplated
hereby, would constitute a Default or an Event of Default on the part
of the Borrower under the Credit Agreement or the Notes, either
immediately or with the lapse of time or the giving of notice, or both.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement
is subject to the receipt by the Agent of the following:
(a) eight counterparts of this Amendment Agreement duly executed
by all signatories hereto; and
(b) copies of all additional agreements, instruments and
documents which the Agent may reasonably request, such documents, when
appropriate, to be certified by appropriate governmental authorities;
and
(c) receipt of payment by the Agent for all its reasonable costs
and expenses incurred in connection with the preparation, negotiation
and execution of this Amendment Agreement, including without limitation
the reasonable fees and disbursements of counsel to the Agent.
2
<PAGE>
All proceedings of the Borrower relating to the matters provided for herein
shall be satisfactory to the Lenders, the Agent and their counsel.
4. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any party to
the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
6. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
7. Counterparts. This Amendment Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (i) SUBMITS TO
THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (ii) WAIVES
TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
9. Enforceability. Should any one or more of the provisions of this
Amendment Agreement be determined to be illegal or unenforceable as to one or
more of the parties hereto, all other provisions nevertheless shall remain
effective and binding on the parties hereto.
10. Credit Agreement. All references in any of the Loan Documents to
the Credit Agreement shall mean and include the Credit Agreement as amended
hereby.
11. Successors and Assigns. This Amendment Agreement shall be binding
upon and inure to the benefit of each of the Borrower, the Lenders, the Agent
and their respective successors, assigns and legal representatives; provided,
however, that the Borrower, without the prior consent of the Lenders, may not
assign any rights, powers, duties or obligations hereunder.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
SHERIDAN HEALTHCARE, INC.
By:
--------------------------------
Name: Mitchell Eisenberg
Title: President
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent and Lender
By:
---------------------------------
Name: Michael S. Sylvester
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
---------------------------------
Name: Dana W. Hemenway
Title: Vice President
By:
---------------------------------
Name: Barbara A. Hyland
Title: Vice President
FIRST UNION NATIONAL BANK
By:
---------------------------------
Name: Valerie A. Cline
Title: Director
Signature Page 1 of 2
<PAGE>
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:
---------------------------------
Name: Ronald K. Rueve
Title: Vice President
BANKBOSTON, N.A.
By:
---------------------------------
Name: Walter J. Marullo
Title: Vice President
LASALLE NATIONAL BANK
By:
---------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Name: Jennifer L. Banks
Title: Vice President
<PAGE>
SHERIDAN HEALTHCARE, INC.
EXHIBIT 21.1
Schedule of Subsidiaries and Affiliates
(As of December 31, 1998)
SHERIDAN HEALTHCARE, INC., a Delaware corporation
I. SUBSIDIARIES:
A. SHERIDAN HEALTHCORP, INC., a Florida corporation
SUBSIDIARIES:
1. SHERIDAN HEALTHCARE OF WEST FLORIDA, INC., a Florida corporation
2. PRIMEDICA HEALTHCARE, INC., a Florida corporation
3. SHERIDAN NEW GENERATIONS, INC., a Florida corporation
4. INTERVENTIONAL REHABILITATION OF SOUTH FLORIDA, INC., a Florida
corporation
5. SOUTHEAST PERINATAL ASSOCIATES, INC., a Florida corporation
B. MEDISERV, INC., a Florida corporation
C. SHERIDAN CHILDREN'S HEALTHCARE SERVICES, INC., a Florida corporation
SUBSIDIARY:
1. SHERIDAN CHILDREN'S HEALTHCARE SERVICES OF WEST VIRGINIA, INC.,
a West Virginia corporation
D. CHILDREN'S HOSPITAL SERVICES, INC., a Florida corporation
E. SHERIDAN HEALTHCARE OB/GYN, INC., a Florida corporation
F. SHERIDAN FINANCE CORP., a Delaware corporation
G. FELIX A. ESTRADA, M.D., INC., a Florida corporation
H. DR. IAN JEFFRIES NEONATOLOGY ASSOCIATES, INC., a Florida corporation
I. ANDREW B. KAIRALLA, M.D., INC., a Florida corporation
J. COMPREHENSIVE PAIN MEDICINE, INC., a Florida corporation
K. NORTHWEST FLORIDA ANESTHESIA CONSULTANTS, INC., a Florida corporation
<PAGE>
II. AFFILIATES:
A. SHERIDAN MEDICAL HEALTHCORP, P.C., a New York professional
corporation
SUBSIDIARY:
1. SHERIDAN STC CORP., a Delaware corporation
B. SHERIDAN HEALTHCARE OF TEXAS, P.A., a Texas professional
association
C. SHERIDAN HEALTHCARE OF CALIFORNIA MEDICAL GROUP, INC.,
a California professional corporation
D. SHERIDAN CHILDREN'S HEALTHCARE SERVICES OF
PENNSYLVANIA, P.C., a Pennsylvania professional corporation
III. OTHER MANAGED AFFILIATES:
A. BECERRA & AUGUSTINO, M.D., INC., a Florida corporation
B. CASTILLO-PLAZA & ASSOCIATES, M.D., INC., a Florida corporation
C. DRS. GRABIOS, FIRESTONE, HALFON & LEBOW, INC., a Florida
corporation
D. WOMAN TO WOMAN OBSTETRICS & GYNECOLOGY, INC., a Florida
corporation
E. FREDERICK N. HERMAN, M.D., INC., a Florida corporation
F. TARANCO & ASSOCIATES ANESTHESIOLOGY GROUP, INC., a Florida
corporation
G. MICHAEL CAVENEE, M.D., P.A., a Texas professional association
H. KENNETH TRIMMER, M.D., P.A., a Texas professional association
I. GYNECOLOGIC ONCOLOGY ASSOCIATES, INC., a Florida corporation
J. ELIEZER J. LIVNAT, M.D., INC., a Florida corporation
K. SANTIAGO H. TRIANA, M.D., INC., a Florida corporation
L. HENRY U. PARL, M.D., INC., a Florida corporation
M. NEWMAN, SCHNEIDER, SANTOS AND STEMPEL, INC., a Florida
corporation
CONSENT OF INDEPENDENT CERTERFIED PUBLIC ACCOUNTANTS
----------------------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this form 10-K, into the
Company's previously filed Registration Statement File No. 333-33209.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHERIDAN HEALTHCARE, INC. FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 30,646
<ALLOWANCES> 2,346
<INVENTORY> 0
<CURRENT-ASSETS> 33,815
<PP&E> 7,183
<DEPRECIATION> 3,142
<TOTAL-ASSETS> 139,810
<CURRENT-LIABILITIES> 12,736
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 67,469
<TOTAL-LIABILITY-AND-EQUITY> 139,810
<SALES> 0
<TOTAL-REVENUES> 112,990
<CGS> 0
<TOTAL-COSTS> 76,350
<OTHER-EXPENSES> 16,278
<LOSS-PROVISION> 5,592
<INTEREST-EXPENSE> 3,955
<INCOME-PRETAX> 11,443
<INCOME-TAX> 5,070
<INCOME-CONTINUING> 6,373
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<CHANGES> 0
<NET-INCOME> 6,373
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.78
</TABLE>
