EXHIBIT 10.10
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SECURITIES PURCHASE AGREEMENT
AMONG
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P.
WCAS CAPITAL PARTNERS III, L.P.
FFT PARTNERS I, L.P.
AND
THE SEVERAL OTHER PURCHASERS NAMED IN ANNEX I HERETO
DATED AS OF MARCH 27, 2000
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TABLE OF CONTENTS
PAGE
I. PURCHASE AND SALE OF SECURITIES
SECTION 1.01 Issuance, Sale and Delivery of Securities
the Closing Date.......................................2
SECTION 1.02 Closing Date...........................................2
I. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.01 Organization, Qualifications and Corporate Power.......5
SECTION 2.02 Authorization of Agreements, Etc.......................6
SECTION 2.03 Validity...............................................6
SECTION 2.04 Authorized Capital Stock...............................7
SECTION 2.05 Governmental Approvals.................................7
SECTION 2.06 Financial Statements...................................7
SECTION 2.07 Events Subsequent to Date of Financial Statements......8
SECTION 2.08 Actions Pending........................................8
SECTION 2.09 Trade Secrets..........................................9
SECTION 2.10 Taxes..................................................9
SECTION 2.11 Other Agreements.......................................9
SECTION 2.12 Title to Properties....................................9
SECTION 2.13 Compliance with Laws, Etc..............................9
SECTION 2.14 Affiliated Transactions................................9
SECTION 2.15 Brokers' or Finders' Fees..............................9
SECTION 2.16 Disclosure............................................10
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 3.01 Authorization.........................................10
SECTION 3.02 Validity..............................................10
SECTION 3.03 Investment Representations............................11
SECTION 3.04 Governmental Approvals................................12
SECTION 3.05 Brokers' or Finders' Fees.............................12
III. CONDITIONS PRECEDENT
SECTION 4.01 Conditions Precedent to the Obligations of the
Purchasers............................................12
SECTION 4.02 Conditions Precedent to the Obligations of the
Company...............................................14
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PAGE
V. COVENANTS
SECTION 5.01 Financial Statements, Reports, Etc....................17
SECTION 5.02 Rights of Inspection..................................18
SECTION 5.03 Notice of Certain Events..............................18
SECTION 5.04 Use of Proceeds.......................................19
SECTION 5.05 Consents and Approva1s................................19
SECTION 5.06 Compliance with Laws..................................19
SECTION 5.07 Preemptive Rights.....................................19
SECTION 5.08 Management Fee........................................20
VI. MISCELLANEOUS
SECTION 6.01 Expenses, Etc.........................................20
SECTION 6.02 Survival of Agreements................................21
SECTION 6.03 Parties in Interest...................................21
SECTION 6.04 Notices...............................................21
SECTION 6.05 Waiver of Prior Preemptive Rights.....................22
SECTION 6.06 Entire Agreement; Modifications.......................22
SECTION 6.07 Assignment............................................22
SECTION 6.08 Counterparts..........................................22
SECTION 6.09 Governing Law.........................................22
TESTIMONIUM
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INDEX TO EXHIBITS, ANNEXES AND SCHEDULES
EXHIBIT DESCRIPTION
A Form of 10% Senior Subordinated Note
B Form of Amendment No. 6 to Amended and Restated
Registration Rights Agreement
C Form of Third Amended and Restated Stockholders
Agreement D
D Form of Certificate of Amendment to the
Certificate of Incorporation
ANNEX DESCRIPTION
I Purchasers
II Shares Purchased
SCHEDULE DESCRIPTION
2.01(b) Company Ownership of Stock or Other Interests
2.04(a) Ownership of Capital Stock of Company
2.04(b) Rights, Warrants, Options, Etc.
2.05 Government Approvals
2.06 Financial Statements
2.07 Events Subsequent to Date of Financial Statements
2.08 Actions Pending
2.12 Title to Properties
2.14 Affiliated Transactions
2.15 Brokers' or Finders' Fee
3.03(d) Certain Purchasers
3.05 Brokers' or Finders' Fee
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SECURITIES PURCHASE AGREEMENT, dated as of March 27, 2000, among UNITED
SURGICAL PARTNERS INTERNATIONAL, INC., a Delaware corporation (the "Company"),
WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P., a Delaware limited partnership ("WCAS
VII"), FFT PARTNERS I, L.P., a Delaware limited partnership, FFT EXECUTIVE
PARTNERS I, L.P., a Delaware limited partnership (together with FFT Partners I,
L.P., "FFT Partners"), WCAS CAPITAL PARTNERS III, L.P., a Delaware limited
partnership ("WCAS CP III") and the several other purchasers named in Annex I
hereto (such purchasers, WCAS VII, FFT Partners and WCAS CP III being
hereinafter at times referred to individually as a "Purchaser" and collectively
as the "Purchasers").
WHEREAS, the Company is engaged in the business of owning and operating
hospitals and/or surgical centers and acquiring additional hospitals and/or
surgical centers and other businesses related thereto (collectively, the
"Business");
WHEREAS, the Company desires to sell to the Purchasers (other than WCAS CP
III) on the Closing Date (as hereinafter defined), and such Purchasers desire to
purchase from the Company, on the terms and subject to the conditions set forth
therein, an aggregate 20,000 shares of Series C Convertible Preferred Stock,
$.01 par value ("Series C Preferred Stock") of the Company at a purchase price
of $1, 000 per share;
WHEREAS, the Company desires to sell to WCAS CP III on the Closing Date,
and WCAS CP III desires to purchase from the Company, on the terms and subject
to the conditions set forth therein, (i) a 10% Senior Subordinated Note
substantially in the form attached hereto as Exhibit A (such note and any note
issued in substitution therefor being hereinafter called a "Note") in the
principal amount of $36,000,000 and (ii) an aggregate of 1,500,000 shares of
Class A Common Stock, $.01 par value per share (the "Common Stock", and together
with the Series C Preferred Stock, the "Shares"), of the Company; and
WHEREAS, the Company has agreed to use the proceeds from the sale of the
Securities all in order to finance the expansion of the Business through
additional acquisitions or for certain operating expenses approved by the Board
of Directors of the Company;
WHEREAS, the Purchasers, severally and not jointly, wish to purchase the
Securities (as hereinafter defined), all on the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITITES
SECTION 1.01 ISSUANCE. SALE AND DELIVERY OF SERIES C PREFERRED STOCK ON
THE CLOSING DATE. (a) Subject to the terms and conditions set forth herein, on
the Closing Date, the Company shall issue, sell and deliver to each Purchaser
(other than WCAS CP III), and each Purchaser (other than WCAS CP III) shall
purchase from the Company the number of shares of Series C Preferred Stock set
forth opposite the name of such Purchaser on Annex II hereto under the heading
"Number of Series C Preferred Shares" at a purchase price of $1,000 per share.
On the Closing Date, the Company shall issue a certificate or certificates in
definitive form, registered in the name of each Purchaser (other than WCAS CP
III), evidencing the securities being purchased by each such Purchaser
hereunder.
(b) As payment in full for the shares of Series C Preferred Stock
being purchased by each Purchaser (other than WCAS CP III) hereunder on the
Closing Date, and against delivery thereof as aforesaid, on the Closing Date,
each Purchaser (other than WCAS CP III) shall (i) pay to the Company, by wire
transfer of immediately available funds to an account or accounts designated by
the Company, the amount set forth opposite the name of such Purchaser on Annex
II hereto under the heading "Cash Purchase Price".
SECTION 1.02 ISSUANCE SALE AND DELIVERY OF THE NOTE AND COMMON
STOCK TO WCAS CP III ON THE CLOSING DATE. (a) Subject to the terms and
conditions set forth herein, on the Closing Date, the Company shall issue, sell
and deliver to WCAS CP III, and WCAS CP III shall purchase from the Company the
Note and an aggregate 1,500,000 shares of Common Stock (said securities,
together with the Shares and the Note, being hereinafter collectively called the
"Securities"), for an aggregate purchase price of $36,000,000. On the Closing
Date, the Company shall issue the Note and a certificate representing 1,500,000
shares of Common Stock, in each case registered in the name of WCAS CP III.
(b) On the Closing Date, as payment in full for the Note and the
shares of Common Stock being purchased by it, and against delivery of the Note
and certificates for such shares of Common Stock as aforesaid, WCAS CP III shall
pay to the Company $36,000,000 by wire transfer of immediately available funds
to an account designated by the Company.
SECTION 1.03 CLOSING DATE. The closing of the sale and
purchase of the Securities shall take place at the offices of Reboul, MacMurray,
Xxxxxx, Xxxxxxx & Kristol, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx, at 10 a.m.,
New York time, on March 27, 2000, or at such other date and time as may be
mutually agreed upon among the Purchasers and the Company (such closing being
herein called the "Closing" and such date and time being herein called the
"Closing Date").
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II
REPRESENT A TIONS AND W ARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
SECTION 2.01 ORGANIZATION QUALIFICATIONS AND CORPORATE POWER. (a)
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified in each jurisdiction in which the nature of its business or the
ownership of its properties makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on its ability to carry on its business. The Company has
the corporate power and authority to own and hold its properties, to carry on
its business as currently conducted and to execute and deliver this Agreement,
the Note, Amendment No. 6 to Amended and Restated Registration Rights Agreement
dated as of the date hereof substantially in the form attached hereto as Exhibit
C (the "Registration Rights Agreement Amendment") among the Company and the
several other parties named therein and the Third Amended and Restated
Stockholders Agreement dated as of the date hereof substantially in the form
attached hereto as Exhibit D (the "Amended and Restated Stockholders Agreement")
among the Company and the several other parties named therein, to perform its
obligations under this Agreement, the Note, the Amended and Restated
Stockholders Agreement and the Registration Rights Agreement Amendment, and to
issue, sell and deliver the Securities.
(b) Except as set forth on Schedule 2.01(b) hereto, the acquisition
of (i) any shares of capital stock or securities convertible into capital stock
of any other corporation or (ii) any participating interest in any partnership,
joint venture or other non-corporate business enterprise, owned of record of
beneficially, directly or indirectly, by the Company was duly approved by the
Board of Directors of the Company.
SECTION 2.02 AUTHORIZATION OF AGREEMENTS ETC.
(a) Each of the execution and delivery by the Company of this
Agreement, the Note, the Amended and Restated Stockholders Agreement and the
Registration Rights Agreement Amendment, the performance by the Company of its
obligations hereunder and thereunder, and the issuance, sale and delivery by the
Company of the Securities have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any of the properties or assets of the Company is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien,charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or of any
corporation, partnership, joint venture or other entity in which the Company
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owns, of record or beneficially, 50% or more of the voting interests of the same
(such an entity being hereinafter referred to individually as a "Subsidiary" and
collectively as subsidiaries").
(b) The Shares have been duly authorized by the Company and, when
sold and paid for in accordance with this Agreement, will be validly issued,
fully paid and non-assessable shares of Common Stock and Series C Preferred
Stock, as the case may be. The issuance, sale and delivery of the Shares to the
Purchasers (other than WCAS CP III) hereunder is not subject to any preemptive
rights of stockholders of the Company or to any right of first refusal or other
similar right in favor of any person.
(c) The Conversion Shares (as hereinafter defined) have been duly
authorized by the Company and, when issued upon the conversion of the Series C
Preferred Stock, will be validly issued, fully paid and non-assessable shares of
Common Stock (the "Conversion Shares"). The issuance, sale and delivery of the
Conversion Shares to the Purchasers are not subject to any preemptive rights of
stockholders of the Company or to any right of first refusal or other similar
right in favor of any person.
SECTION 2.03 VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and to general equity
principles. The Note, the Amended and Restated Stockholders Agreement and the
Registration Rights Agreement Amendment, when executed and delivered by the
Company as provided in this Agreement, and when executed and delivered by the
other parties hereto (if applicable), will constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time in
effect affecting the enforcement of creditors' rights generally and to general
equity principles.
SECTION 2.04 AUTHORIZED CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of (i)
40,000,000 shares of Common Stock, $.01 par value, (ii) 30,000,000 shares of
Class A Common Stock, (iii) 31,200 shares of Series A Redeemable Preferred
Stock, (iv) 2,716 shares of Series B Convertible referred Stock, $.01 par value
and (v) 20,000 shares of Series C Preferred Stock. All of the issued and
outstanding shares of capital stock of the Company are owned of record as set
forth on Schedule 2.04(a) hereto.
(b) Except as contemplated by this Agreement, the Amended and
Restated Stockholders Agreement dated as of April 30, 1998 among the Company and
the several other parties named therein, as amended, the Company's Certificate
of Incorporation or as set forth on Schedule 2.04(b) hereto, (i) no
subscription, warrant, option, convertible security or other right
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(contingent or other) to purchase or acquire any shares of any class of capital
stock of the Company is authorized or outstanding, (ii) there is no binding
commitment of the Company to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of the Company's capital stock,
any evidences of indebtedness or assets, and (iii) the Company has no
obligations (contingent or other) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
SECTION 2.05 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III
hereof, except as set forth on Schedule 2.05 hereto, no registration or filing
with, or consent or approval of, or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution and delivery of this Agreement, the Amended and Restated Stockholders
Agreement and the Registration Rights Agreement Amendment, the performance of
this Agreement, the Amended and Restated Stockholders Agreement and the
Registration Rights Agreement Amendment, or the issuance, sale and delivery of
the Securities, other than, if applicable, compliance with the requirements of
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act").
SECTION 2.06 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.06
are (x) the audited balance sheet of the Company as of December 31, 1998, and
the related statements of operations, stockholders' equity and cash flow of the
Company for the year then ended, certified by KPMG Peat Marwick LLP, the
independent public accountants retained by the Company and (y) the unaudited
balance sheet of the Company as of December 31, 1999, and the related statements
of operations, stockholders' equity and cash flow of the Company for the year
then ended. Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied, and fairly
present the consolidated financial position of the Company as of the date of
such financial statements and the results of its operations for the period then
ended in accordance with generally accepted accounting principles. Except as
reflected in said financial statements or as disclosed in writing to WCAS VII
and FFT Partners, the Company had no material (individually or in the aggregate)
obligations or liabilities, absolute, accrued or contingent, as of the date of
such financial statements that would be required to be reflected on said
financial statements. Since December 31, 1999 there has been no material adverse
change in the properties, assets, condition (financial or other), prospects,
operating results or business of the Company and its Subsidiaries taken as a
whole.
SECTION 2.07 EVENTS SUBSEQUENT TO DATE OF FINANCIAL STATEMENTS.
Since December 31, 1999, and except as set forth on Schedule 2.07 hereto, the
Company has not (i) issued any stock, bonds or other corporate securities, (ii)
borrowed any amount or incurred any liabilities (absolute or contingent) that
would be required to be disclosed on a balance sheet as of the date hereof
prepared in accordance with generally accepted accounting principles, except
current liabilities incurred, and liabilities under contracts entered into, in
the ordinary course of business, (iii) discharged or satisfied any lien or paid
any obligation or liability (absolute or contin-
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gent) other than current liabilities shown on such financial statements and
current liabilities incurred since that date in the ordinary course of business,
(iv), declared or made any payment or distribution to stockholders or purchased
or redeemed any shares of its capital stock or other securities, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet delinquent and payable, (vi)
sold, assigned or transferred any of its material tangible assets, except in the
ordinary course of business, (vii) acquired any material tangible assets or
properties, except in the ordinary course of business, (viii) canceled or
compromised any debts or claims, except in the ordinary course of business, (ix)
sold, assigned or transferred any patents, trademarks, tradenames, or other
intangible rights (or licenses thereto) or permitted any license, permit, or
other form of authorization relating to such rights to lapse, (x) suffered any
material losses, or waived any rights of material value, whether or not in the
ordinary course of business, (xi) received notification of cancellation, or
canceled or waived any rights which, individually or in the aggregate, are
material with respect to any currently existing agreement, contract, right or
understanding, (xii) made any changes in officer compensation, except for
compensation attributed to newly hired officers and for changes made in the
ordinary course of business and consistent with past practice or (xiii) entered
into any transaction except in the ordinary course of business.
SECTION 2.08 ACTIONS PENDING. Except as set forth on Schedule 2.08
hereto, there is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary or any of their respective properties or rights before any court or
by or before any governmental body or arbitration board or tribunal, the outcome
of which might reasonably be expected to result in any material adverse effect
on the properties, assets, condition (financial or other), prospects, operating
results or business of the Company and its Subsidiaries taken as a whole. To the
knowledge of the Company, except as set forth on Schedule 2.08 hereto, there
does not exist any reasonable basis for any such action, suit, investigation or
proceeding.
SECTION 2.09 TRADE SECRETS. To the knowledge of the Company, (a) no
third party has claimed that any person affiliated with the Company or any
Subsidiary has violated any of the terms or conditions of his employment
contract with such third party, or disclosed or utilized any trade secrets or
proprietary information or documentation of such third party, or interfered in
the employment relationship between such third party and any of its employees
and (b) no person affiliated with the Company or any Subsidiary has employed any
trade secrets or any information or documentation proprietary to any former
employer.
SECTION 2.10. TAXES. The Company and each Subsidiary, as applicable,
has duly and timely filed or caused to be filed all Federal, state, local and
foreign tax returns that have been required to be filed to date by it and has
timely paid or caused to be timely paid all taxes or all assessments received by
it to the extent that such taxes or assessments have become due.
SECTION 2.11 OTHER AGREEMENTS. Neither the Company nor any
Subsidiary is in default in any material respect in the performance, observance
or fulfillment of any of the
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obligations, covenants or conditions contained in any material agreement or
instrument to which it is a party.
SECTION 2.12 TITLE TO PROPERTIES. Except as set forth on Schedule
2.12 hereto, the Company and each of its Subsidiaries owns its properties and
assets free and clear of mortgages, pledges, security interests, liens, charges
and other encumbrances.
SECTION 2.13 COMPLIANCE WITH LAWS. ETC. (a) Each of the Company and
its Subsidiaries has all material governmental licenses, franchises and permits
for the conduct of its business as currently conducted (collectively,
"Governmental Permits").
(b) The business of the Company and each of its Subsidiaries is
being conducted in compliance with all applicable laws, ordinances, rules and
regulations of all governmental authorities relating to their respective
properties or applicable to their respective businesses, including without
limitation the terms of all Governmental Permits and federal securities laws,
other than minor non-compliance that can be cured at nominal cost without
adversely affecting the business of the Company or any Subsidiary as it is
currently conducted. Neither the Company nor any Subsidiary has received any
notice of any alleged violation of any of the foregoing, nor is the Company
aware of any basis for any such allegation.
SECTION 2.14 AFFILIATED TRANSACTIONS. Except as contemplated by this
Agreement, as set forth on Schedule 2.14 hereto or as disclosed to and approved
by the Board of Directors of the Company, to the knowledge of the Company, no
officer, director or stockholder of the Company or any person related by blood
or marriage to any such person or any entity in which any such person owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or has any material interest in any material
property used by the Company.
SECTION 2.15 BROKERS' OR FINDERS' FEES. Except as set forth on
Schedule 2.15, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Company with the Purchasers,
without the intervention of any person on behalf of the Company in such a manner
to give rise to any claim by any person for a finders' fee, brokerage commission
or similar payment.
SECTION 2.16 DISCLOSURE. Neither this Agreement nor the Schedules
and Exhibits attached hereto contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein, in the light of circumstances under which made,
not misleading.
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III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company, severally and
not jointly, as follows:
SECTION 3.01 AUTHORIZATION. The execution, delivery and performance
by such Purchaser of this Agreement, the Amended and Restated Stockholders
Agreement and the Registration Rights Agreement Amendment, if any, and the
purchase and receipt by such Purchaser of the Securities being purchased by it
hereunder have been duly authorized by all requisite action on the part of such
Purchaser, and will not violate any provision of law, any order of any court or
other agency of government applicable to such Purchaser, or any provision of
any indenture, agreement or other instrument by which such Purchaser or any of
such Purchaser's properties or assets are bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument.
SECTION 3.02 VALIDITY. This Agreement has been duly executed and
delivered by such Purchaser and constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles. The
Amended and Restated Stockholders Agreement and the Registration Rights
Agreement Amendment, when executed and delivered by such Purchaser in accordance
with this Agreement, and when executed and delivered by the other parties
thereto, will constitute the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect affecting the enforcement of creditors' rights generally and to
general equity principles.
SECTION 3.03 INVESTMENT REPRESENTATIONS. (a) Such Purchaser is
acquiring the Securities for its own account, for investment, and not with a
view toward the resale or distribution thereof in violation of applicable law.
(b) Such Purchaser understands that it must bear the economic risk
of its investment for an indefinite period of time because the Securities are
not registered under the Securities Act or any applicable state securities laws,
and may not be resold unless subsequently registered under the Securities Act
and such other laws or unless an exemption from such registration is available.
Such Purchaser also understands that, except as provided in the Amended and
Restated Registration Rights Agreement dated as of April 30, 1998 among the
Company and the several other parties named therein, as amended (the "Amended
and Restated Registration Rights Agreement"), it is not contemplated that any
registration will be made under the Securities Act or that the Company will take
steps which will make the provisions of Rule 144
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under the Securities Act available to permit resale of the Securities Such
Purchaser will not pledge, transfer, conveyor otherwise dispose of any of the
Securities, except in a transaction that is the subject of either (x) an
effective registration statement under the Securities Act and any applicable
state securities laws, or (y) an opinion of counsel to the effect that such
registration is not required (which opinion and counsel shall be reasonably
satisfactory to the Company, it being agreed that Reboul, MacMurray, Xxxxxx,
Xxxxxxx & Kristol shall be satisfactory, and may be relied on by the Company in
making such determination), it being intended that the agreements with respect
to the Securities contained in this sentence shall be construed consistently
with the provisions relating to the same subject matter contained in the Amended
and Restated Registration Rights Agreement.
(c) Such Purchaser is able to fend for itself in the transactions
contemplated by this Agreement and has the ability to bear the economic risks of
its investment in the Securities being purchased by it for an indefinite period
of time. Such Purchaser has had the opportunity to ask questions of, and receive
answers from, officers of the Company with respect to the business and financial
condition of the Company and the terms and conditions of the offering of the
Securities and to obtain additional information necessary to verify such
information or can acquire it without unreasonable effort or expense.
(d) Such Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its investment in the Securities. Such Purchaser (other than the Purchasers set
forth on Schedule 3.03(d) hereto) is an "accredited investor" as such term is
defined in Rule 501 of Regulation D under the Securities Act with respect to its
purchase of the Securities, and that if such Purchaser is a partnership, it has
not been formed solely for the purpose of purchasing the Securities it is
purchasing hereunder (unless each of the partners of such partnership is an
accredited investors).
(e) Such Purchaser, to the extent that such Purchaser is subject to
the Connecticut Uniform Securities Act, is an institutional buyer under
ss.36b-21(b)(8) thereto.
SECTION 3.04 GOVERNMENTAL APPROVALS. No registration or filing with,
or consent or approval of, or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary by such Purchaser
for the valid execution, delivery and performance of this Agreement, the Amended
and Restated Stockholders Agreement and the Registration Rights Agreement
Amendment, other than, if applicable, compliance with the requirements of the
HSR Act.
SECTION 3.05 BROKERS' OR FINDERS' FEES. Except as set forth on
Schedule 3.05, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Purchasers with the Company,
without the intervention of any person on behalf of the Purchasers in such a
manner as to give rise to any claim by any person for a finders' fee, brokerage
commission or similar payment.
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IV
CONDITIONS PRECEDENT
SECTION 4.01 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
PURCHASERS. The obligations of each Purchaser hereunder are, at its option,
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of such date, and the Company shall have certified to such effect to the
Purchasers in writing.
(b) PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or on the Closing Date, and the Company shall have
certified to such effect to the Purchasers in writing.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company and all waivers and consents to be
obtained by the Company in connection with the transactions contemplated hereby
shall have been taken or obtained by the Company and all documents incident
thereto shall be satisfactory in form and substance to such Purchaser and its
counsel.
(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding
shall have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions contemplated
hereby.
(e) AMENDED AND RESTATED STOCKHOLDERS AGREEMENT AND REGISTRATION
RIGHTS AGREEMENT AMENDMENT. Each of the Amended and Restated Stockholders
Agreement and the Registration Rights Agreement Amendment shall have been
executed and delivered by the Company and a sufficient number of parties to
effect each such Agreement and Amendment.
(f) CERTIFICATE OF AMENDMENT. The Certificate of Amendment to the
Certificate of Incorporation of the Company substantially in the form of Exhibit
E hereto shall have been duly adopted and shall have been duly filed with the
Secretary of State of the State of Delaware and become legally effective.
(g) OPINION OF COUNSEL. The Purchasers shall have received an
opinion of Nossaman, Guthner, Xxxx & Xxxxxxx, LLP, in form and substance
reasonably satisfactory to the Purchasers and their counsel.
10
(h) SUPPORTING DOCUMENTS. WCAS VII (on behalf of the Purchases and
its counsel shall have received copies of the following supporting documents:
(i)(x) copies of the Certificate of Incorporation of the Company,
and all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware, and (y) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing of
the Company and listing all documents of the Company on file with said
Secretary;
(ii) a certificate of the Secretary or a Assistant Secretary of the
Company dated the Closing Date and certifying (w) that attached thereto is
true and complete copy of the By-laws of the Company as in effect on the
date of such certification; (x) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this
Agreement, the Registration Rights Agreement Amendment, the Amended and
Restated Stockholders Agreement, the Note and the issuance, sale and
delivery of the Securities, and that all such resolutions are still in
full force and effect and are all the resolutions adopted in connection
with the transactions contemplated hereby and thereby; (y) that the
Certificate of Incorporation of the Company has not been amended since the
date of the last amendment referred to in the certificate delivered
pursuant to clause (i)(x) above; and (z) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the
Registration Rights Agreement Amendment, the Amended and Restated
Stockholders Agreement, the Note and the stock certificates representing
the Shares and any certificate or instrument furnished pursuant hereto,
and a certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in this
paragraph (ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchasers of their counsel may reasonably request
All such documents shall be satisfactory in form and substance to
the Purchasers and their counsel.
(i) CONSENTS; HSR ACT WAITING PERIOD. The Company shall have
obtained all consents required to be obtained pursuant to Section 5.05 hereof.
Without limiting the generality of the foregoing, all applicable waiting periods
under the HSR Act with respect to the transactions contemplated hereby shall
have expired or been terminated.
SECTION 4.02 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company hereunder are, at its option, subject to the
satisfaction, on or before the Closing Date of the following conditions:
11
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchasers contained in this Agreement
shall be true and correct in all material respects on the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of such date.
(b) PERFORMANCE. The Purchasers shall have performed and complied
with all agreements and conditions contained herein required to be performed or
complied with by them prior to or on the Closing Date.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be taken
by the Purchasers and any waivers and consents to be obtained by the Purchasers
in connection with the transactions contemplated hereby shall have been taken or
obtained by the Purchasers and all documents incident thereto shall be
satisfactory in form and substance to the Company and its counsel.
(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding
shall have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions contemplated
hereby.
(e) AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, REGISTRATION RIGHTS
AGREEMENT AMENDMENT. Each of the Amended and Restated Stockholders Agreement and
the Registration Rights Agreement Amendment shall have been executed and
delivered by a sufficient number of parties (other than the Company) to effect
each such Agreement and Amendment.
V
COVENANTS
SECTION 5.01 FINANCIAL STATEMENTS, REPORTS, ETC.
The Company shall furnish to each of WCAS VII and FFT Partners,
prior to the consummation of the Company's IPO and for so long as WCAS VII or
FFT Partners, as applicable, shall hold at least 25% of the Securities (or
securities into which such Securities are converted, exchanged or reclassified)
purchased by WCAS VII or FFT Partners hereunder:
(a) within 90 days after the end of each fiscal year of the Company,
a consolidated balance sheet of the Company as of the end of such fiscal
year and the related consolidated statements of operations and retained
earnings, changes in stockholders' equity and cash flows of the Company
for the fiscal year then ended, together with supporting notes thereto,
certified in accordance with generally accepted accounting principles,
without qualification as to scope of audit, by a firm of independent
public accountants of recognized national standing selected by the
Company;
12
(b) within 30 days after the end of each month in each fiscal year
(other than the last month in each fiscal year), a consolidated balance
sheet of the Company and the related consolidated statement of operations
and retained earnings, unaudited but certified by the principal financial
officer of the Company, such balance sheets to be as of the end of such
month and such statements of operations and retained earnings to be for
such month and for the period from the beginning of the fiscal year to the
end of such month, in each case subject to normal year-end adjustments;
(c) within 30 days prior to the beginning of each fiscal year of the
Company (and with respect to any revision thereof, promptly after such
revision has been prepared), a proposed annual operating budget for the
Company, including projected monthly income statements, cash flow
statements during such fiscal year and a projected consolidated balance
sheet as of the end of such fiscal year, and each monthly financial
statement furnished pursuant to (b) above shall reflect variances from
such operating budget, as the same may from time to time be revised; and
(d) promptly upon filing, copies of all registration statements,
prospectuses, periodic reports and other documents filed by the Company or
any Subsidiary with the Securities and Exchange Commission.
SECTION 5.02 RIGHTS OF INSPECTION. The Company shall, and shall
cause its Subsidiaries, officers, directors, employees, representatives,
advisors and agents to, afford, from the date hereof, the representatives,
advisors and agents of WCAS VII (on behalf of the Purchasers) complete access
at all reasonable times during normal business hours to its officers, employees,
agents, properties, books, records and workpapers, and shall furnish WCAS VII
all financial, operating and other information and data that WCAS VII may
reasonably request through such representatives, advisors or agents. At the
request of WCAS VII, the Company shall promptly furnish to the Purchasers a copy
of all material written correspondence, filings communications (or memoranda
setting forth the substance thereof) between the Company or any of its officers,
employees, representatives, advisors or agents and any governmental entity with
respect to the obtaining of any waivers, consent or approvals and the making of
any registrations or filings that are necessary to the transactions contemplated
by this Agreement. The Purchasers agree to keep confidential any confidential
business information that may be provided to them by the Company pursuant to
this Agreement, unless disclosure is required by law as advised by counsel.
SECTION 5.03 NOTICE OF CERTAIN EVENTS. The Company shall give WCAS
VII and FFT Partners prompt notice of (i) the occurrence, or failure to occur,
of any event that the Company believes would be likely to (x) cause any of the
representations or warranties of the Company contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof or
(y) cause any covenant, condition or agreement contained in this Agreement not
to be complied with or satisfied in any material respect, (ii) any failure of
the Company, or any officer, director, employee or agent thereof, to comply in
any material respect
13
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it hereunder, (iii) any event of default under
any agreement with respect to indebtedness for borrowed money or a purchase
money obligation, and any event which, upon notice or lapse of time or both,
would constitute such an event of default, that would permit the holder of such
indebtedness or obligation to accelerate the maturity thereof, (iv) any claim,
action, suit or proceeding at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would materially
impair the ability of the Company to carry on its business substantially as now
or then conducted, and which, in the case of each of the items set forth in
clauses (i) through (iv) above, would be likely to have material adverse effect
on the properties, assets, condition (financial or other), prospects, operating
results or business of the Company and its Subsidiaries taken as a whole.
SECTION 5.04 USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Securities hereunder for the acquisition of certain
domestic or international surgical centers or hospitals (or assets relating
thereto) and for general corporate or other purposes approved by WCAS VII.
SECTION 5.05 CONSENTS AND APPROVALS. Prior to the Closing Date, the
Company shall promptly apply for or otherwise seek and use its best efforts to
obtain all authorizations, consents, waivers and approvals (whether by or from
any person, entity, court or governmental agency or authority) as may be
required in connection with the consummation of this Agreement and the
transactions contemplated hereby. In addition, the Company shall pay any filing
fees and expenses relating to compliance with the HSR Act in connection with any
transaction to which the Company is a party, regardless of who may be deemed to
be the "ultimate parent" of the Company (as such term is defined in the HSR
Act).
SECTION 5.06 COMPLIANCE WITH LAWS. The Company shall comply, and
shall cause each of its Subsidiaries to comply, with all applicable laws, rules,
regulations and orders, the noncompliance with which could have a material
adverse effect on the properties, assets, condition (financial or other),
prospects, operating results or business of the Company and its Subsidiaries
taken as a whole.
SECTION 5.07 PREEMPTIVE RIGHTS. (a) Until such time as the Company
has consummated an IPO, the Company hereby grants to each of the Purchasers and
Xxxxxx Xxxxx (collectively, the "Original Investors") the right to purchase such
Original Investor's Proportionate Percentage (as hereinafter defined) of any
future Eligible Offering (as hereinafter defined). For the purposes of this
Section 5.07 , the following terms shall have the meanings set forth below:
"PROPORTIONATE PERCENTAGE" means, with respect to such
Original Investor as of any date, the result (expressed as
percentage) obtained by dividing (i) the number of shares of Class A
Common Stock and Common Stock owned by such Original Investor as of
such date (treating, for purposes of such calculation, each share of
Series C Preferred Stock as the number of shares of Class A Common
Stock issuable upon conversion
14
thereof) by (ii) the total number of shares of Class A Common Stock
and Common Stock outstanding as of such date (treating, for purposes
of such calculation, each share of Series C Preferred Stock as the
number of shares of Class A Common Stock issuable upon conversion
thereof).
"ELIGIBLE OFFERING" means an offer by the Company to sell to
investors (including any of the Original Investors) for cash, shares
of capital stock of the Company, or any security convertible into or
exchangeable for, or carrying rights or options to purchase, capital
stock of the Company, other than an offering of securities by the
Company:
(i) to its full-time employees, and/or officers and/or
directors and/or consultants and/or advisors of options to
purchase shares of Common Stock in connection with or pursuant
to the Company's Stock Option Plan as in effect from time to
time;
(ii) in connection with the conversion or exercise of
outstanding securities of the Company;
(iii) in connection with any merger of, or acquisition
by, the Company; or
(iv) in an underwritten public offering of shares of
Common Stock registered under the Securities Act.
(b) The Company shall, before issuing any securities pursuant
to an Eligible Offering, give written notice thereof to each of the Original
Investors. Such notice shall specify the security or securities the Company
proposes to issue and the consideration that the Company intends to receive
therefor. For a period often (10) days following the date of such notice, each
of the Original Investors shall be entitled, by written notice to the Company,
to elect to purchase all or any part of such Original Investor's Proportionate
Percentage of the securities being sold in the Eligible Offering; PROVIDED,
HOWEVER, that if two or more securities shall be proposed to be sold as a "unit"
in an Eligible Offering, any such election must relate to such unit of
securities. In the event that elections pursuant to this Section 5.07 shall not
be made with respect to any securities included in an Eligible Offering within
such ten (10) day period, then the Company may issue such securities to
investors, but only for a consideration payable in cash not less than, and
otherwise on no more favorable terms to the investors than, that set forth in
the Company's notice and only within 180 days after the end of such ten (10) day
period. In the event that any such offer is accepted by one or more Original
Investors, on a mutually agreeable date not less than ten (10) business days
following such acceptance, the Company shall sell to such Original Investors and
such Original Investors shall purchase from the Company, for the consideration
and on the terms set forth in the notice as aforesaid, the securities that such
Original Investors shall have elected to purchase.
15
SECTION 5.08 MANAGEMENT FEE. At no time shall WCAS VII (or its
partners) charge the Company for management or similar fees relating to its
investment in the Company.
VI
MISCELLANEOUS
SECTION 6.01 EXPENSES. ETC. The Company shall pay its own expenses.
All fees and expenses of WCAS VII incident to the negotiation, preparation and
execution of this Agreement, including the fees and expenses of counsel,
accountants or other advisors (i) shall be paid by the Company in the event that
such transactions are consummated and (ii) shall be borne by the party incurring
such expense in the event such transactions are not consummated. Each party
hereto will indemnify and hold harmless the others against and in respect of any
claim for brokerage or other commissions relative to this Agreement or to the
transactions contemplated hereby, made as a result of any agreements,
arrangements or understandings made or claimed to have been made by such party
with any third party.
SECTION 6.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the Securities
pursuant hereto and all statements contained in any certificate or other
instrument delivered by the Company hereunder shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03 PARTIES IN INTEREST. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
SECTION 6.04 NOTICES. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient if contained in a written
instrument delivered in person or by overnight courier or duly sent by first
class certified mail, postage prepaid, or by facsimile addressed to such party
at the address or facsimile number set forth below:
if to the Company, to:
United Surgical Partners International, Inc.
00000 Xxxxxxx Xxxx Xxxxx 000 Xxxxx
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Attention: Xxxxxx Xxxxx
16
with a copy to:
Nossaman, Guthner, Xxxx & Xxxxxxx, LLP
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
if to any Purchaser, to such Purchaser at the address appearing on
Annex I hereto;
or, in any case, at such other address or addresses as shall have been furnished
in writing by such party to the other parties hereto. All such notices,
requests, consents and other communications shall be deemed to have been
received (a) in the case of personal or courier delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing and (c) in the case of facsimile, when received.
SECTION 6.05 WAIVER OF PRIOR PREEMPTIVE RIGHTS. Each of the
Purchasers and Xxxxxx Xxxxx hereby (i) waive their respective rights to purchase
a proportionate percentage of the Shares as set forth in Section 5.07 of the
Securities Purchase Agreement dated Apri1 30, 1998 (the "Apri1 1998 Agreement")
among the Company, WCAS VII and the several other parties named therein and
Section 5.07 of the Securities Purchase Agreement dated October 26, 1998 (the
"October 1998 Agreement") among the Company, WCAS VII, FFT Partners and the
several other parties named therein and (ii) agree that Section 5.07 of this
Agreement shall supercede Section 5.07 of each of the April 1998 Agreement and
October 1998 Agreement in all respects.
SECTION 6.06 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
(including the Exhibits, Annexes and Schedules hereto) constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be amended or modified nor any provisions waived except in a writing signed by
the party to be charged.
SECTION 6.07 ASSIGNMENT. This Agreement may not be assigned by the
Company or the Purchasers without the prior written consent of the Company and
each of the Purchasers.
SECTION 6.08 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but alJ of which
together shall constitute one and the same instrument.
SECTION 6.09 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
17
IN WITNESS WHEREOF, the Company and the Purchasers have executed
this Agreement as of the day and year first above written.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By /s/ XXXXXX XXXXX
Xxxxxx Xxxxx
Chief Executive Officer
WCAS PURCHASERS:
WELSH, CARSON, XXXXXXXX
& XXXXX VII, L.P .
By WCAS VII Partners, L.L.C.
General Partner
By /s/ XXXXXXXX X. RATHER
Xxxxxxxx X. Rather
General Partner
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates, L.L.C.
General Partner
By /s/ XXXXXXXX X. RATHER
Xxxxxxxx X. Rather
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HC Partners
General Partner
By /s/ XXXXXXXX X. RATHER
Xxxxxxxx X. Rather
Attorney-in-Fact
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxx X. Xxxx
Xxxxx XxxXxxxx
Xxxxxxx X. Xxxxxx
D. Xxxxx Xxxxxxx
Xxxxxx X. XxXxxxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx X. xxXxxxxx
Xxxx X. Xxxxxxx
Xxxxxx Xxxxx
Xxxx Xxxxxxx
/s/ XXXXXXXX X. RATHER
By Xxxxxxxx X. Rather
Attorney-in-Fact
/s/ XXXXXX XXXXXX
Xxxxxx Xxxxxx
/s/ XXXXXXXX RATHER
Xxxxxxxx Rather
FFT PARTNERS I, L.P.
By Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By /s/ XXXXXX X. XXXXXX
Name: Xxxxxx X. Xxxxxx
Title: General Partner
FFT EXECUTIVE PARTNERS I, L.P.
By Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By /s/ XXXXXX X. XXXXXX
Name: Xxxxxx X. Xxxxxx
Title: General Partner
Acknowledge and Agreed
as to Section 6.05
/s/ XXXXXX XXXXX
Xxxxxx Xxxxx
EXHIBIT A
Form of 10% Senior Subordinated Note
See Tab 2.
THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS.
NEITHER THE SECURITIES EVIDENCED HEREBY, NOR ANY INTEREST
THEREIN, MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED
OR OTHERWISE DISPOSED OF UNLESS EITHER (I) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND LAWS
RELATING THERETO OR (II) THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE TO THE CORPORATION, STATING THAT SUCH
REGISTRATION IS NOT REQUIRED.
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") AS
DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING
REQUIREMENTS SET FORTH IN TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $30,750,000. THE
AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $5,250,000
ASSUMING ALL PAYMENTS OF PRINCIPAL ARE MADE AT MATURITY.
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS MARCH 27, 2000. THE
PER ANNUM YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS
12.61% COMPOUNDED SEMI-ANNUALLY.
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
10% Senior Subordinated Note
Due March 27, 2010
$36,000,000 March 27, 2000
UNITED SURGICAL PARTNERS INTERNATIONAL, INC., a Delaware corporation
(hereinafter called the "Corporation"), for value received, hereby promises to
pay to WCAS CAPITAL PARTNERS III, L.P., the principal sum of THIRTY SIX MILLION
DOLLARS ($36,000,000) on March 27, 2010 (subject to applicable restrictions set
forth in Section 12 hereof), and to pay interest (computed on the basis of a
360-day year consisting of twelve 30-day months) from the date hereof on the
unpaid principal amount hereof at the rate of 10% per annum, payable
semi-annually in arrears on September 27 and March 27 of each year (each said
day being an "Interest Payment Date"), commencing on September 27, 2000 and
until the date the outstanding principal amount hereof shall have become due and
payable in full, whether at maturity or by
1
acceleration or otherwise. If the principal amount hereof shall not be paid when
the same shall have become due and payable in full, whether at maturity or by
acceleration or otherwise, then such overdue principal amount and (to the extent
permitted by applicable law) any overdue interest shall thereupon bear interest
at the rate of 12% per annum until paid in full.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for payment of public and private debts, and shall be made at
the offices of the person deemed the holder hereof in accordance with Section 4
below.
On any Interest Payment Date on or after March 27, 2005, the Company
shall also pay such amount of accrued original issue discount on this Note as
shall be necessary to ensure that this Note shall not be considered an
"applicable high yield discount obligation" within the meaning of Section 163(i)
of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision. In the event that any such payment of accrued original issue discount
occurs, the amount of principal payable on this Note shall be reduced to the
extent necessary to ensure that the yield to maturity on this Note (determined
as provided by Section 1272 of the Code and the regulations thereunder and
computed by taking into account any such payment of accrued original issue
discount pursuant to this paragraph) shall equal the yield to maturity on this
Note (computed as though no payment of accrued original issue discount had been
made under this paragraph). The Company and the holder hereof agree that the
original issue discount characteristics of the Note reflected in the legend were
determined in accordance with Treasury Regulation Section 1.1273-2(h)(1) and
that they shall report the accrual of interest and original issue discount on
the Note consistent with those determinations for all tax purposes.
1. The Note. This Note is issued pursuant to and is subject to the
terms and provisions of the Securities Purchase Agreement dated as of March 27,
2000 (the "Securities Purchase Agreement") among the Corporation, Welsh, Carson,
Xxxxxxxx and Xxxxx VII, L.P. ("WCAS VII"), WCAS Capital Partners III, L.P., FFT
Capital Partners I, L.P. and the several other parties named therein. As used
herein, the term "Note" or "Notes" includes all of the 10% Senior Subordinated
Note or Notes due March 27, 2010 originally issued in connection with the
Securities Purchase Agreement and any 10% Senior Subordinated Note or Notes due
March 27, 2010 of the Corporation subsequently issued upon exchange or transfer
thereof.
2. Transfer, Etc. of Notes. The Corporation shall keep at its office
or agency maintained as provided in paragraph (a) of Section 6 a register in
which the Corporation shall provide for the registration of this Note and for
the registration of transfer and exchange of this Note, The holder of this Note
may, at its option, and either in person or by duly authorized attorney,
surrender the same for registration of transfer or exchange at the office or
agency of the Corporation maintained as provided in paragraph (a) of Section 6,
and, without expense to such holder (except for transfer taxes, if any, imposed
in connection therewith), receive in exchange therefor a Note or Notes each in
such denomination or denominations as such holder may request (which
denominations shall be $100,000 or an integral multiple thereof, except for any
balance which may be less than $100,000), dated as of the date to which interest
has been paid on the Note or Notes so surrendered for transfer or exchange, for
the same aggregate principal amount as the then unpaid principal amount of the
Note or Notes so surrendered for transfer or exchange, and registered in the
name of such person or persons as may be designated by such holder, This Note,
when presented or surrendered for registration of transfer or exchange, shall be
duly
2
endorsed, or shall be accompanied by a written instrument of transfer,
satisfactory in form to the Corporation, duly executed by the holder of such
Note or his attorney duly authorized in writing. Every Note so made and
delivered in exchange for this Note shall in all other respects be in the same
form and have the same terms as this Note. No transfer or exchange of any Note
shall be valid unless made in the foregoing manner at such office or agency.
3. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the holder
hereof reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Corporation will
make and deliver, in lieu of this Note, a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on
this Note.
4. Persons Deemed Owners; Holders. The Corporation may deem and
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of and interest
on this Note and for all other purposes whatsoever, whether or not this Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name such
Note is registered as aforesaid at such time.
5. Prepayments. The Corporation may prepay this Note as follows:
(a) Mandatory Prepayment. Except as and to the extent expressly
prohibited by applicable law, the Corporation shall prepay the principal amount,
plus accrued and unpaid interest, of all Notes which shall then be outstanding,
upon the consummation by the Corporation of an initial public offering of its
Common Stock, $.01 par value, registered under the Securities Act of 1933, as
amended. In case of the occurrence of any of the following (each a "Change of
Control Event"): (i) a consolidation or merger of the Corporation with or into
any other corporation (other than a merger which will not result in more than
50% of the voting capital stock of the Corporation outstanding immediately after
the effective date of such merger being owned of record or beneficially by
persons other than the holders of such voting capital stock immediately prior to
such merger in the same proportions in which such shares were held immediately
prior to such merger), (ii) a sale of all or substantially all of the properties
and assets of the Corporation as an entirety in a single transaction or in a
series of related transactions to any other person or (iii) the acquisition of
"beneficial ownership" by any "person" or "group" (other than WCAS VII or its
affiliates) of voting stock of the Corporation representing more than 50% of the
voting power of all outstanding shares of such voting stock, whether by way of
merger or consolidation or otherwise, the Corporation shall not later than 20
days prior to the effective date of any such Change of Control Event (the
"Change of Control Event Date"), give notice thereof to the holder or holders of
the Notes and, in the event that within 15 days after receipt of such notice,
the holders of a majority of the outstanding aggregate principal amount of the
Notes elect, by written notice to the Corporation, to have such Notes prepaid,
the Corporation shall prepay 100% of the principal amount of the Notes, plus any
accrued but unpaid interest as of the Change of Control Event Date, on or before
such date.
3
As used herein, (i) the terms "person" and "group" shall have the
meaning set forth in Section l3(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not applicable, (ii) the term
"beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time or upon the occurrence of certain events, and (iii) any
"person" or "group" will be deemed to beneficially own any voting stock of the
Corporation so long as such person or group beneficially owns, directly or
indirectly, in the aggregate a majority of the voting stock of a registered
holder of the voting stock of the Corporation.
(b) Optional Prepayment. Upon notice given as provided in Section
5(c), the Corporation may, at its option, prepay this Note without penalty, as a
whole at any time or in part from time to time in amounts which shall be
integral multiples of $10,000. Any date on which the Corporation elects to
prepay any of the Notes as provided in this subparagraph 5(b) and each date on
which the Corporation shall be required to prepay the Notes as provide in
subparagraph 5(a) above shall be referred to as a "Prepayment Date,"
(c) Notice of Prepayment. Not less than 20 days prior to a
Prepayment Date, written notice shall be given by registered or certified mail
or by overnight courier to the holders of record of the Notes to be prepaid,
such notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation, specifying the dollar amount to be
prepaid, the paragraph or paragraphs of this Note pursuant to which such
prepayment shall be made, and the date of such prepayment, which date shall not
be a day on which the banks of New York are required or authorized to be closed.
Upon notice of prepayment being given as aforesaid, the Corporation covenants
and agrees that it will prepay, on the date therein fixed for prepayment, this
Note or the portion hereof, as the case may be, so called for prepayment, at the
prepayment price determined in accordance with Section 5(a) or 5(b) hereof. A
prepayment of less than all of the outstanding principal amount of this Note
shall not relieve the Corporation of its obligation to make scheduled payments
of interest payable in respect of the principal remaining outstanding on the
Interest Payment Dates.
(d) Allocation of All Payments. In the event of any partial payment
of less than all of the interest then due on the Notes then outstanding or any
prepayment, purchase, redemption or retirement of less than all of the
outstanding principal amount of the Notes, the Corporation will allocate the
amount of interest so to be paid and the principal amount so to be prepaid,
purchased, redeemed or retired to each Note in proportion, as nearly as may be,
to the aggregate principal amount of all Notes then outstanding.
(e) Interest After Date Fixed for Prepayment. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for such purpose, the Corporation shall
fail to pay this Note or such portion, as the case may be, in which event this
Note or such portion, as the case may be, and, so far as may be lawful, any
overdue installment of interest, shall bear interest on and after the date fixed
for such prepayment and until paid at the rate per annum provided herein.
4
(f) Surrender of Note; Notation Thereon. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its option,
may require the Corporation to execute and deliver at the expense of the
Corporation (other than for transfer taxes, if any), upon surrender of this
Note, a new Note registered in the name of such person or persons as may be
designated by such holder for the principal amount of this Note then remaining
unpaid, dated as of the date to which the interest has been paid on the
principal amount of this Note then remaining unpaid, or may present this Note to
the Corporation for notation hereon of the payment of the portion of the
principal amount of this Note so prepaid.
6. Covenants. The Corporation covenants and agrees that, so long as
this Note shall be outstanding:
(a) Maintenance of Office. The Corporation will maintain an office
or agency in such place in the United States of America as the Corporation
may designate in writing to the registered holder hereof where this Note
may be presented for registration of transfer and exchange as herein
provided, where notices and demands to or upon the Corporation in respect
of this Note may be served and where, at the option of the holder thereof,
this Note may be presented for payment. Until the Corporation otherwise
notifies the holder of this Note, said office shall be the principal
office of the Corporation at 00000 Xxxxxxx Xxxx, Xxxxx 000 Xxxxx, Xxxxxx,
Xxxxx 00000.
(b) Corporate Existence. The Corporation will do or cause to be done
all things necessary and lawful to preserve and keep in full force and
effect its corporate existence, rights and franchises and the corporate or
partnership existence, rights and franchises of each of its subsidiaries;
provided, however, that nothing in this paragraph (b) shall prevent (i) a
consolidation or merger of, or a sale, transfer or disposition of all or
any substantial part of the property and assets of, the Corporation or
(ii) the abandonment or termination of any rights or franchises of the
Corporation, or the liquidation or dissolution of, or a sale, transfer or
disposition (whether through merger, consolidation, sale or otherwise) Of
all or any substantial part of the property and assets of, any subsidiary
or the abandonment or termination of the corporate or partnership
existence, rights and franchises of any subsidiary if such abandonment,
termination, liquidation, dissolution, sale, transfer or disposition is,
in the good faith business judgment of the Corporation, in the best
interests of the Corporation and is not disadvantageous in any material
respect to the holder of this Note.
(c) Notice of Default. If any one or more events which constitute,
or which with notice or lapse of time or both would constitute, an Event
of Default under Section 8 of this Note shall occur, or if any holder of
the Notes shall demand payment or take any other action permitted upon the
occurrence of any such Event of Default, the Corporation shall,
immediately after it becomes aware that any such event has occurred or
that such demand has been made or that any such action has been taken,
give notice to all holders of the Notes, specifying the nature of such
event or of such demand or action, as the case may be; provided, however,
that if such event, in the good faith judgment of the Corporation, will be
cured within ten days after the Corporation has knowledge that such event
would, with or without notice or lapse of time or both, constitute such an
Event of
5
Default, no such notice need be given if such Event of Default shall be
cured within such ten-day period.
(d) Merger or Consolidation. Without limitation of the rights of the
holder of this Note set forth in Section 5(a) hereof, if the Corporation
shall effect a merger or consolidation in which it is not the surviving
entity, then the Corporation shall take such action as may be necessary,
as a condition to consummating such transaction, to cause the surviving
entity to assume all of the Corporation's obligations under this Note, as
if such entity had been the original issuer thereof, and such entity shall
acknowledge in writing its obligation to fully and timely honor the
Corporation's obligations under this Note.
(e) Optional Prepayments of Debt. Other than with respect to Senior
Indebtedness (as hereinafter defined), the Corporation will not make any
optional prepayment of any indebtedness for borrowed money, prior to the
repayment in full of this Note.
7. Modification: Waiver. The Corporation may, with the written
consent of the holders of not less than 66 2/3% in principal amount of the Notes
then outstanding, modify the terms and provisions of the Notes or the rights of
the holders of the Notes or the obligations of the Corporation thereunder, and
the observance by the Corporation of any term or provision of the Notes may be
waived with the written consent of the holders of not less than 66 2/3% in
principal amount of the Notes then outstanding, provided, however, that no such
modification or waiver shall:
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon or reduce the amount or change the time of payment of premium
payable on any prepayment thereof without the consent of the holder of
each Note so affected; or
(b) give any Note any preference over any other Note; or
(c) reduce the aforesaid percentage of Notes, the consent of the
holders of which is required for any such modification.
Any such modification or waiver shall apply equally to all the
holders of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Corporation, whether or not such Note shall have been
marked to indicate such modification or waiver, but any Note issued thereafter
shall bear a notation referring to any such modification or waiver. Promptly
after obtaining the written consent of the holders as herein provided, the
Corporation shall transmit a copy of such modification or waiver to all the
holders of the Notes at the time outstanding.
8. 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, on the part of the Corporation or any subsidiary,
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 a court of
competent jurisdiction or any order, rule or regulation of any administrative or
other governmental authority, and such Event of Default shall be continuing:
6
(a) default shall be made in the payment of the principal when and
as the same shall become due and payable, whether on demand or at a date
fixed for prepayment or by acceleration or otherwise; or
(b) default shall be made in the payment of any installment of
interest when and as the same shall become due and payable or at a date
fixed for prepayment or by acceleration or otherwise and such default
shall continue for a period of 5 days; or
(c) default shall be made in the due observance or performance of
any other covenant, condition or agreement on the part of the Corporation
to be observed or performed pursuant to the terms hereof and such default
shall continue for 30 days after written notice thereof, specifying such
default and requesting that the same be remedied, shall have been given to
the Corporation by the holders of at least 25% of the principal amount of
the Notes then outstanding (the Corporation to give forthwith to all other
holders of Notes at the time outstanding written notice of the receipt of
such notice specifying the default referred to therein); or
(d) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Corporation or any
subsidiary in an involuntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar laws, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Corporation or any subsidiary or for any
substantial part of any of their property, or ordering the winding-up or
liquidation of any of their affairs and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; or
(e) the commencement by the Corporation or any subsidiary of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar laws, or the consent by any of them to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Corporation or any subsidiary or for any substantial part of their
property, or the making by any of them of any assignment for the benefit
of creditors, or the failure of the Corporation or any subsidiary
generally to pay its debts as such debts become due;
then, the holder or holders of at least 25% in aggregate principal amount of the
Notes at the time outstanding may, at its or their option, by notice to the
Corporation, declare all the Notes to be, and all the Notes shall thereupon be
and become, forthwith due and payable together with interest accrued thereon
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived to the extent permitted by law, provided, however, that,
upon the occurrence and during the continuance of any of the events specified in
subsections (a) or (b) of this Section 8, the holder of any Note at the time
outstanding may, at its option by notice in writing to the Corporation, declare
any Note or Notes then held by it to be, and such Note or Notes shall thereupon
be and become, forthwith due and payable together with interest accrued thereon
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived to the extent permitted by law.
7
At any time after any declaration of acceleration has been made as
provided in this Section 8, the holders of at least 66 2/3% in principal amount
of the Notes then outstanding may, by notice to the Corporation, rescind such
declaration and its consequences, provided, however, that no such rescission
shall extend to or affect any subsequent default or Event of Default or impair
any right consequent thereon.
Without limiting the foregoing, the Corporation hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
or the Notes and agrees that any such proceeding may, if the holder so elects,
be brought and enforced in the Supreme Court of the State of New York for New
York County or the United States District Court for the Southern District of New
York and the Corporation hereby waives any objection to jurisdiction or venue in
any such proceeding commenced in such court The Corporation further agrees that
any process required to be served on it for purposes of any such proceeding may
be served on it, with the same effect as personal service on it within the State
of New York, by registered mail addressed to it at its office or agency set
forth in subsection (a) of Section 6 for purposes of notices hereunder.
9. Suits for Enforcement. Subject to the provisions of Section 12 of
this Note, in case any one or more of the Events of Default specified in Section
8 of this Note shall occur and be continuing, the holder of this Note may
proceed to protect and enforce its rights by suit in equity, action at law
and/or by other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Note or in aid of the exercise of
any power granted in this Note, or may proceed to enforce the payment of this
Note or to enforce any other legal or equitable right of the holder of this
Note.
In case of any default under this Note, the Corporation will pay to
the holder thereof such amounts as shall be sufficient to cover the reasonable
costs and expenses of such holder due to said default, including, without
limitation, collection costs and reasonable attorneys' fees, to the extent
actually incurred.
10. Remedies Cumulative. No remedy herein conferred upon the holder
of this Note is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
11. Remedies Not Waived. No course of dealing between the
Corporation and the holder of this Note or any delay on the part of the holder
hereof in exercising any rights hereunder shall operate as a waiver of any right
of any holder of this Note.
12. Subordination. (a) Anything contained in this Note to the
contrary notwithstanding, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent set forth in the following paragraphs (A),
(B), (C) and (D), to all Senior Indebtedness of the Corporation. "Senior
Indebtedness" shall mean the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law and
including any loans made to the Corporation as a debtor in possession in any
bankruptcy proceeding by any persons who were the holders of any Senior
8
Indebtedness on the date such bankruptcy proceeding was commenced) on all
indebtedness to a bank or banks or other financial institutions for borrowed
money and related fees and expenses now existing or hereinafter incurred which
by its terms is not subordinated to any other indebtedness of the Corporation.
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Corporation or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Corporation,
whether or not involving insolvency or bankruptcy proceedings, then all
Senior Indebtedness shall first be paid in cash in full before any
payment, whether on account of principal, interest or otherwise, is made
upon the Notes.
(B) In any of the proceedings referred to in paragraph (A) above,
any payment or distribution of any kind or character, whether in cash,
property, stock or obligations which may be payable or deliverable in
respect of the Notes shall be paid or delivered directly to the holders of
Senior Indebtedness for application in payment thereof, unless and until
all Senior Indebtedness shall have been paid in cash in full.
(C) No payment shall be made, directly or indirectly, on account of
the Notes (i) upon maturity of any Senior Indebtedness obligation, by
lapse of time, acceleration (unless waived), or otherwise, unless and
until all principal thereof and interest thereon and all other obligations
in respect thereof shall first be paid in full and have terminated, or
(ii) upon the happening of any default in payment of any principal of,
premium, if any, or interest on or any other amounts payable in respect of
Senior Indebtedness when the same becomes due and payable whether at
maturity or at a date fixed for prepayment or by declaration or otherwise
(a "Senior Payment Default"), unless and until such Senior Payment Default
shall have been cured or waived or shall have ceased to exist.
(D) Upon the happening of an event of default (other than described
in clause (A), (B) or (C) above) with respect to any Senior Indebtedness
permitting (after notice or lapse of time or both) one or more holders of
such Senior Indebtedness to declare such Senior Indebtedness due and
payable prior to the date on which it is otherwise due and payable (a
"Nonmonetary Default"), upon the occurrence of (i) receipt by the holder
of this Note of written notice from a holder of said Senior Indebtedness
of a Nonmonetary Default (any such notice, a "Blockage Notice"), or (ii)
if such Nonmonetary Default results from the acceleration of this Note,
the date of such acceleration; then (x) the Corporation will not make,
directly or indirectly, to the holder of this Note any payment of any kind
of or on account of this Note; (y) the holder of this Note will not accept
from the Corporation any payment of any kind of or on account of this Note
and (z) the holder of this Note may not take, demand, receive, xxx for,
accelerate or commence any remedial proceedings with respect to any amount
payable under this Note, unless and until in each case described in
clauses (x), (y) and (z) all such Senior Indebtedness shall have been paid
in full; provided, however, that if such Nonmonetary Default shall have
occurred and be continuing for a period (a "Blockage Period") commencing
on the earlier of the date of receipt of such Blockage Notice or the date
of the acceleration of this Note and ending 179 days thereafter (it being
understood that not more than one Blockage
9
Period may be commenced with respect to this Note during any period of 360
consecutive days), and during such Blockage Period (i) such Nonmonetary
Default shall not have been cured or waived, (ii) the holder of such
Senior Indebtedness shall not have made a demand for payment and commenced
an action, suit or other proceeding against the Corporation and (iii) none
of the events described in subsection (A) above shall have occurred, then
(to the extent not otherwise prohibited by subsections (A), (B) or (C)
above) the Corporation may, not less than 10 days after receipt by the
holders of such Senior Indebtedness of written notice to such effect from
the holder of this Note, make and the holder of this Note may accept from
the Corporation all past due and current payments of any kind of or on
account of this Note, and such holder may demand, receive, retain, xxx for
or otherwise seek enforcement or collection of all amounts payable on
account of principal of or interest on this Note.
(b) Subject to the payment in full in cash of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, this Note shall be paid
in full in cash, and, as between the Corporation, it's creditors other than the
holders of Senior Indebtedness, and the holders of this Note, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Section 12 which otherwise would have been made to the holder of this Note shall
be deemed a payment by the Corporation on account of the Senior Indebtedness, it
being understood that the provisions of this Section 12 are and are intended
solely for the purposes of defining the relative rights of the holder of this
Note, on the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 12 of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the holder of this Note, nothing herein shall either impair,
as between the Corporation and the holder of this Note, the obligation of the
Corporation, which is unconditional and absolute, to pay to the holder thereof
the principal thereof and interest thereon in accordance with its terms or
prevent (except as otherwise specified therein) the holder of this Note from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder.
(c) If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by any holder
of this Note in contravention of any of the terms hereof or before all the
Senior Indebtedness obligations have been paid in full in cash, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full in cash. In the event of the failure of any such holder to
endorse or assign any such payment, distribution or security, each holder of any
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
name.
(d) The holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to any holder of this Note,
without incurring responsibility to, and without impairing or releasing any of
the rights of the holders of Senior Indebtedness, or
10
any of the obligations of the holder of this Note: (i) change the amount,
manner, place, or terms of payment, or change or extend the time of payment of,
or renew, alter, extend or otherwise modify Senior Indebtedness in any and all
respects; (ii) release any party to the extent liable or otherwise obligated for
Senior Indebtedness; and (iii) exercise or refrain from exercising any rights
against the Corporation and others (including the holder of this Note).
(e) No right of any holder of Senior Indebtedness to enforce the
subordination as provided in this Section 12 shall at any time or in any way be
prejudiced or impaired by any act or failure to act by the Corporation or by any
noncompliance by the Corporation with the terms, provisions and covenants of
this Note, regardless of any knowledge thereof with which any such holder may
have or be otherwise charged.
13. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Corporation shall bind its successors and assigns, whether so expressed or
not.
14. Governing Law. This Note shall be governed and construed in
accordance with the laws of the State of Delaware,
15. Headings. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
11
IN WITNESS WHEREOF, UNITED SURGICAL PARTNERS INTERNATIONAL, INC. has
caused this Note to be signed in its corporate name by one of its officers
thereunto duly authorized and to be dated as of the day and year first above
written.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By: ____________________________________
Name:
Title:
12
IN WITNESS WHEREOF, UNITED SURGICAL PARTNERS INTERNATIONAL, INC. has
caused this Note to be signed in its corporate name by one of its officers
thereunto duly authorized and to be dated as of the day and year first above
written.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By: ____________________________________
Name:
Title:
13
EXHIBIT B
Form of Amendment No. 6 to Amended and Restated
Registration Rights Agreement
See Tab 3.
AMENDMENT NO. 6
TO
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 6 to the Amended and Restated Registration Rights Agreement,
dated as of March 27, 2000 (the "Amendment"), among United Surgical Partners
International, Inc., a Delaware corporation (the "Company'"), WELSH, CARSON,
XXXXXXXX & XXXXX VII, L.P., a Delaware limited partnership ("WCAS VII"), FFT
PARTNERS I, L.P., a Delaware limited partnership, FFT EXECUTIVE PARTNERS I,
L.P., a Delaware limited partnership (together with FFT Partners I, L.P., "FFT
Partners'"), WCAS CAPITAL PARTNERS III, L.P., a Delaware limited partnership
("WCAS CP III'") and the several other purchasers named in Annex I hereto (such
purchasers, WCAS VII, FFT Partners and WCAS CP III being hereinafter at times
referred to individually as a "Purchaser" and collectively as the "Purchasers"),
amending the Amended and Restated Registration Rights Agreement dated as of
April 30, 1998, as amended, among the Company and the several signatories
thereto (the "Registration Rights Agreement"). All capitalized terms used and
not defined herein shall have the meaning set forth in the Securities Purchase
Agreement dated as of the date hereof (the "Securities Purchase Agreement'")
among the Company and the several other parties named therein.
On the date hereof, the Company and the Purchasers are consummating the
transactions contemplated by the Securities Purchase Agreement pursuant to which
the Company has agreed to sell to the Purchasers (other than WCAS CP III) an
aggregate 20,000 shares of the Company's Series C Convertible Preferred Stock,
$.01 par value ("Series C Preferred Stock") and has agreed to sell to WCAS CP
III an aggregate 1,500,000 shares of the Company's Class A Common Stock, $.01
par value (the "Class A Common Stock").
It is a condition to the closing of the transactions contemplated by the
Securities Purchase Agreement that the Company and the parties hereto execute
this Amendment.
Pursuant to Section 13(d) of the Registration Rights Agreement, the
Registration Rights Agreement is hereby amended as follows:
1. Each Purchaser is hereby made a party to the Registration Rights
Agreement with the same rights and obligations as a holder of "Restricted Stock"
(with respect to the shares of Class A Common Stock and Series C Preferred Stock
purchased by such individual pursuant to the Securities Purchase Agreement and
the Class A Common Stock issued upon the conversion of the Series C Preferred
Stock) as set forth in the Registration Rights Agreement.
2. The Registration Rights Agreement, as amended by this Amendment, is
hereby in all respects confirmed.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware.
4. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By: ____________________________________
Xxxxxx Xxxxx
Chief Executive
WELSH, CARSON, XXXXXXXX
& XXXXX VII, L.P.
By WCAS VII Partners, L.P.
General Partner
By: _______________________________
Xxxxxxxx X. Rather
General Partner
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates, L.L.C.
General Partner
By: _______________________________
Xxxxxxxx X. Rather
Attorney-in-Fact
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HC Partners
General Partner
By: _______________________________
Xxxxxxxx X. Rather
Attorney-in-Fact
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxx X. Xxxx
Xxxxxx X. XxXxxxxxx
Xxxxx XxxXxxxx
Xxxxxxx X. Xxxxxx
D. Xxxxx Xxxxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx X. xxXxxxxx
Xxxx X. Xxxxxxx
Xxxxxx Xxxxx
Xxxx Xxxxxxx
By: _______________________________
Xxxxxxxx X. Rather
Attorney-in-Fact
___________________________________
Xxxxxx Xxxxxx
___________________________________
Xxxxxxxx X. Rather
FFT PARTNERS I, L.P.
By Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By: _______________________________
Name:
Title:
FFT EXECUTIVE PARTNERS I, L.P.
By Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By: _______________________________
Name:
Title:
ANNEX I
PURCHASERS
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxx X. Xxxx
Xxxxxx X. XxXxxxxxx
Xxxxx XxxXxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx xxXxxxxx
Xxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxx
D. Xxxxx Xxxxxxx
Xxxxxx Xxxxxx
Xxxxxx Xxxxx
Xxxxxxxx Rather
Xxxx Xxxxxxx
EXHIBIT C
Form of Third Amended and Restated Stockholders Agreement
See Tab 4.
1
THIRD AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of
______________, 2000, by and among UNITED SURGICAL PARTNERS INTERNATIONAL, INC.,
a Delaware corporation (the "Company"), WELSH, CARSON, XXXXXXXX & XXXXX VII,
L.P. ("WCAS") and the several other stockholders named in Schedule I hereto
(WCAS and such other stockholders being hereinafter at times referred to
individually as a "Stockholder" and collectively as the "Stockholders").
WHEREAS, the Company and the Stockholders are parties to that certain
Second Amended and Restated Stockholders Agreement dated as of November 17, 1999
(the "Stockholders Agreement");
WHEREAS, the Company and each of the Stockholders desire to amend and
restate the Stockholders Agreement and to make certain arrangements among
themselves with respect to the matters set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree that
the Stockholders Agreement shall be amended and restated as follows:
SECTION 1. Voting Agreement. (a) At each annual or special stockholders
meeting called for such purpose, and whenever the stockholders of the Company
act by written consent with respect to election of directors, each Stockholder
agrees to vote or otherwise give such Stockholder's consent in respect of all
shares of capital stock of the Company (whether now or hereafter acquired) owned
by such Stockholder or as to which such Stockholder is entitled to vote, and the
Company shall take all necessary and desirable actions within its control, in
order to cause the election to the Board of Directors of the Company of: (i) the
Chief Executive Officer of the Company, which individual will initially be
Xxxxxx Xxxxx; (ii) for so long as FFT Partners I, L.P. and FFT Executive
Partners I, L.P. (together, "FFT Partners") collectively maintain ownership of
not less than 50% of the securities purchased by FFT Partners under the
Securities Purchase Agreement dated as of October 26, 1998 among the Company and
the several other parties named therein (or securities into which such
securities are converted, exchanged or reclassified), one individual designated
by FFT Partners and which individual shall be acceptable to WCAS in its
reasonable discretion. Such individual shall be appointed to the Board of
Directors on or before October 30, 1998 and Xxxxxx Xxxxxx shall be FFT Partners'
initial designee; and (iii) for so long as Baylor Health Services ("Baylor") and
entities to which Baylor may transfer its membership interest in Texas Health
Ventures Group L.L.C. ("THVGI") under Section 4.1(a) of the Second Amended and
Restated Regulations of THVGI dated as of June 1, 1999 (each such entity being a
"Permitted Baylor Transferee"), collectively maintain ownership of not less than
50% of the outstanding principal of the Convertible Subordinated Promissory Note
(the "Note") issued to Baylor under the Contribution and Purchase Agreement
dated as of May 11, 1999 among Baylor and the several other parties named
therein (or 50% of the aggregate securities into which the Note, directly or
indirectly, is converted, exchanged or reclassified), one individual designated
by Baylor who is an officer of Baylor Health Care
2
System at or above the level of senior vice president. Such individual shall be
appointed to the Board of Directors on or before June 2, 1999 and Xxxxx Xxxxxx
shall be Baylor's initial designee.
(b) The Board of Directors shall meet on at least a quarterly basis
unless otherwise agreed by the Board. The Company will reimburse all such
directors for travel expenses reasonably incurred in connection with attending
meetings of the Board.
SECTION 2. Investor Transfer Restrictions. (a) Each of the Stockholders
listed on Schedule I hereto under the heading "Investors" (the "Investors")
shall be entitled at any time to transfer (x) the shares of capital stock of the
Company owned by such Investor by will or by the laws of descent and
distribution, (y) up to 10% of the shares of capital stock of the Company owned
by such Investor by gift to such Investor's spouse, lineal descendants, parents
or siblings (or to a trust for the benefit of any of the foregoing) or (z) in
the case of Baylor, the shares of capital stock of the Company owned by Baylor
to any Permitted Baylor Transferee; provided that any such transferee shall
agree in writing with the Company to be bound by, and to comply with, all
applicable provisions of this Agreement and to be deemed to be an Investor for
purposes of this Agreement. Except for such transfers by will or by the laws of
descent and distribution or by gift as described in clauses (x) and (y) above or
such transfers to a Permitted Baylor Transferee as described in clause (z)
above, each Investor shall not be entitled to sell, pledge or otherwise transfer
shares of capital stock of the Company unless such Investor complies with the
provisions of Sections 3 and 4 below.
SECTION 3. Right of First Refusal. Subject to the provisions of Section 2
above, an Investor (a "Selling Investor" for purposes of this Section 3) may
sell for cash all or any portion of the capital stock of the Company held by him
(whether now or hereafter acquired) at any time, pursuant to a bona fide offer
from a third party, subject to such Selling Investor's compliance with the
following provisions:
(a) The Selling Investor shall promptly deliver a notice of
intention to sell (a "Sale Notice") to the Company setting forth in reasonable
detail the capital stock of the Company to be sold (the "Subject Securities"),
the identity of the proposed purchaser and the proposed purchase price and terms
of sale (including a copy of any written offer or indication of interest).
(b) Upon receipt of a Sale Notice from the Selling Investor, the
Company shall have the first right and option to elect to purchase at the price
and on the terms stated in the Sale Notice, all or part of the number of the
Subject Securities. In the event that the Company shall elect to purchase all or
part of the Subject Securities, the Company shall so notify the Selling Investor
within 20 days (the "Company Option Period") after the receipt by the Company of
the Sale Notice. Any such election shall be made by written notice (a "Company
Notice of Election") to the Selling Investor.
(c) If the Company Notice of Election with respect to the Subject
Securities shall have been received as aforesaid by the Selling Investor, the
Selling Investor shall sell such Subject Securities to the Company at the price
and on the terms stated in the Sale Notice. The closing of such sale of Subject
Securities shall take place at the offices of the Company no later
3
than 20 days following the expiration of the Company Option Period (or upon the
expiration of such longer period if required by law), or such other place and
earlier date as may be agreed by all parties to the transaction. At such closing
the Selling Investor shall deliver a certificate or certificates for the Subject
Securities to be sold, accompanied by stock powers with signatures guaranteed
and all necessary stock transfer stamps affixed, against receipt of the purchase
price therefor by certified or official bank check in New York Clearing House
Funds or by wire transfer of immediately available funds.
(d) Any Subject Securities not sold pursuant to the provisions of
this Section 3 may be sold (in compliance with Section 4 below) to the person
identified in the related Sale Notice for a period of 60 days following the
expiration of the Company Option Period or to any person or persons at a price
not lower than the price specified in the Sale Notice and on other terms not
materially more favorable to the purchaser than those specified in the Sale
Notice. Any Subject Securities not sold by such 60th day shall again be subject
to the restrictions contained in this Agreement.
SECTION 4. Right of Co-Sale. Any Stockholder (for purposes of this Section
4, a "Selling Stockholder"), subject to compliance with the provisions of
Sections 2 and 3 above (if applicable), may sell all or any portion of the Class
A Common Stock held by him (whether now or hereafter acquired), subject to such
Stockholder's compliance with the following provisions:
(a) Such Selling Stockholder shall promptly deliver a notice of
intention to sell (a "Co-Sale Notice") to the Company and to each Stockholder
setting forth the number of shares of Class A Common Stock to be sold (the
"Co-Sale Securities") and the proposed purchase price and terms of sale, except
that no Co-Sale Notice need be given by any Selling Stockholder exercising any
right to sell securities in response to a Co-Sale Notice delivered pursuant to
this paragraph (a). Upon receipt of the Co-Sale Notice, each Stockholder shall
have the right and option to elect to sell, at the price and on the terms stated
in the Co-Sale Notice, all or part of that number of shares of Class A Common
Stock which is equal to the product obtained by multiplying (i) the aggregate
number of shares of Class A Common Stock covered by the proposed sale by (ii) a
fraction, the numerator of which is the number of shares of Class A Common Stock
at the time owned by such Stockholder and the denominator of which is the number
of shares of Class A Common Stock at the time owned by all the Stockholders. Any
such election shall be made by written notice (a "Co-Sale Notice of Election")
to the Selling Stockholder and the Company within 10 business days after receipt
by such Stockholder of the Co-Sale Notice. Thereupon, the Selling Stockholder
shall not sell any of the Co-Sale Securities (i) except at the price and on the
terms stated in its Co-Sale Notice and (ii) if a Stockholder shall have
delivered a Co-Sale Notice of Election in respect thereof as aforesaid, unless
such Stockholder shall have been afforded the opportunity to sell the shares in
respect of which such Co-Sale Notice of Election shall have been delivered, at
said price and on said terms.
(b) Any Co-Sale Securities not sold pursuant to the provisions of
(a) above shall again be subject to the restrictions contained in this Agreement
and shall not thereafter be sold, except in compliance with the applicable
provisions of this Agreement.
(c) Upon electing to participate in a proposed sale pursuant to
paragraph (a) above, each Stockholder (i) shall deliver to the Company, as its
agent, for transfer to the
4
proposed acquiror, one or more certificates, duly endorsed for transfer or
accompanied by stock transfer powers duly endorsed for transfer, with all stock
transfer taxes paid and stamps affixed, which represent the number of shares of
Class A Common Stock that such Stockholder shall have so elected to sell and
(ii) shall not be subject to Sections 2 and 3 hereof, if applicable.
(d) The stock certificate or certificates delivered by each
Stockholder to the Company pursuant to paragraph (c) above shall be transferred
by the Company to the acquiror in consummation of the sale of the Class A Common
Stock pursuant to the terms and conditions specified in the Co-Sale Notice, and
the Company shall promptly thereafter remit to such Stockholder that portion of
the proceeds to which such Stockholder is entitled by reason of such
participation.
(e) Notwithstanding the foregoing references in this Section 4 to
shares of Class A Common Stock, if all of the shares of the Company's Class A
Common Stock have been converted into shares of the Company's Common Stock, $.01
par value ("Common Stock"), pursuant to subparagraph 3B of Section II of Article
IV of the Company's Certificate of Incorporation, as amended, then this Section
4 shall be applicable in its entirety to sales of such shares of Common Stock.
SECTION 5. Legend on Stock Certificates. Each certificate representing
shares of capital stock purchased by any Stockholder or issued in exchange of or
upon conversion of any of the securities purchased thereby shall conspicuously
bear the following legend until such time as the shares represented thereby are
no longer subject to the provisions hereof
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT, DATED AS OF APRIL 30,
1998, AS AMENDED, AMONG THE ISSUER AND THE OTHER
PARTIES THERETO. COPIES MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE COMPANY."
The Company covenants that it shall keep a copy of this Agreement on file
at the address listed in Section 11 for the purpose of furnishing copies to the
holders of record of shares of capital stock of the Company.
SECTION 6. Duration of Agreement. This Agreement shall terminate upon the
earliest to occur of (i) the tenth anniversary of the date hereof, (ii) the
consummation of an initial public offering registered under the Securities Act
of 1933, as amended, of shares of Common Stock, par value $.01, of the Company,
(iii) the consummation of any sale, transfer or other disposition of all or
substantially all the capital stock or assets of the Company for cash, or (iv)
with respect to any Stockholder, the date on which such Stockholder no longer
owns any shares of capital stock of the Company.
SECTION 7. Representations and Warranties. Each Stockholder represents and
warrants to the Company and the other Stockholders as follows:
5
(a) The execution, delivery and performance of this Agreement by
such Stockholder will not violate any provision of law, any order of any court
or other agency of government, or any provision of any indenture, agreement or
other instrument to which such Stockholder or any of its or his properties or
assets is bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
such Stockholder.
(b) This Agreement has been duly executed and delivered by such
Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable in accordance with its terms.
SECTION 8. Headings. Headings of articles, sections and paragraphs of this
Agreement are inserted for convenience of reference only and shall not affect
the interpretation or be deemed to constitute a part hereof.
SECTION 9. Severabilitv. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall, for any reason, be held to be invalid, illegal or unenforceable,
such illegality, invalidity or unenforceability shall not affect any other
provisions of this Agreement.
SECTION 10. Benefits of Agreement. Nothing expressed by or mentioned in
this Agreement is intended or shall be construed to give any person other than
the parties hereto and their respective successors and permitted assigns any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and permitted
assigns. Subject to compliance with the terms of this Agreement, each
Stockholder shall have the right to assign its interests hereunder to any
transferee of the capital stock of the Company; provided that such transferee
shall agree in writing with the parties hereto to be bound by, and to comply
with, all applicable provisions of this Agreement and to be deemed to be a
Stockholder for purposes of this Agreement.
SECTION 11. Notices. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient and received if contained
in a written instrument delivered in person or by courier or duly sent by first
class certified mail, postage prepaid, or by facsimile addressed to such party
at the address or facsimile number set forth below:
(1) if to the Company, to:
United Surgical Partners International, Inc.
00000 Xxxxxxx Xxxx
Xxxxx 000 Xxxxx
Xxxxxx, XX 00000
Facsimile: 000-000-0000
Attention: Chief Executive Officer
6
(2) if to any other Stockholder, to the address of such Stockholder
appearing in Schedule I hereto;
or, in any case, at such other address or facsimile number as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of facsimile, when received.
SECTION 12. Modification. Except as otherwise provided herein, neither
this Agreement nor any provision hereof may be modified, changed, discharged or
terminated except by an instrument in writing signed by the Company, WCAS, FFT
Partners and the holders of the majority of the aggregate voting power of shares
of capital stock (on an as-converted basis) of the Company held by the
Management Stockholders; provided, however, that no modification or amendment
shall be effective to reduce the percentage of the shares of capital stock of
the Company the consent of the holders of which is required under this Section
12; provided further, that no such amendment or modification shall be effective
without Baylor's consent if such amendment or modification affects Baylor any
differently than it affects other holders of Investor Shares. Notwithstanding
the foregoing, the Company may amend this Agreement without the consent of the
Stockholders solely to add stockholders to Schedule I hereto (which stockholders
shall be included in the definition of "Investors" hereunder).
SECTION 13. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 14. Governing Law. This Agreement shall be governed by,
enforceable under, and construed in accordance with the laws of the State of
Delaware.
[Signature pages follow]
7
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year above written.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By:_____________________________________
Xxxxxx Xxxxx
Chief Executive Officer
MANAGEMENT STOCKHOLDERS
________________________________________
Xxxxxx Xxxxx
________________________________________
Xxx Xxxxxxx
________________________________________
Xxxxxx Xxxxx
________________________________________
Xxxxxxx Xxxxx
________________________________________
Xxxxxxx Xxxxxx (with respect to all
shares of capital stock acquired after
June 26, 1998)
________________________________________
Xxxxxxx Xxxxxxxx (with respect to all
shares of capital stock acquired after
July 31, 1998)
8
FFT PARTNERS I, L.P.
By: Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By:_____________________________________
Name:
Title:
FFT EXECUTIVE PARTNERS I, L.P.
By: Xxxxxx Xxxxxxx Xxxxxxxx & Co., LLC
General Partner
By:_____________________________________
Name:
Title:
________________________________________
M. XXXXXX XXXXX TRUST
________________________________________
M. Xxxxxx Xxxxx, Trustee
________________________________________
Xxxxxxxxx X. Xxxxx, Trustee
CALVER FUND, INC.
By:_____________________________________
Xxxx X. Xxxxxxxx, President
________________________________________
Xxxxx Xxx Xxxxxx CGJR/MF
III, L.P.
9
NGKE/USPI PARTNERS
By:_____________________________________
Xxxxxx Xxxxxx, Managing Partner
L & W CO.
By:_____________________________________
Xxxxxx X. Xxxxxxx, Vice-President &
Trust Officer
________________________________________
Xxxxxx Xxxxxxxxxx
RIVID LLC
By:_____________________________________
Xxxxx Xxxxxxxxxx, Manager
________________________________________
Xxxx Xxxxxxx
CGJR II, L.P.
By: CGJR Capital Management, Inc.,
General Partner
By:_____________________________________
Xxxxxxxxxxx Grand, Jr., President
CGJR/MF III, L.P.
By: CGJR Capital Management, Inc.,
General Partner
By:_____________________________________
Xxxxxxxxxxx Grand, Jr., President
10
________________________________________
Xxxxxxx XxXxxxxx
________________________________________
Xxxxx Xxxxxx
________________________________________
Xxxxxxxx Xxxxxx
________________________________________
Xxxxx Xxxxxx
________________________________________
Xxxxxxx X. Xxxxxxxx
Tenants in Common with Xxxxxxx X.
Xxxxxxxx
________________________________________
Xxxx X. Xxxxxxxx
Tenants in Common with Xxxxxxx X.
Xxxxxxxx
________________________________________
Xxx X. Xxxxx
________________________________________
Xxxxxx X. Xxxxxxx
________________________________________
Xxxxxxx X. Xxxxxx
________________________________________
Xxxxx X. Xxxxxxx
________________________________________
Xxxxxxx Xxxxxx
11
________________________________________
Xxxxxxx XxXxx
________________________________________
Xxxxx Xxx
________________________________________
Xxxxxx Xxxxxxxxxx
________________________________________
Xxxxxx Xxxxxx
________________________________________
Xxxxx Xxxxxxxx
________________________________________
Xxxx Xxxxxxxx
________________________________________
Xxx X'Xxxxxxxx
________________________________________
Xxxxxxx Xxxxxxx
________________________________________
Xxxxxx X. Xxxxxx
BAYLOR HEALTH CARE SYSTEM FOUNDATION
By:_____________________________________
Name____________________________________
Title___________________________________
12
WCAS STOCKHOLDERS:
WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P.
By: WCAS VII Partners, L.P.
General Partner
By:______________________________________
Xxxxxxxxx X. Rather
General Partner
WCAS CAPITAL PARTNERS III, L.P.
By: WCAS CP III Associates, L.L.C.
General Partner
By:______________________________________
Xxxxxxxxx X. Rather
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By: WCAS HC Partners
General Partner
By:______________________________________
Xxxxxxxxx X. Rather
Attorney-in-Fact
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxx X. Xxxx
Xxxxxxx X. Xxxxxx
Xxxxx XxxXxxxx
Xxxxxx X. XxXxxxxxx
D. Xxxxx Xxxxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx X. xxXxxxxx
Xxxx X. Xxxxxxx
Xxxxxx Xxxxx
Xxxx Xxxxxxx
By:______________________________________
Xxxxxxxxx X. Rather
Attorney-In-Fact
13
________________________________________
Xxxxxx Xxxxxx
________________________________________
Xxxxxxxxx Rather
14
SCHEDULE I - STOCKHOLDERS
1. Investors
a. Management Stockholders
Xxxxxx Xxxxx
Xxx Xxxxxxx
Xxxxxx Xxxxx
Xxxxxxx Xxxxx
Xxxxxxx Xxxxxx (with respect to all shares of capital stock acquired
after June 26, 1998)
Xxxxxxx Xxxxxxxx (with respect to all shares of capital stock acquired
after July 31, 1998)
c/o United Surgical Partners
International, Inc.
00000 Xxxxxxx Xxxx
Xxxxx 000 Xxxxx
Xxxxxx, XX 00000
Facsimile: 000-000-0000
15
b.
FFT Partners I, L.P.
FFT Executive Partners I, L.P.
c/o Ferrer Xxxxxxx
Xxxxxxxx & Co., LLC
00 Xxxxxxxxx Xxxxxx,
Xxxxxxxxx, XX 00000
Facsimile: 000-000-0000
M. Xxxxxx Xxxxx Trust
Calver Fund, Inc.
Xxxxx Xxx Xxxxxx
NGKE/USPI Partners
L & W Co.
Xxxxxx Xxxxxxxxxx
Rivid LLC
Xxxx Xxxxxxx
CGJR II, L.P.
CGJRIMF III, X.X.
Xxxxxxx Mcullan
Xxxxx Xxxxxx
Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx
Xxxxxxx X. & Xxxx X. Xxxxxxxx
Xxx X. Xxxxx
Xxxxxxx Xxxxxx (with respect to the share of Class A Common Stock
acquired on June 26, 1998)
Xxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxx
Xxxxxxx Xxxxxx
Xxxxxxx XxXxx
Xxxxx Xxx
Xxxxxx Xxxxxxxxxx
Xxxxxxx Xxxxxxxx (with respect to the share of Class A Common Stock
acquired on July 31, 1998)
Xxxxxx Xxxxxx
Xxxxx Xxxxxxxx
Xxxx Xxxxxxxx
Xxx X'Xxxxxxxx
Xxxxxxx Xxxxxxx
Xxxxxx X. Xxxxxx
16
Baylor HealthCare System Foundation
0000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention; Xxxxxxx X. Xxxxxx, Chief Financial Officer
Facsimile: (000) 000-0000
2. WCAS Stockholders
Welsh, Carson, Xxxxxxxx
& Xxxxx VII, L.P.
WCAS Healthcare
Partners, L.P.
WCAS Capital Partners III, L.P.
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxx
Xxxxxx X. Xxxx
Xxxxxx X. XxXxxxxxx
Xxxxx XxxXxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx xxXxxxxx
Xxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxx
X. Xxxxx Maskesy
Xxxxxx Xxxxxx
Sanjay Xxxxx
Xxxxxxxx Rather
Xxxx Xxxxxxx
c/o Welsh, Carson, Xxxxxxxx
& Xxxxx
000 Xxxx Xxxxxx - Xxxxx 0000
Xxx Xxxx, XX 00000-0000
Facsimile: 000-000-0000
17
EXHIBIT D
Form of Certificate of Amendment to the Certificate of Incorporation
See Tab 6.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/01/2000
01279037 - 2865387
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
================================================================================
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
================================================================================
UNITED SURGICAL PARTNERS INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: that the following resolutions were duly adopted by unanimous
written consent of the Board of Directors of the Corporation, setting forth
proposed amendments to the Certificate of Incorporation of the Corporation;
determining that the capital of the Corporation will not be decreased on account
of such amendments; and declaring such amendments to be advisable and directing
that such amendments be submitted to the stockholders of the corporation for
their approval. The resolutions are as follows:
"RESOLVED, that there is hereby adopted an amendment to the
Corporation's Certificate of Incorporation pursuant to which (i) the
authorized capital stock of the Corporation shall be changed from
70,033,916 shares, consisting of 30,000,000 shares of Class A Common
Stock, $.01 par value, 40,000,000 shares of Common Stock, $.01 par value,
31,200 Series A Redeemable Preferred Stock, $.01 par value, 2,716 shares
of Series B Convertible Preferred Stock, $.01 par value, to 70,053,916
shares, consisting of 30,000,000 shares of Class A Common Stock, $.01 par
value ("Class A Common Stock"), 40,000,000 shares of Common Stock, $01 par
value ("Common Stock"), 31,200
shares of Series A Redeemable Preferred Stock, $.01 par value ("Series A
Preferred Stock") 2,716 shares of Series B Convertible Preferred Stock,
$.01 par value ("Series B Preferred Stock"), and 20,000 shares of Series C
Convertible Preferred Stock, $.01 par value ("Series C Preferred Stock",
together with the Series B Preferred Stock, the "Convertible Preferred
Stock") (the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock being collectively referred to as the "Preferred
Stock"), and (ii) the relative voting, dividend, liquidation, redemption
and other rights, and qualifications, limitations and restrictions
thereof, in respect of said Preferred Stock, Class A Common Stock and
Common Stock shall be restated; and, in connection with such changes,
Article FOURTH of the Certificate of Incorporation of the Corporation
shall be amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 70,053,916 shares, consisting
of 31,200 shares of Series A Redeemable Preferred Stock, $.01 par value
("Series A Preferred Stock"), 2,716 shares of Series B Convertible
Preferred Stock, $.01 par value ("Series B Preferred Stock") and 20,000
shares of Series C Convertible Preferred Stock, $.01 par value ("Series C
Preferred Stock") (the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock being collectively referred to herein as the
"Preferred Stock"), 30,000,000 shares of Class A Common Stock, $.01 par
value ("Class A Common Stock") and 40,000,000 shares of Common Stock, $.01
par value ("Common Stock").
All cross-references is each subdivision of this Article FOURTH
refer to other paragraphs in such subdivision unless otherwise indicated.
The following is a statement of the designations, and the powers,
preferences and rights, and qualifications, limitations or restrictions
thereof, in respect of each class of stock of the Corporation.
I.
PREFERRED STOCK
Except as otherwise expressly provided herein, all shares of
Preferred Stock shall be identical and shall entitle the holders thereof
to the same rights and privileges.
1. Cumulative Dividends. The holders of shares of Series A Preferred
Stock and Series B Preferred Stock shall be entitled to receive, on April
30th of each year beginning April 30, 2000, out of funds legally available
for such purposes, cash dividends at the rate of (x) $50.00 per share per
annum on April 30, 2000 and (y) $75.00 per share per annum thereafter, and
no more, payable (as determined from time to time by the Board of
Directors) on each share of Preferred Stock that shall then be outstanding
(each annual period ended April 30th being referred to for the purposes of
this subdivision I as a "Dividend Period"). Such dividends shall be
cumulative (so that if for any Dividend Period such dividends are not paid
or declared and set apart therefore, the deficiency shall be paid, in
whole or in part (without interest), on the next succeeding dividend
payment date on which the Corporation has any funds legally available
therefore) and shall accrue
from and after the date of issue whether or not declared and whether or
not there are any funds of the Corporation legally available for the
payment of dividends. Accrued but unpaid dividends shall not bear
interest. The Board of Directors of the Corporation may fix a record date
for the determination of holders of Series A Preferred Stock and Series B
Preferred Stock entitled to receive payment of a dividend declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
As long as any shares of Preferred Stock shall remain outstanding,
in no event (without the written consent of the holders of a majority of
the outstanding Preferred Stock) shall any dividend whatsoever by paid
upon, nor any distribution be made upon, any shares of Class A Common
Stock or Common Stock, other than a dividend or distribution payable in
shares of Class A Common Stock or Common Stock, as the case may be, nor
except for the repurchase of shares (x) from participants under any stock
option plans approved by a majority of the Board of Directors of the
Corporation and (y) pursuant to employment agreements or stock purchase
agreements with employees approved by the Board of Directors of the
Corporation, shall any shares of Class A Common or Common Stock be
purchased or redeemed by the Corporation, nor shall any moneys be paid to
or made available for a sinking fund for the purchase or redemption of
shares of any Class A Common Stock or Common Stock, unless, in each such
case, accrued and unpaid dividends on all outstanding shares of Preferred
Stock for all prior Quarterly Payment Dates and Dividend Periods shall
have been declared and paid in full and the full dividend on all
outstanding shares of Preferred Stock for the then-current Quarterly
Payment Date and Dividend Period shall have been paid or declared and
sufficient funds for the payment thereof set apart, and any arrears or
defaults in any redemption of shares of Preferred Stock shall have been
cured. In the event that the Corporation shall at any time pay a dividend
on the Class A Common Stock or Common Stock (other than a dividend payable
solely in shares of Class A Common Stock or Common Stock) in accordance
with this paragraph, it shall, at the same time, pay to each holder of
Series C Preferred Stock (in addition to any payment such holder is
entitled to receive pursuant to this paragraph 1), a dividend equal to the
dividend that would have been payable to such holder if the shares of
Series C Preferred Stock held by such holder had been converted into Class
A Common Stock or Common Stock, as the case may be, on the date of
determination of holder of Class A Common Stock or Common Stock entitled
to receive such dividend.
2. Redemption. The shares of Series A Preferred Stock and Series B
Preferred Stock (collectively, the "Redeemable Preferred Stock") shall be
redeemable as follows:
2A Mandatory Redemption. Except as and to the extent expressly
prohibited by applicable law, the Corporation shall redeem (in the manner
and with the effect provided in subparagraphs 2c through 2E below) all
shares of Redeemable Preferred Stock which shall then be outstanding, on
the earlier to occur of (i) the consummation by the Corporation of an
initial public offering of its Common Stock registered under the
Securities Act of 1933, as amended (an "Initial Public Offering") or (ii)
April 30, 2008. In case of the occurrence of any of the following (each a
"Change of Control Event"): (i) a consolidation or merger of the
Corporation with or into any other corporation (other
than a merger which will not result in more than 50% of the voting capital
stock of the Corporation outstanding immediately after the effective date
of such merger being owned of record or beneficially by persons other than
the holders of such voting capital stock immediately prior to such merger
in the same proportions in which such shares were held immediately prior
to such merger), (ii) a sale of all or substantially all of the properties
and assets of the Corporation as an entirety in a single transaction or in
a series or related transactions to any other person or (iii) the
acquisition of "beneficial ownership" by any "person" or "group" (other
than Welsh, Carson, Xxxxxxxx & Xxxxx VII, L.P. or its affiliates) of
voting stock of the Corporation representing more than 50% of the voting
power of all outstanding shares of such voting stock, whether by way of
merger or consolidation or otherwise, the Corporation shall, not later
than 20 days prior to the effective date of any such Change of Control
Event, give notice thereof to the holder or holders of shares of
Redeemable Preferred Stock and, in the event that within 15 days after
receipt of such notice, any holder or holders of shares of Redeemable
Preferred Stock shall elect, by written notice to the Corporation, to have
any or all of its shares of Redeemable Preferred Stock redeemed, the
Corporation shall redeem the same (in the manner and with the effect
provided in subsection 2c through 2E below) not later than the effective
date and time of such Change of Control Event. In addition, at any time on
or after the second anniversary of the date on which shares of Series B
Preferred Stock are first issued, the Corporation shall, not later than 30
days after receipt of written notice from any holder of shares of Series B
Preferred Stock requesting redemption of any or all of its shares of
Series B Preferred Stock, redeem such shares of Series B Preferred Stock
(in the manner and with the effect provided in subparagraph 2C through 2E
below).
As used herein, (i) the terms "person" and "group" shall have the
meaning set forth in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the
term "beneficial owner" shall have the meaning set forth in Rules 13d-3
and 13d-5 under the Exchange Act, whether or not applicable, except that a
person shall be deemed to have "beneficial ownership" of al shares that
any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage on time or upon the
occurrence of certain events, and (iii) any "person" or "group" will be
deemed to beneficially own any voting stock of the Corporation so long as
such person or group beneficially owns, directly or indirectly, in the
aggregate a majority of the voting stock of a registered holder of the
voting stock of the Corporation.
2B Optional Redemption. The Corporation may, in its sole discretion,
redeem at any time and from time to time (in the manner and with the
effect provided in subparagraphs 2C through 2E below), any whole number of
shares of Redeemable Preferred Stock. Any date on which the Corporation
elects to redeem shares of Redeemable Preferred Stock as provided in its
subparagraph 2B and each date on which the Corporation shall be required
to redeem shares of Redeemable Preferred Stock as provided in subparagraph
2A above shall be referred to as a "Redemption Date".
2C Redemption Price; Notice of Redemption. The Redeemable Preferred
Stock to be redeemed on a Redemption Date shall be redeemed by paying for
each share the sum o f(i) $1,000, plus (ii) an amount equal to dividends
accrued and unpaid thereof
from the date of issuance of such share of Redeemable Preferred Stock to
such Redemption Date, the sum of (i) and (ii) being herein sometimes
referred to as the "Redemption Price". Not less than 20 days before such
Redemption Date, written notice shall be given by mail, postage prepaid to
the holders of record of the Redeemable Preferred Stock to be redeemed,
such notice to be addressed to each such stockholder a his post office
address as shown by the records of the Corporation, specifying the number
of shares to be redeemed, the paragraph or paragraphs of this Certificate
of Incorporation pursuant to which such redemption shall be made, the
Redemption Price and the place and date of such redemption, which date
shall not be a day on which banks in the City of New York are required or
authorized to close. If such notice of redemption shall have been duly
given and if on or before such Redemption Date the funds necessary for
redemption shall have been set aside so as to be and continue to be
available therefore, the, notwithstanding that any certificate for shares
of Redeemable Preferred Stock to be redeemed shall not have been
surrendered for cancellation, after the close of business on such
Redemption Date, the shares so called for redemption shall not longer be
deemed outstanding, the dividends thereon shall cease to accrue, and all
rights with respect to such shares shall forthwith after the closing of
business on the Redemption Date, cease, except only the right of the
holders thereof to receive, upon presentation of the certificate
representing shares so called for redemption, the Redemption Price
therefore, without interest thereon.
2D Redeemed or Otherwise Acquired Shares to Be Retired. Any shares
of the Redeemable Preferred Stock redeemed pursuant to this paragraph 2 or
otherwise acquired by the Corporation in any manner whatsoever shall be
permanently retired and shall not under any circumstances be reissued; and
the Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce the number of authorized shares of
Redeemable Preferred Stock accordingly.
2E Shares to be Redeemed. In case of the redemption, for any reason,
of only part of the outstanding shares of Redeemable Preferred Stock on a
Redemption Date, all shares of Redeemable Preferred Stock to be redeemed
shall be selected pro rata and there shall be so redeemed from each
registered holder in whole shares, as nearly as practicable to the nearest
whole share, that portion of all the shares to be redeemed which the
number of shares held of record by such holder bears to the total number
of shares of Redeemable Preferred Stock at the time outstanding. Any
shares of Redeemable Preferred Stock that are designated for redemption on
the Redemption Date and are not so redeemed shall be redeemed as soon
thereafter as possible and in the manner in which shares are otherwise
redeemed on a Redemption Date, and, in such event, as provided in this
subdivision I, dividends shall continue to accrue on such shares.
3. Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary of involuntary, the holders of the
shares of Series A Preferred Stock and the holder of the shares of Series
B Preferred Stock shall be entitled, before any distribution or payment is
made upon any Class A Common or Common
Stock, to be paid an amount equal to $1,000 per share plus any accrued but
unpaid dividends, and the holders of the shares of series C Preferred
Stock shall be entitled before any distribution or payment is made upon
any Class A Common or Common Stock to be paid an amount equal to the
Series C Preferred Liquidation Value with respect to each outstanding
share plus any accrued but unpaid dividends thereon (such amounts being
sometimes referred to as the "Preferred Liquidation Payments"). If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders
of the Preferred Stock of the Corporation shall be insufficient to permit
payment to such holders of Preferred Stock in proportion to the full
distributed ratably per share among the holders of Preferred Stock in
proportion to the full per share amounts to which they respectively are
entitled. Upon any such liquidation, dissolution or winding up of the
corporation, after the holders of Preferred Stock shall have been paid in
full the preferential amounts to which they shall be entitled as provided
herein, the remaining net assets of the corporation shall be distributed
to the holders of Class A Common Stock and Common Stock in accordance with
this Certificate of Incorporation. Written notice of such liquidation,
dissolution or winding up, stating a payment date, the amount of the
Preferred Liquidation Payments to be made pursuant hereto and the place
where said Preferred Liquidation Payments shall be payable shall be given
by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein to the holders of record of the Preferred Stock, such
notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation; provided, however, that failure
to give notice pursuant to this sentence shall not invalidate the action
involved. A Change of Control Event shall not, for purposes of this
paragraph 3, be deemed a liquidation, dissolution or winding up of the
Corporation.
"Series C Preferred Liquidation Value" determined as of any date
shall mean, in respect of each share of Series C Preferred Stock, an
amount equal to $1,000 (appropriately adjusted to reflect stock splits and
combinations and stock dividends, the "Initial Purchase Price") plus an
amount equal to seven percent (7%) of the Initial Purchase Price,
compounded quarterly on each of March 31, June 30, September 30 and
December 31.
4. Conversion of Convertible Preferred Stock.
4A(1) Optional Conversion of Series B Preferred Stock. At any time
on or after the second anniversary of the date on which shares of Series B
Preferred Stock are first issued, subject to and upon compliance with the
provisions of this paragraph 4, the holder of any share or shares of
Series B Preferred Stock shall have the right, at its option, to convert
any such shares of Series B Preferred Stock (except that upon any
liquidation, dissolution or winding up of the Corporation or upon any
redemption of the Series B Preferred Stock in accordance with paragraph 2,
the right of conversion shall terminate at the close of business on the
last full business day next preceding the date fixed for payment of the
amount distributable on series B Preferred Stock or payable with respect
thereto) into such number fully paid and non-assessable whole shares of
Class A Common Stock as is obtained by multiplying the number of shares of
Series B Preferred Stock so to be converted by $1,000 (plus any accrued
and unpaid per share dividends through the time of conversion) and
dividing the result by the greater of (x) $2.00 (such price, or such price
as last adjusted hereunder, the "Series B Base Conversation Price") and
(y) the fair market value per share of Class A Common Stock at the time of
conversion as determined in good faith by the Board of Directors of the
Corporation.
Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Series B Preferred Stock into Class A Common Stock and by
surrender of a certificate or certificates for the shares so to be
converted to the corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of the Series B Preferred Stock) at any
time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with addresses), subject
to compliance with applicable laws to the extent such designation shall
involve a transfer, in which the certificate or certificates for shares of
Class A Common Stock shall be issued.
4A(2) Optional Conversion of Series C Preferred Stock. At any time
on or after the date on which shares of Series C Preferred Stock are first
issued, subject to and upon compliance with the provisions of this
paragraph 4, the holder of any share or shares of Series C Preferred Stock
shall have the right, at its option, to convert any such shares of Series
C Preferred Stock (except that upon any liquidation, dissolution or
winding up of the Corporation or upon any redemption of the Series C
Preferred Stock in accordance with paragraph 2, the right to conversion
shall terminate at the close of business on the last full business day
next preceding the date fixed for payment of the amount distributable on
Series C Preferred Stock or payable with respect thereto) into such number
of fully paid and non-assessable whole shares of Class A Common Stock as
is obtained by multiplying the number of shares of Series C Preferred
Stock so to be converted by the Series C Preferred Liquidation Value (plus
any accrued and unpaid per share dividends through the time of conversion)
and dividing the result by $3.50, or by the conversion price as last
adjusted and in effect at the date any share of shares of Series C
Preferred Stock are surrendered for conversion (such price, or such price
as last adjusted hereunder, the "Series C Conversion Price"). Such rights
of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series C Preferred Stock into Class A Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the
corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holder or holders of the Series C Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address), subject to compliance with
applicable laws to the extent such designation shall involve a transfer,
in which the certificate or certificates for shares of Class A Common
Stock shall be issued.
4B Issuance of Certificate; Time Conversion Effected. Promptly after
the receipt by the Corporation of a written notice referred to in
subparagraph 4A(1) or (2) and surrender of the certificate or certificates
for the share or shares of the Convertible Preferred Stock to be
converted, the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names as such
holder may direct, subject to compliance with applicable laws to the
extent such designation shall involve a transfer, a certificate or
certificates for the number of whole shares of Class A Common Stock
issuable upon the conversion of such share or shares of Convertible
Preferred Stock. To the extent permitted by law, such conversion shall be
deemed to have been effected immediately prior to the close of business on
the date the certificate or
certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or
shares of Convertible Preferred Stock shall cease, and person or persons
in whose name or names any certificate or certificates for shares of Class
A Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby.
4C Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of the Convertible Preferred Stock
into Class A Common Stock. In case the number of shares of Convertible
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 4(A)(1) or (2) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and
deliver to the holder thereof, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Convertible
Preferred Stock, represented by the certificate or certificates
surrendered which are not to be converted. If any fractional interest in a
share of Class A Common Stock would, except for the provisions of the
first sentence of this subparagraph 4C, be deliverable upon any such
conversion, the Corporation, in lieu of delivering the fractional share
thereof, shall pay to the holder surrendering the Convertible Preferred
Stock for conversion an amount in cash equal to the current fair value of
such fractional interest as determined in good faith by the Board of
Directors of the Corporation.
4D Adjustment of Series C Conversion Price Upon Issuance of Common
Stock. Except as provided in subparagraph 4F hereof, if and whenever the
Corporation shall issue or sell, or is in accordance with subparagraphs
4D(1) through 4D(5) deemed to have issued or sold, any shares of its
Common Stock of Class A Common Stock for a consideration per share of its
Common Stock or Class A Common Stock for a consideration per share less
than the Series C Conversion Price in effect immediately prior to the time
of such issue or sale, then, forthwith, the Series C Conversion Price
shall be reduced to the price (calculated to the nearest cent) determined
by dividing (x) an amount equal to the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale
(including as outstanding all shares of Common Stock issuable upon
conversion (i) outstanding Class A Common Stock, Series B Preferred Stock
and Series C Preferred Stock and (ii) the Corporation's Convertible
Promissory Note dated June 1, 1999 issued to Baylor Health Services)
multiplied by the then existing Series C Conversion Price, and (2) the
consideration, if any, received by the Corporation upon such issue or
sale, by (y) the total number of shares of Common Stock outstanding
immediately after such issue or sale (including as outstanding all shares
of Common Stock issuable upon conversion (i) outstanding Class A Common
Stock, Series B Preferred Stock and Series C Preferred Stock and (ii) the
Corporation's Convertible Promissory Note dated June 1, 1999 issued by
Baylor Health Services, without giving effect to any adjustment in the
number of shares so issuable by reason of such issue or sale).
For purposes of this subparagraph 4D, the following subparagraph
4D(1) to 4D(7) shall also be applicable:
4D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock, Class A Common
Stock or any stock or securities convertible into or exchangeable for
Common Stock or Class A Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") whether or not such Options
or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock or
Class A Common Stock, as the case may be, is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in
the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion
or exchange thereto, by (ii) the total maximum number of shares of Common
Stock or Class A Common Stock issuable upon the exercise of such Options
or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Option) shall be less than the Series C
Conversion Price in effect immediately prior to the time of the granting
of such Options, then the total maximum number of shares of Common Stock
of Class A Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to
have been issued for such price per share as of the date of granting of
such Options and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 4E(3), no adjustment of the Series C
Conversion Price shall be made upon the actual issue of such Common Stock
or Class A Common Stock or of such Convertible Securities upon exercise of
such Options or upon the actual issue of such Common Stock or Class A
Common Stock, as the case may be, upon conversion or exchange of such
Convertible Securities.
4D(2) Issuance of Convertible Securities. In case the Corporation
shall in any manner issue (whether directly or by assumption in a merger
or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock or Class A Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock and Class A Common Stock issuable
upon the conversion or exchange of all such Convertible securities) shall
be less than the Series C conversion Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock or Class A Common Stock issuable upon conversion or exchange
of all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 4D(3)
below, no adjustment of the Series C Conversion Price shall be made upon
the actual issue of such Common Stock or Class A Common Stock, as the case
may be, upon conversion or exchange of such Convertible Securities, and
9b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for
which adjustments of the Series C Conversion Price have been or are to be
made pursuant to other provisions of this subparagraph 4D, no further
adjustment of the Series C Conversion Price shall be made by reason of
such issue or sale.
4D(3) Change in Option Price or Conversion Rate. If (i) the purchase
price provided for in any Option referred to in subparagraph 4D(1), (ii)
the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 4D(1)
or 4D(2) or (iii) the rate at which any Convertible Securities referred to
in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for
Common Stock or Class A Common Stock shall change at any time (in each
case other than under or by reason of provisions designed to protect
against dilution), then the Series C Conversion Price in effect at the
time of such event shall, as required, forthwith be readjusted to such
Series C Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initial granted, issued or sold; and on the
expiration of any such Option or the termination of any such right to
convert or exchange such convertible Securities, the Series C Conversion
Price then in effect hereunder shall, as required, forthwith be increased
to the Series C Conversion Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued, and the Common Stock or Class A Common
Stock, as the case may be, issuable thereunder shall not longer be deemed
to be outstanding. If the purchase price provided for in any such Option
referred to in subparagraph 4D(1) or the rate at which any Convertible
Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into
or exchangeable for Common Stock or Class A Common Stock shall be reduced
at any time under or by reason or provisions with respect thereto designed
to protect against dilution, the, in case of the delivery of Common Stock
or Class A Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Securities, the Series C
Conversion Price then in effect hereunder shall, as required, forthwith be
adjusted to such respect amount as would have been obtained had such
Option or Convertible Securities never been issued as to such Common Stock
or Class A Common Stock, as the case may be, and had adjustments been made
upon the issuance of the shares of Common Stock or Class A Common Stock
delivered aforesaid, but only if as a result of such adjustment the Series
C Conversion Price then in effect hereunder is thereby reduced.
4D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Class A Common Stock, Options or Convertible
Securities, and Common Stock, Class A Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold
without consideration, and the Series C Conversion Price shall be reduced
as if the corporation had subdivided its outstanding shares of Common
Stock and Class A Common Stock into a greater number of shares, as
provided in subparagraph 4E hereof.
4D(5) Consideration for Stock. In case any shares of Common Stock,
Class A Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefore shall be deemed to be
the amount received by the Corporation therefore, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concession paid or allowed by the Corporation in connection therewith. In
case any shares of Common Stock, Class A Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the Corporation, such Options shall be deemed
to have been issued without consideration.
4D(6) Treasury Shares. The number of shares of Common Stock and
Class A Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock or Class A Common Stock for the purposes of this subparagraph
4D.
4D(7) Record Date. In case the Corporation shall take a record of
the holders of its Common Stock or Class A Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Class A Common Stock, Options or Convertible Securities, or
(ii) to subscribe for or purchase Common Stock, Class A. Common Stock,
Options or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock or Class
A Common Stock, as the case may be, deemed to have been issued or sold
upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be, provided that such shares of Common Stock or
Class A Common Stock, as the case may be, shall in fact have been issued
or sold.
4E Subdivision or Combination of Stock. In case the Corporation
shall at any time subdivide its outstanding shares of Class A Common Stock
into a greater number of shares or shall declare or pay a dividend on its
outstanding shares of Class A Common Stock payable in shares of Class A
Common Stock, then in each case the Series B Base Conversion Price and the
Series C Base Conversion Price shall be similarly reduced, and conversely,
in case the outstanding shares of Class A Common Stock of the Corporation
shall be combined into a smaller number of shares, the Base Conversion
Price shall be similarly increased.
4F Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Series C Conversion Price upon the occurrence of any
of the following events: (i) the issuance of Class A Common Stock upon
conversion of outstanding shares of Series B Preferred Stock or Series C
Preferred Stock and (ii) the issuance and sale of, or grant of options to
purchase shares of Common Stock or Class A Common Stock to employees and
advisors of the Corporation pursuant to the Corporation's stock option
plan or otherwise approved by the Board of Directors of the Company.
4G Reorganization, Reclassification, Merger of Sale. If any capital
reorganization or reclassification of the capital stock of the corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Class A Common Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Class A Common Stock, then, as a condition of such
reorganization or reclassification, lawful and adequate provision shall be
made whereby each holder of a share or shares of Convertible Preferred
Stock shall thereafter have the right to receive, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of
Class A Common Stock of the Corporation immediately theretofore receivable
upon the conversion of such share or shares of Convertible Preferred
Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares
of such Class A Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such
conversion rights. In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of Class
A Common Stock of the Corporation outstanding immediately prior to such
merger or consolidation, the Series B Base Conversion Price and the Series
C Base Conversion Price shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Class
A Common Stock of the Corporation. The Corporation will not effect any
such consolidation or merger, or any sale of all or substantially all of
its assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to each
holder of shares of Convertible Preferred Stock at the last address of
such holder appearing on the books of the Corporation, the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive.
4H Notice of Adjustment. Upon any adjustment made pursuant to 4C or
4D, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Convertible Preferred Stock at the address of such holder as
shown on the books of the Corporation, which notice shall state the number
of shares of Class A Common Stock or other securities, cash or
property issuable upon conversion of the Convertible Preferred Stock
resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4I Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized but unissued Class A Common
Stock, solely for the purpose of issuance upon the conversion of the
Convertible Preferred Stock as herein provided, such number of shares of
Class A Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Convertible Preferred Stock. All shares of Class A
Common Stock which shall be so issued shall be duly and validly issued and
fully paid and non-assessable and free from all taxes, liens and charges
arising out of or by reason of the issue thereof. The Corporation will
take all such action within its control as may be necessary on its part to
assure that all such shares of Class A Common Stock may be so issued
without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Class A
Common Stock of the Corporation may be listed.
4J No Reissuance of Convertible Preferred Stock. Shares of
Convertible Preferred Stock which are converted into shares of Class A
Common Stock as provided herein shall not be reissued.
4K Issue Tax. The issuance of certificates for shares of Class A
Common Stock upon conversion of the Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
holder of the Convertible Preferred Stock which is being converted.
4L Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Convertible Preferred Stock or
of any shares of Class A Common Stock issued or issuable upon the
conversion of any shares of Convertible Preferred Stock in any manner
which interferes with the timely conversion of such Convertible Preferred
Stock.
4M(1) Definition of Class A Common Stock. As used in this paragraph
4, the term "Class A Common Stock" shall mean and include the
Corporation's authorized Class A Common Stock, $.01 par value, as
constituted on the date of filing of this Certificate of Amendment to the
Certificate of Incorporation and shall also include any capital stock of
any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights
of the holders thereof to participate in dividends or in the distribution
of assets upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; provided that the shares of Class A Common
Stock receivable upon conversion of shares of the Convertible Preferred
Stock, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for
in subparagraphs 4C and 4D, shall include only shares designated as Class
A Common Stock of the
Corporation on the date of filing of this Certificate of Amendment to the
Certificate of Incorporation.
4M(2) Definition of Common Stock. As used in this paragraph 4, the
term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, $.01 par value, as constituted on the date of filing of this
Certificate of Amendment to the Certificate of Incorporation and shall
also include any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a fixed sum or percentage of par
value in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
provided that the shares of Common Stock receivable upon conversion of
shares of the Convertible Preferred Stock, or in case of any
reorganization or reclassification of the outstanding shares thereof, the
stock, securities or assets provided for in subparagraphs 4C and 4D, shall
include only shares designated as Common Stock of the Corporation on the
date of filing of this Certificate of Amendment to the Certificate of
Incorporation.
5. Restrictions. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by this
Certificate of Incorporation, and in addition to any other vote required
by law, without the prior consent of the holders of a majority of the
outstanding Preferred Stock, given in person or by proxy, either in
writing or at a special meeting called for that purpose, at which meeting
the holders of the shares of such Preferred Stock shall vote together as a
class:
(a) The Corporation will not (i) create or authorize the
creation of any additional class or series of shares unless the same ranks
junior to the Preferred Stock as to the distribution of assets upon the
liquidation, dissolution or winding up of the Corporation and as to the
distribution of dividends, (ii) increase the authorized amount of the
Preferred Stock or the authorized amount of any additional class or series
of shares unless the same ranks junior to the Preferred Stock as to the
distribution of assets upon the liquidation, dissolution or winding up of
the Corporation and as to the distribution of dividends, or (iii) create
or authorize any obligation or security convertible into shares of
Preferred Stock or into shares of any other class or series unless the
same ranks junior to the Preferred Stock as to the distribution of assets
upon the liquidation, dissolution or winding up of the Corporation and as
to the distribution of dividends, in each such case whether any such
creation or authorization or increase shall be by means of amendment of
the Certificate of Incorporation, merger, consolidation or otherwise.
(b) The Corporation will not amend, alter or repeal the
Corporation's Certificate of Incorporation or By-laws in any manner, or
file any directors' resolutions pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware containing any provision, in
either case, which adversely affects the respective preferences,
qualifications, special or relative rights or privileges of the Preferred
Stock or which in any manner adversely affects the Preferred Stock or the
holders thereof. In addition, no action shall be taken that would
adversely alter or change the powers, preferences or special rights of one
series of Preferred Stock, but not so affect all of the
Preferred Stock, without the consent of the holders of a majority of the
outstanding stock of such series of Preferred Stock voting separately as a
class.
In addition, no such action shall be taken that would have the
effect of creating any additional differences between the respective
preferences, qualifications, special or relative rights or privileges of
the Series A Preferred Stock, the Series B Preferred Stock and the Series
C Preferred Stock without the consent of the holders of a majority of the
outstanding Series A Preferred Stock, the consent of the holders of a
majority of the outstanding Series B Preferred Stock and the consent of
the holders of a majority of the outstanding Series C Preferred Stock,
voting separately.
(c) The Corporation will not enter into any transaction that
will result in the occurrence of a Change of Control Event.
6. Voting. Except as otherwise required by law or this Certificate
of Incorporation, the holders of Series A Preferred Stock and Series B
Preferred Stock shall have no vote on any matters to be voted on by the
stockholders of the Corporation. Except as otherwise provided by law and
this Certificate of Incorporation, the holders of Series C Preferred Stock
shall vote together with the holders of Common Stock on all matters to be
voted on by the stockholders of the Corporation, and each share of Series
C Preferred Stock shall entitle the holder thereof to such number of votes
per share on each such action as shall equal the number of shares of Class
A Common Stock (including fractions of a share) into which each share of
Series C Preferred Stock is then convertible.
II.
CLASS A COMMON STOCK AND COMMON STOCK
Except as otherwise expressly provided herein, all shares of Common
Stock and Class A Common Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges.
1. Dividends. The holders of shares of Class A Common Stock and
Common Stock, according to the number of shares of Class A Common Stock
and Common Stock then outstanding, shall be entitled to receive such
dividends as from time to time may be declared by the Board of Directors
of the Corporation out of any funds legally available therefor, subject to
the provisions of subdivision I above with respect to the rights of
holders of the Preferred Stock.
2. Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, subject to the prior
rights of the holders of Preferred Stock, the holders of the shares of
Class A Common Stock and Common Stock, according to the number of shares
of Class A Common Stock and Common Stock then outstanding, shall be
entitled to share ratably in all assets of the Corporation available for
distribution to its stockholders; provided, however, (x) that in the event
that the amount available for distribution to the holders of Class A
Common Stock is insufficient to permit the holders of Class A Common Stock
to be paid an amount equal to (1) the original per share purchase price
paid to the Corporation with respect to each such share
of Class A Common Stock plus any accrued but unpaid dividends, or (2) with
respect to those shares of Class A Common Stock outstanding as a result of
the conversion of shares of Series B Preferred Stock, $2.00 per share plus
any accrued but unpaid dividends, or (3) with respect to those shares of
Class A Common Stock outstanding as a result of the conversion of shares
of Series C Preferred Stock, $3.50 per share plus any accrued and unpaid
dividends (such amounts being sometimes referred to as the "Class A
Liquidation Payments"), then the holders of Class A Common Stock shall be
entitled before any distribution or payment is made upon any Common Stock,
to be paid an amount equal to the Class A Liquidation Payments and (y)
that if the assets to be distributed among the holders of the Class A
Common Stock shall be insufficient to permit payment to such holders of
the full amount of the Class A Liquidation Payments, then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Class A Common Stock. Upon any such
liquidation, dissolution or winding up of the Corporation in which the
amount available for distribution to the holders of Class A Common Stock
is insufficient to permit such holders to be paid the full amount of the
Class A Liquidation Payments (as described in clauses (x) and (y) above),
after the holders of Class A Common Stock shall have been paid in full the
preferential amounts to which they shall be entitled as provided herein,
all remaining assets of the Corporation which are available for
distribution to its stockholders shall be distributed ratably among the
holders of Common Stock. Written notice of such liquidation, dissolution
or winding up, stating a payment date, the amount of the Class A
Liquidation Payments and the place where said Class A Liquidation Payments
shall be payable, shall be given by mail, postage prepaid, not less than
30 days prior to the payment date stated therein, to the holders of record
of Class A Common Stock, such notice to be addressed to each such holder
at his post office address as shown by the records of the Corporation;
provided, however, that failure to given notice pursuant to this sentence
shall not invalidate the action involved. A Change of Control Event shall
not, for purposes of this paragraph 2, be deemed a liquidation,
dissolution or winding up of the Corporation.
3. Conversion of Class A Common Stock.
3A Optional Conversion of Class A Common Stock. Subject to and upon
compliance with the provisions of this paragraph 3 and after receiving the
written consent of the holders of the majority of the outstanding shares
of Class A Common Stock ("Conversion Consent"), the holder of any share or
shares of Class A Common Stock shall have the right, at its option, to
convert any such shares of Class A Common Stock (except that upon any
liquidation, dissolution or winding up of the Corporation the right of
conversion shall terminate at the close of business on the last full
business day next preceding the date fixed for payment of the amount
distributable on Class A Common Stock) into an equal number of fully paid
and non-assessable whole shares of Common Stock. Such rights of conversion
shall be exercised by the holder thereof by giving written notice (which
notice shall attach the Conversion Consent) that the holder elects to
convert a stated number of shares of Class A Common Stock into Common
Stock and by surrender of a certificate or certificates for the shares so
to be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holder or holders of the Class A
Common Stock) at any time during its usual business hours on the date set
forth in such notice, together with a statement of the name or names (with
address), subject to compliance with applicable laws to the extent such
designation shall involve a transfer, in which the certificate or
certificates for shares of Common Stock shall be issued.
3B Automatic Conversion of Class A Common Stock. Notwithstanding
anything else herein to the contrary in this Section 3, in the event that,
at any time while any of the Class A Common Stock shall be outstanding,
(i) the Corporation shall complete a firm commitment underwritten public
offering of Common Stock registered under the Securities Act of 1933, as
amended, in which (x) the aggregate price paid for such shares by the
public shall be at least $30,000,000 and (y) the price per share paid by
the public for such shares shall be at least $6 per share (appropriately
adjusted to reflect stock splits and combinations and stock dividends) (a
"Qualified Offering") or (ii) a majority of the issued shares of Class A
Common Stock shall have been converted into Common Stock, then all
outstanding shares of Class A Common Stock shall be automatically and
without further action on the part of the holders of the Class A Common
Stock converted into shares of Common Stock in accordance with the terms
of subsection 3A hereof with the same effect as if the certificates
evidencing such shares had been surrendered for conversion, such
conversion to be effective immediately prior to the closing of such
Qualified Offering or immediately prior to the conversion of Class A
Common Stock satisfying clause (ii) above, as the case may be; provided,
however, that certificates evidencing the shares of Common Stock issuable
upon such conversion shall not be issued except on surrender of the
certificates for the shares of the Class A Common Stock so converted.
3C Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Class A Common Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Class A Common Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected immediately prior to the
close of business on the day the certificate or certificates for such
share or shares shall have been surrendered as aforesaid, and at such time
the rights of the holder of such share or shares of Class A Common Stock
shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders
of record of the shares represented thereby.
3D Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of the Class A Common Stock into
Common Stock, nor shall any payment or adjustment be made upon any
conversion on account of any cash dividends on the Class A Common Stock so
converted or the Common Stock issued upon such conversion. In case the
number of shares of Class A Common Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 3A exceeds the
number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder thereof, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Class A Common Stock, represented by the certificate or certificates
surrendered which are not to be converted. If any fractional interest in a
share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 3D, be deliverable upon any such conversion,
the Corporation, in lieu of delivering the fractional share thereof, shall
pay to the holder surrendering the Class A Common Stock for conversion an
amount in cash equal to the current fair value of such fractional interest
as determined in good faith by the Board of Directors of the Corporation.
3E Subdivision or Combination of Stock. In case the Corporation
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, then
in each case the Class A Common Stock shall be similarly subdivided, and
conversely, in case the Class A Common Stock shall be similarly
subdivided, and conversely, in case the outstanding shares of Common Stock
of the Corporation shall be combined into a smaller number of shares, the
Class A Common Stock shall be similarly combined.
3F Reorganization, Reclassification, Merger of Sale. If any capital
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provision (in form satisfactory to
the holders of at least a majority of the outstanding shares of Class A
Common Stock) shall be made whereby each holder of a share or shares of
Class A Common Stock shall thereafter have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such share or shares of Class A Common
Stock, such shares of stick, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such
conversion rights. In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of
Common Stock of the Corporation outstanding immediately prior to such
merger or consolidation, the number of shares of Common Stock in which
Class A Common Stock may be converted shall be adjusted in the same manner
as though there were a subdivision or combination of the outstanding
shares of Common Stock of the Corporation. The Corporation will not effect
any such consolidation or merger, or any sale of all or substantially all
its assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least a majority of the shares of Class A Common Stock at
the time outstanding) executed and mailed or delivered to each holder of
shares of Class A Common Stock at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stick, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive.
3G Notice of Adjustment. Upon any adjustment made pursuant to 3E or
3F, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Class A Common Stock at the address of such holder as shown on
the books of the Corporation, which notice shall state the number of
shares of Common Stock or other securities, cash or property issuable upon
conversion of the Class A Common Stock resulting from such adjustment,
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
3H Stock to be Reserved. The Corporation will at times reserve and
keep available out of its authorized but unissued Common Stock, solely for
the purpose of issuance upon the conversion of the Class A Common Stock as
herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Class A Common
Stock. All shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and non-assessable and free from all
taxes, liens and charges arising out of or by reason of the issue thereof.
The Corporation will take all such action within its control as may be
necessary on its part to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or regulation, or of
any requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed.
3I No Reissuance of Class A Common Stock. Shares of Class A Common
Stock which are converted into shares of Common Stock as provided herein
shall not be reissued.
3J Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of the Class A Common Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Class A Common Stock which is being converted.
3K Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Class A Common Stock or of any
shares of Common Stock issued or issuable upon the conversion of any
shares of Class A Common Stock in any manner which interferes with the
timely conversion of such Class A Common Stock.
3L Definition of Common Stock. As used in this paragraph 3, the term
"Common Stock" shall mean and include the Corporation's authorized Common
Stock,
$.01 par value, as constituted on the date of filing of this Certificate
of Amendment to the Certificate of Incorporation and shall also include
any capital stock of any class of the Corporation thereafter authorized
which shall not be limited to a fixed sum or percentage of par value in
respect of the rights of the holders thereof to participate in dividends
or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that
the shares of Common Stock receivable upon conversion of shares of the
Class A Common Stock, or in case of any reorganization or reclassification
of the outstanding shares thereof, the stock, securities or assets
provided for in subparagraphs 3E or 3F, shall include only shares
designated as Common Stock of the Corporation on the date of filing of
this Certificate of Amendment to the Certificate of Incorporation.
4. Voting. Except as otherwise required by law or this Certificate
of Incorporation, the holders of the Class A Common Stock and the holders
of Common Stock shall be entitled to notice of any stockholders meeting in
accordance with the By-laws of the Corporation and to vote together as a
class upon any matter submitted to the stockholders for a vote as follows:
(x) each holder of Class A Common Stock shall be entitled to 10 votes for
each share of Common Stock which would be issuable to such holder upon the
conversion of all the shares of Class A Common Stock so held on the record
date for the determination of stockholders entitled to vote and (ii) each
holder of Common Stock shall have one vote per share."
SECOND: that the Amendment of the Certificate of Incorporation
effected by this Certificate was duly authorized by the stockholders of
the Corporation, after first having been declared advisable by the Board
of Directors of the Corporation, all in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: that the capital of the Corporation will not be reduced
under, or by reason of, the foregoing amendments to the Certificate of
Incorporation of the Corporation.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/01/2000
01279037 - 2865387
IN WITNESS WHEREOF, this Certificate of Amendment has been executed
by the Corporation this 31st day of May, 2000.
UNITED SURGICAL PARTNERS
INTERNATIONAL, INC.
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
ANNEX I -PURCHASERS
Welsh, Xxxxxx Xxxxxxxx
& Xxxxx VII, LP.
WCAS Healthcare Partners, LP.
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx H, Xxxxx
Xxxxxx M. Xxxx
Xxxxxx X. Xxxxxxxxx
Xxxxx XxxXxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxx xxXxxxxx
Xxxxxxx X. Xxxxxx
Xxxx X. Xxxxxxx
D. Xxxxx Xxxxxxx
Xxxxxx Xxxxxx
Xxxxxx Xxxxx
Xxxxxxxx Rather
Xxxx Xxxxxxx
c/o Welsh, Carson, Xxxxxxxx
& Xxxxx
000 Xxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000-0000
Facsimile: 000-000-0000
with a copy to:
Reboul, MacMurray, Xxxxxx, Xxxxxxx & Kristol
00 Xxxxxxxxxxx Xxxxx
XxxXxxx, XX 00000 Facsimile: 000-000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
2. FFT Partners
FFT Partners I, L.P.
FFT Executive Partners I, L.P.
c/o Ferrer Xxxxxxx Xxxxxxxx & Co.
00 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Facsimile: 203-532-8016
ANNEX II
SHARES PURCHASED
Number of
Series C
Purchaser Preferred Shares Cash Purchase Price
--------- ---------------- -------------------
Welsh, Carson, Xxxxxxxx & 14,107 14,107,000
Xxxxx VII, L.P.
WCAS Healthcare Partners, L.P. 210 210,000
Xxxxxxx X. Xxxxx 170 170,000
Xxxxxxx X. Xxxxxx 170 170,000
Xxxxx X. Xxxxxxxx 170 170,000
Xxxxxxx X. Xxxxx 30 30,000
Xxxxxx X. Xxxx 30 30,000
Xxxxxx X. Xxxxxxxxx 89 89,000
Xxxxx XxxXxxxx 4 4,000
Xxxxxx X. Xxxxxxxxx 30 30,000
Xxxxxxx xxXxxxxx 11 11,000
Xxxx X. Xxxxxxx 23 23,000
Xxxxxxx X. Xxxxxx 5 5,000
D. Xxxxx Xxxxxxx 6 6,000
Xxxxxx Xxxxxx 23 23,000
Xxxxxx Xxxxx 5 5,000
Xxxxxxxx Rather 5 5,000
Xxxx Xxxxxxx 2 2,000
FFT Partners I, L.P.
FFT Executive Partners I, L.P.
TOTAL: 15,000 $15,000,000
SCHEDULE 2.01(b)
None.
SCHEDULE 2.04(a)
United Surgical Partners International, Inc.
Ownership of Class A Common Shares
December 31, 1999
-------------------------------------------------------------------------
Total Shares Outstanding at 12/31/99
-------------------------------------------------------------------------
Value Common Stock
Class A ----------------------------------------------------------
Common Shares @ $2/Share @ $3.5/Share @ $4.00/Share Total %
-----------------------------------------------------------------------------------
Welsh, Xxxxxx Xxxxxxxx & Xxxxx VII, L.P. 15,813,272 18,799,560.00 22,447,222.00 -- 41,246,782.00 72.39%
WCAS Healthcare Partners, L.P. 236,347 280,980.00 335,499.50 -- 616,479.50 1.08%
Xxxxxxx X. Xxxxx 192,792 229,200.00 273,672.00 -- 502,872.00 0.88%
Xxxxxxx X. Xxxxxx 192,792 229,200.00 273,672.00 -- 502,872.00 0.88%
Xxxxx X. Xxxxxxxx 192,792 229,200.00 273,672.00 -- 502,872.00 0.88%
Xxxxxxx X. Xxxxx 33,766 40,142.00 47,932.50 -- 88,074.50 0.15%
Xxxxxx X. Xxxx 33,766 40,142.00 47,932.50 -- 88,074.50 0.15%
Xxxxxx X. Xxxxxxxxx 101,293 120,422.00 143,787 00 -- 264,209.00 0.46%
Xxxxx XxxXxxxx 1,689 2,008.00 2,397.50 -- 4,405.50 0.01%
Xxxxxx X. Xxxxxxxxx 33,766 40,142.00 47932.50 -- 88,074.50 0.15%
Xxxxxxx xxXxxxxx 11,817 14,048.00 16,775.50 -- 30,823.50 0.05%
Xxxxxxx X. Xxxxxx 5,064 6,020.00 7,189.00 -- 13,209.00 0.02%
Xxxx X. Oueally 25,999 30,908.00 36,907.50 -- 67,815 50 0.12%
D, Xxxxx Xxxxxxx 6,753 8,028 00 9,586.50 -- 17,614.50 0.03%
Xxxxxxx Xxxxxx/Xxxxxx Xxxxxx (10/26) 25,234 30,000.00 35,81900 -- 65,819 00 0.12%
Xxxxxx X. Xxxxx 1,089,000 1,750,000.00 749,000.00 -- 2,499,000.00 4.99%
Xxx Xxxxxxx 260,000 500,000.00 35,000.00 -- 535,000.00 1.19%
Xxxxxx Xxxxx 55,000 100,000.00 17,500.00 -- 117,500.00 0.25%
Xxxxxxx Xxxxx 115,000 200,000.00 52,500.00 -- 252,500.00 0.53%
Su Xxx Xxxxxx 50,000 100,000.00 -- -- 100,000.00 0.23%
Xxxxx XxXxxxxx 107,500 200,000.00 26,250.00 -- 226,250.00 0.49%
M. Xxxxxx Xxxxx Trust U/A DTD 8/31/90 20.000 40,000.00 -- -- 40,000.00 0.09%
Calver Fund, Inc. 40,000 80,000.00 -- -- 80,000.00 0.18%
Xxxxx Xxx Xxxxxx 40,000 80,000.00 -- -- 80,000.00 0.18%
NGKE / USPI Partners 40,000 80,000.00 -- -- 80,000 00 0.18%
L&W Co. 20,000 40,000 00 -- -- 40,000 00 0.09%
Xxxxxx Xxxxxxxxxx 30,000 60,000.00 -- -- 60,000.00 0.14%
Xxxxxxx Xxxxxx 278,000 40,000.00 903,000.00 -- 943,000.00 1.27%
Xxxx Xxxxxxx 40,000 80,000 00 -- -- 80,000.00 0.18%
Rivid LLC 30,000 60,000.00 -- -- 60,000 00 0.14%
CGJR II, L.P. 25,500 51,000.00 -- -- 51,000.00 0.12%
R / MF III, L.P. 14,500 29,000.00 -- -- 29,000.00 0.07%
Xxxxxxx XxXxxxxx 20,000 40,000.00 -- -- 40,000.00 0.09%
Xxxxx Xxxxxx 20,000 40,000.00 -- -- 40,000.00 0.09%
Xxxxxxxx Xxxxxx 10,000 20,000.00 -- -- 20,000 00 0.05%
Xxxxx Xxxxxx 10,000 20,000.00 -- -- 20,000 00 0.05%
Xxxxxxx X. Xxxxxxxx & Xxxx
X. Xxxxxxxx, as t 10,000 20,000.00 -- -- 20,000.00 0.05%
Xxx X. Xxxxx 10,000 20,000.00 -- -- 20,000.00 0.05%
Xxxxxx X. Xxxxxxx 473,581 947,162.00 -- -- 947,162.00 2.17%
Xxxxxxx X. Xxxxxx 327,031 654,062.00 -- -- 654 062 00 1.50%
Xxxxxxx X. Xxxxxxxx 85,587 131,174.00 70,000.00 -- 201,174.00 0.39%
Xxxxx X. Xxxxxxx 2,677 5,354.00 -- -- 5,354.00 0.01%
Xxxxxxx Xxxxxx 14,261 28,522.00 -- -- 2852200 0.07%
Xxxxx Xxx 16,298 32,596.00 -- -- 32,596.00 0.07%
Xxxxxx Xxxxxxxxxx 7,138 14,276.00 -- -- 14,276.00 0.03%
Health Care Capital Partners, L.P. 1,646,177 -- 5,761,619.50 -- 5,761,619.50 7.54%
Health Care Executive Partners, L.P. 68,109 -- 238,381.50 -- 238,381.50 0.31%
Xxxxx Xxxxxx 5,000 -- 17,500.00 -- 17,500.00 0.02%
Xxxxxx Xxxxxx 17,143 -- 60,000.50 -- 60,000.50 0.08%
Xxxxx Xxxxxxxx 17,143 -- 60,000.50 -- 60,000 50 0.08%
Xxxx Xxxxxxxx 8,571 -- 29,998.50 -- 29,998.50 0.04%
Xxx X'Xxxxxxxx 8,571 -- 29,998.50 -- 29,998.50 0.04%
W. Xxxxx Xxxxxxx, M.D. 7,500 -- -- 30,000.00 30,000.00 0.03%
Xxxxx X. Xxxxxxx, M.D. 15,000 -- -- 60,000.00 60,000.00 0.07%
Xxxxx Xxx Xxxxxxx, M.D. 25,000 -- -- 100,000.00 100,000.00 0.11%
Xxxxx Xxxxxx repurchase (5,000) -- (17,500.00) -- (17,500.00) -0.02%
Xxxxxx X. Xxxxx cancellation of Cert. 31 -- -- -- -- -- 0.00%
Marcus Xxxxxxx Xxxxx Trust -- -- -- -- -- 0.00%
Xxxxxxxx Xxx Xxxxx Trust -- -- -- -- -- 0.00%
Xxxxxx X. Xxxxx -- -- -- -- -- 0.00%
X. XxXxxxxx repurchase -Cert #36 (75,000) (150,000.00) -- -- (150,000.00) -0.34%
X. XxXxxxxx repurchase -Cert #83 (25,000) (50,000.00) -- -- (50,000.00) -0.11%
X. XxXxxxxx repurchase -Cert #112 (5,509) -- (19,281 50) -- (19,281.50) -0.03%
X. XxXxxxxx repurchase -Cert #142 (1,991) -- (6,968.50) -- (6,968.50) -0.01%
X. Xxxxxx repurchase -Cert# 35 (37,500) (75,000.00) -- (75,000.00) -0.17%
X. XxXxxx repurchase -Cert #84 (12 500) (25 000.00) -- (25,000.00) -0.06%
Xxxxxxx X. Xxxxxxxxxxx 21,428 -- 74,998.00 -- 74,998.00 0.10%
---------- ------------- ------------- ---------- -------------
21,845,357 25,263,146.00 32,081,994.00 190,000.00 57,535,140.00 100.00%
United Surgical Partners International, Inc.
Ownership of Series A Preferred Shares
Certificate Series A Funded 7/98 Series A Funded 9/98
Number Preferred Shares @ $1,000/Share Preferred Shares @ $1,000/Share
------ ---------------- -------------- ---------------- --------------
Welsh, Xxxxxx Xxxxxxxx & Xxxxx VII, L.P. 4,722 $4,722,000
WCAS Healthcare Partners, L.P. 71 71,000
Xxxxxxx X. Xxxxx 57 57,000
Xxxxxxx X. Xxxxxx 57 57,000
Xxxxx X. Xxxxxxxx 57 57,000
Xxxxxxx X. Xxxxx 10 10,000
Xxxxxx X. Xxxx 10 10,000
Xxxxxx X. XxXxxxxxx 30 30,000
Xxxxx XxxXxxxx 2 2,000
Xxxxxx X. Xxxxxxxxx 10 10,000
Xxxxxxx xxXxxxxx 4 4,000
Xxxxxxx X. Xxxxxx 2 2,000
Xxxx X. Xxxxxxx 8 8,000
D. Xxxxx Xxxxxxx 2 2,000
Xxxxxxx Xxxxxx 8 8,000
M. Xxxxxx Xxxxx Trust U/A DTD 8/31/90 60 60,000
Calver Fund, Inc. 120 120,000
Xxxxx Xxx Xxxxxx 120 120,000
NGKE / USPI Partners 120 120,000
L&W Co. 60 60,000
Xxxxxx Xxxxxxxxxx 90 90,000
Xxxxxxx Xxxxxx 60 60,000
Xxxx Xxxxxxx 120 120,000
Rivid LLC 90 90,000
CGJR II, L.P. 77 77,000
CGJR / MF III, L.P. 43 43,000
Xxxxxxx XxXxxxxx 60 60,000
Xxxxx Xxxxxx 60 60,000
Xxxxxxxx Xxxxxx 30 30,000
Xxxxx Xxxxxx 30 30,000
Xxxxxxx X. Xxxxxxxx & Xxxx X.
Xxxxxxxx, as tenants in common 30 30,000
Xxx X. Xxxxx 30 30,000
---------------- ------------- ---------------- --------------
1,200 $1,200,000 5,050 $5,050,000
---------------------------------
TOTAL SHARES OUTSTANDING
---------------------------------
Series A Funded 10/98 Series A
Preferred Shares $1,000/Share Preferred Shares @ $1,000/Share
---------------- ------------- ---------------- --------------
Welsh, Xxxxxx Xxxxxxxx & Xxxxx VII, L.P. 23,328 $23,328,000 28,050 $28,050,000
WCAS Healthcare Partners, L.P. 351 351,000 422 422,000
Xxxxxxx X. Xxxxx 282 282,000 339 339,000
Xxxxxxx X. Xxxxxx 282 282,000 339 339,000
Xxxxx X. Xxxxxxxx 282 282,000 339 339,000
Xxxxxxx X. Xxxxx 49 49,000 59 59,000
Xxxxxx X. Xxxx 49 49,000 59 59,000
Xxxxxx X. XxXxxxxxx 148 148,000 178 178,000
Xxxxx XxxXxxxx 10 10,000 12 12,000
Xxxxxx X. Xxxxxxxxx 49 49,000 59 59,000
Xxxxxxx xxXxxxxx 20 20,000 24 24,000
Xxxxxxx X. Xxxxxx 10 10,000 12 12,000
Xxxx X. Xxxxxxx 40 40,000 48 48,000
D. Xxxxx Xxxxxxx 10 10,000 12 12,000
Xxxxxxx Xxxxxx 40 40,000 48 48,000
M. Xxxxxx Xxxxx Trust U/A DTD 8/31/90 60 60,000
Calver Fund, Inc. 120 120,000
Xxxxx Xxx Xxxxxx 120 120,000
NGKE / USPI Partners 120 120,000
L&W Co. 60 60,000
Xxxxxx Xxxxxxxxxx 90 90,000
Xxxxxxx Xxxxxx 60 60,000
Xxxx Xxxxxxx 120 120,000
Rivid LLC 90 90,000
CGJR II, L.P. 77 77,000
CGJR / MF III, L.P. 43 43,000
Xxxxxxx XxXxxxxx 60 60,000
Xxxxx Xxxxxx 60 60,000
Xxxxxxxx Xxxxxx 30 30,000
Xxxxx Xxxxxx 30 30,000
Xxxxxxx X. Xxxxxxxx & Xxxx X.
Xxxxxxxx, as tenants in common 30 30,000
Xxx X. Xxxxx 30 30,000
---------------- ------------- ---------------- ------------
24,950 $24,950,000 31,200 $31,200,000
United Surgical Partners International, Inc.
Ownership of Common Stock
------------------------------------------------------------
Total Shares Outstanding at 02/29/00
------------------------------------------------------------
Value Common Stock
------------------------------------------------------------
Common @ $3.5/ @ $4.00/
Shares Share Share Total %
------------------------------------------------------------
Xxxx X. Xxxxxx 10,000 35,000.00 0.00 35,000.00 7.93%
Xxxxxx Xxxx 28,571 99,998.50 0.00 99,998.50 22.66%
XxXxx Xxxxx 17,142 59,997.00 0.00 59,997.00 13.60%
Xxxx Xxxxxxx 3,571 12,498.50 0.00 12,498.50 2.83%
Xxxx Xxxx, III (A) 14,286 50,001.00 0.00 50,001.00 11.33%
Xxxxxxxx Xxxxx 6,250 0.00 25,000.00 25,000.00 4.96%
Xxxxx Xxxxxxx 25,000 0.00 100,000.00 100,000.00 19.83%
Xxx Xxxxxxxx 2,500 0.00 10,000.00 10,000.00 1.98%
Xxxxxx Chick 12,500 0.00 50,000.00 50,000.00 9.92%
Xxxxx Xxxxx 3,750 0.00 15,000.00 15,000.00 2.97%
Xxxxx Xxxxxxx 2,500 0.00 10,000.00 10,000.00 1.98%
------- ---------- ---------- ---------- -------
126,070 257,495.00 210,000.00 467,495.00 100.00%
(A)
United Surgical Partners International, Inc.
Ownership of Series B Preferred Shares
---------------------------------
TOTAL SHARES OUTSTANDING
---------------------------------
As of 2/29/00
---------------------------------
Certificate Series B Issued 7/31/98 Series B
Number Preferred Shares @ $1,000/Share Preferred Shares @ $1,000/Share
------ ---------------- -------------- ---------------- --------------
Xxxxxx X. Xxxxxxx 1 1,420 1,420,000 1,420 $1,420,000
Xxxxxxx X. Xxxxxx 2 981 981,000 981 $981,000
Xxxxxxx X. Xxxxxxxx 3 196 196,000 196 $198,000
Xxxxx X. Xxxxxxx 5 8 8,000 8 $8,000
Xxxxxxx Xxxxxx 6 42 42,000 42 $42,000
Xxxxx Xxx 8 48 48,000 48 $48,000
Xxxxxx Xxxxxxxxxx 9 21 21,000 21 $21,000
---------------- -------------- ---------------- --------------
2,716 $2,716,000 2,716 2,716,000
SCHEDULE 2.04(b)
Rights, Warrants, Options, Etc.
1. The Company's Board of Directors and stockholders have adopted the
Stock Option Plan, which authorizes the grant of stock options covering up to
4,250,000 shares of Common Stock There are presently outstanding under the Stock
Option Plan stock options covering a total of 2,743,300 shares of Common Stock
at option prices ranging from $2.00 per share to $5.00 per share.
2. Pursuant to the Certificate of Amendment to the Company's Certificate
of Incorporation filed on July 30, 1998 in connection with the merger of Health
Horizons, Inc into the Company, the Company...is required to redeem any or all
outstanding shares of its Series B Convertible Preferred Stock at the request of
the respective holders of such shares given at any time on or after July 31,
2000. The redemption price will be $1,000 per share plus accrued but unpaid
dividends.
3. The Company's outstanding shares of Series B Convertible Preferred
Stock are convertible into Class A Common Stock at the election of the
respective holders of such shares at any time on or after July 31, 2000 at a
conversion price for the Class A Common Stock equal to the greater of $2.00 per
share or the fair market value per share (as determined in good faith by the
Company's Board of Directors) at the time of conversion.
4. Under the Company's Asset Purchase Agreement with HealthFirst
Management, L.L.C., the sellers in that transaction have the option to require
the Company to make up to 20% of any "earn-out" payments that the Company is
obligated to pay under said Agreement in shares of the Company's Class A Common
Stock, valued at the greater of $4.00 per share or the fair market value per
share of such stock at the time that payment is due. Since the maximum total
earn-out payments are approximately $2,000,000, the maximum number of the shares
that the Company can be required to issue pursuant to this provision is
approximately 100,000 ($2,000,000 x 20% divided by $4.00).
5. On June 1, 1999, the Company issued its $3,287,234 Convertible
Subordinated Promissory Note to Baylor Health Services ("Baylor"). This Note is
convertible into Class A Common Stock at a conversion price of $3.50 per share.
Under the Contribution and Purchase Agreement, dated May 11, 1999, with Baylor,
the Company could become obligated to issue up to $2,601,232 of additional
Convertible Subordinated Promissory Notes to Baylor.
6. In connection with the Company's $25,000,000 Revolving Credit Agreement
with Chase Bank of Texas, and in consideration for the guaranty of such
indebtedness provided by WCAS VII, the Company issued its Stock Purchase
Warrant, dated June 18, 1999, entitling WCAS VII to purchase up to a maximum of
800,000 shares of Class A Common Stock at a price of $.01 per share at any time
on or prior to June 18, 2009.
7. In connection with the Company's acquisition of the stock of Texas
Outpatient Surgicare Center, Inc. (the General Partner of TOPS Specialty
Hospital, Ltd.), the Company issued a Common Stock Purchase Warrant, dated as of
July 1, 1999, entitling Giasurg, LLP to purchase up to a maximum of 100,000
shares of the Company's Common Stock at a price of
$4.00 per share at any time prior to July 1, 2004, subject to earlier
termination if Giasurg, LLP or any of its affiliates breaches the noncompetition
covenant included in the Common Stock Purchase Warrant.
SCHEDULE 2.05
Governmental Approvals
1. If the Purchasers exercise their rights pursuant to Section 4 of the
Amended and Restated Registration Rights Agreement to require the Company to
register any portion of their Company shares, the Company will be required to
make filings under applicable federal and state securities laws in order to
perform its obligations.
2. The Company may file an SEC Form D following the Closing.
SCHEDULE 2.06
Financial Statements
1. Audited 1998 financial statements
2. Unaudited 1999 financial statements
Schedule 2.06
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998
With Independent Auditors' Report Thereon
Independent Auditors' Report
The Board of Directors
United Surgical Partners International. Inc.:
We have audited the accompanying consolidated balance sheet of United Surgical
Partners International. Inc. and subsidiaries as of December 3 1, 1998, and the
related consolidated Statements of operations and comprehensive income (loss),
stockholders' equity, and cash flows for the period from February 27, 1998
(inception) through December 31, 1998. These consolidated financial statements
are the responsibility of Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Surgical
Partners International, Inc. and subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for the period from February
27, 1998 (inception) through December 31. 1998 in conformity with generally
accepted accounting principles.
April 29, 1999, except as to Note 15
which is as of September 1, 1999
See accompanying notes consolidated financial statements
1
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998
Assets
Cash and cash equivalents $ 4,964,751
Restricted cash (note 14) 13,100,000
Short-term investments 2,782,000
Patient receivables, net of allowance for doubtful
accounts of $l,430,824 8,502,544
Other receivables 1,343,365
Short-term notes receivable 902,828
Inventories of supplies 1,464,461
Prepaids and other current assets 520,.417
-------------
Total current assets 33,580,366
-------------
Property and equipment, net (note 4) 40,581,311
Investments in affiliates (note 2) 3,155,826
Intangible assets, net of accumulated amortization
of $385,32l (note 3) 45,574,241
Other long-term investments 1,221,000
Other assets, net of accumulated amortization of $298.438 679,658
-------------
Total assets $ 124,792,402
-------------
Liabilities and Stockholders' Equity
Accounts payable 7,068,460
Accrued salaries and benefits 842,784
Current portion of long-term debt (note 6) 4,437,107
Other accrued expenses 2,695,444
Deferred tax liability, net 47,000
-------------
Total current liabilities $ 15,090,795
-------------
Long-term debt, less current portion (note 6) 7,238,189
Other long-term liabilities 3,576,970
Deferred tax liability, net 3,439,888
-------------
Total liabilities 29,346,042
Minority interests (note 2) 8,999,050
Redeemable preferred stock (note 7):
Series A, $0.01 par value per share:
31,200 shares authorized, issued and outstanding 11,571,465
Series B, $0.01 par value per share:
2,716 shares authorized, issued and outstanding 2,772,585
Commitments and contingencies (note 14)
Stockholders' equity:
Common stock (note 8)
C1ass A shares, $0.01 par value:
30,000,000 shares authorized:
21,938,929 shares issued and outstanding 219,189
Other, $0.01 par value; 40,000,000 shares
authorized; none issued --
Additional paid in capital 56,966,454
Notes receivable from employees (note 5) (1,050,000)
Accumulated other comprehensive loss, net of tax (104,285)
Accumulated deficit (3,928,298)
-------------
Total stockholders; equity 2,103,260
-------------
Total liabilities and stockholders' equity $ 124,792,402
=============
See accompanying notes consolidated financial statements
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations and Comprehensive Income (Loss)
Period from February 27, 1998 (inception) through December 31, 1998
Revenue:
Net patient service revenue $ 19,116,092
Equity in loss of unconsolidated affiliates (39,822)
Management services revenue 223,011
Other income 1,272,790
------------
Total revenue 20,572,071
------------
Expenses:
Salaries, benefits and other employee costs 10,020,124
Supplies 3,675,890
Medical services 3,929,676
Other operating expenses 2,893,838
Provision for doubtful accounts 235,725
General and administrative 2,032,413
Depreciation and amortization 2,015,123
------------
Total operating expenses 24,802,789
------------
Operating loss (4,230,718)
Non-operating income (loss):
Minority interest in loss of consolidated subsidiaries 23,030
Interest income 721,530
Interest expense (496,874)
Other (246,378)
Total non-operating income 1,308
------------
Loss before income taxes (4,229,410)
Income tax benefit (note II) 301,112
------------
Net loss (3,928,298)
Other comprehensive loss. before tax:
Foreign currency translation adjustments (160,438)
Income tax benefit related to other comprehensive loss 56,153
------------
Comprehensive loss $ (4,032,583)
============
See accompanying notes consolidated financial statements
UNITED SURGICAL PARTNERS INTERNALTION, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Period From February 27, 1998 (inception) through December 31, 1998
Common Stock
------------------------ Note Accumulated
Additional Receivable Other
Paid-in From Comprehensive Accumulated
Shares Par Value Capital Employees Income Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, February 27, 1998 (inception) -- $ -- -- -- -- -- --
Issuance of common stock 21,938,929 219,389 57,394,504 (1,050,000) -- -- 56,653,893
Accrued Dividends on preferred stock -- -- (428,050) -- -- -- (428,050)
Net loss -- -- -- -- -- (3,928,298) (3,928,298)
Foreign currency translation -- -- -- -- (104,285) -- (104,285)
adjustments
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 21,938,929 $ 219,389 56,966,454 (1,050,000) (104,285) (3,928,298) 52,103,260
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Period from February 27, 1998 (inception) through December 31, 1998
Cash flows from operating activities:
Net loss $ (3,928,298)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for doubtful accounts 235,725
Depreciation and amortization 2,015,123
Deferred income taxes (301,112)
Equity in loss of affiliates 39,822
Minority interest in loss of consolidated subsidiaries (23,030)
Increases (decreases) in cash from changes in operating
assets and liabilities, net of effects from purchases of new businesses:
Patient receivables 118,590
Other receivables (1.036.3(17) (1,046,467)
Inventories of supplies. prepaids and other assets 603,553
Accounts payable and accrued expenses 1,001,133 1,001,133
Other long-term liabilities 1,906,083
------------
Net cash provided by operating activities 621,122
------------
Cash flows from investing activities:
Purchase of new businesses, net of cash received (66,216,330)
Purchases of property and equipment (3,948,751)
Proceeds from sale of investments 424,659
Cash placed in escrow (13,100,000)
------------
Net cash used in investing activities (82,840,422)
------------
Cash flows from financing activities:
Proceeds from long-term debt 1,493,337
Payments on long-term debt (245,673)
Proceeds from issuance of common stock 54,750,747
Proceeds from issuance of redeemable preferred stock 31,200,000
Distribution on investments in affiliates (50,000)
------------
Net cash provided by financing activities 87,148,411
------------
Effects of exchange rate changes on cash 35,640
------------
Net increase in cash and cash equivalents 4,964,761
Cash and cash equivalents at February 27, 1998 (inception) --
Cash and cash equivalents at end of period $ 4,964,761
Supplemental information:
Interest paid $ 473,046
============
Non-cash transactions:
Sale of common stock for notes redeliverable from employees $ 1,050,000
============
Common stock issued for purchases of new business $ 1,813,146
============
Preferred stock issued for purchase of new business $ 2,716,000
============
Accrued dividends on preferred stock $ 428,050
============
See accompanying notes consolidated financial statements
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
United Surgical Partners International, Inc. and subsidiaries (USPI
or the Company), a Delaware Company was formed in February 1998 for
the main purpose of ownership and operation of hospitals, outpatient
surgical centers and related businesses in the United States and
Europe. At December 31, 1998, USPI, headquartered in Dallas, Texas,
operated eleven surgical centers in the United States. Of these
eleven centers, USPI consolidates the results of two and owns a
minority equity interest in six which are accounted for under the
equity method and holds no ownership interest in the remaining three
centers which are operated by USPI under management contracts. In
addition United Surgical Partners Europe, S.L. (USPE), a company
incorporated in Spain and majority-owned by USPI, managed and owned
a majority interest in four hospitals in Spain at December 31, 1998.
The Company is subject to changes in government legislation that
could impact Medicare. Medicaid and foreign government reimbursement
levels and is also subject to increased levels of managed care
penetration and changes in payor patterns that may impact the level
and timing of payments for services rendered.
The Company maintains its books and records on the accrual basis of
accounting.
(b) Translation of Foreign Currencies
The financial statements of USPE are measured in local currency and
then translated into U.S. dollars. All assets and liabilities have
been translated using the current rate of exchange at the balance
sheet date. Results of operations have been translated using the
average rates prevailing throughout the year. Translation gains or
losses resulting from the changes in the exchange rates are
accumulated in a separate component of stockholders' equity.
(c) Principles of Consolidation
The consolidated financial statements include the financial
statements of USPI and its wholly-owned and majority-owned
subsidiaries. Significant investments in other affiliated companies
are generally accounted for using the equity method. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(d) Use of Estimates
See accompanying notes consolidated financial statements
2
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of USPI to make a
number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(e) Cash Equivalents and In vestments
For purposes of the statement of cash flows, USPI considers all
highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Short-term investments consist primarily of debt and equity
securities and are held greater than three months and less than one
year Securities are classified as available for sale and are
recorded at fair value.
Investments in unconsolidated companies owned between 20% and 50%
are recorded on an equity basis.
Investments in companies less than 20% owned, and for which the
Company does not exercise significant influence, are carried at
cost.
(f) Inventories of Supplies
Inventories of supplies are stated at cost which approximates
market.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful
lives of the assets. Upon retirement or disposal of assets, the
asset and accumulated depreciation accounts are adjusted
accordingly, and any gain or loss is reflected in earnings or loss
of the respective period. Maintenance costs and repairs are expensed
as incurred; significant renewals and betterments are capitalized.
(h) Intangible Assets
Intangible assets consist of costs in excess of net assets acquired
(goodwill), non-compete contracts, and costs associated with the
purchase of management contracts. Intangibles; except goodwill, are
amortized over the life of the associated contracts.
See accompanying notes consolidated financial statements
2
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Goodwill is amortized on a straight-line basis over the expected
periods to be benefited, generally 25 years
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
Long-lived assets, certain identifiable intangibles, and goodwill
are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset, or
related groups of assets, may not be fully recoverable from
estimated future cash flows. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows
are not achieved. In the event of impairment, measurement of the
amount of impairment may be based on appraisal, market values of
similar assets or estimates of future discounted cash flows
resulting from use and ultimate disposition of the asset.
(j) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, current portion of long-term debt,
accounts payable and accrued expenses approximate fair value because
of the short maturity of these instruments. The carrying values of
long-term investments (excluding investments accounted for by the
equity method) and long-term debt are based on quoted market prices
and are not materially different from the estimated fair values of
these instruments.
(k) Revenue Recognition
Revenue consists primarily of net patient service revenues which is
based on the facilities' established billing rates less allowances
and discounts, principally for patients covered under contractual
programs.
(l) Equity in Earnings (Loss) of Unconsolidated Affiliates
Equity in earnings (loss) of unconsolidated affiliates consist of
the Company's share of the profits or losses generated from its
equity investment in six ambulatory surgery centers. Because these
operations are central to the Company's business strategy, equity in
earnings (loss) is classified as revenue in the accompanying
statement of operations.
(m) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences
See accompanying notes consolidated financial statements
3
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(n) Stock Option Plan
Time Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in
accounting for its stock options. As such, USPI does not record
compensation expense because the Company issues options whereby the
option exercise price equals the current market price of the
underlying stock on the date of grant.
(o) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources arc recorded when
it is probable that a liability has been incurred and the amount of
the assessment can be reasonably estimated.
(p) Comprehensive Income
Comprehensive income consists of net income (loss) and foreign
currency translation adjustments, and is presented in the
consolidated statement of operations and comprehensive income
(loss).
(2) Acquisitions
On April 30, 199$, USPE purchased 100% of the issued and outstanding stock
of Columbia International Holdings, Inc. (CIH), an unrelated Delaware
corporation, for approximately $7.3 million in cash. As a result of the
purchase of CIH, USPI obtained ownership of 79% and 71%, respectively, of
the issued and outstanding stock of Instituto Dexeus, S.A., the owner of a
hospital in Spain, and Diagnosticos y Tratamientos Medicos, S.A., the
owner of a group of clinics in Spain, both Spanish corporations. The total
purchase price for the acquisitions was allocated to the purchased assets
and liabilities based on their estimated fair values and approximated the
fair value of the net assets acquired. Through this acquisition, USPI also
obtained equity interests, ranging from 7% to 15% in five additional
Spanish corporations which own healthcare related operations in Spain.
USPI subsequently
See accompanying notes consolidated financial statements
4
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
contributed the Instituto Dexeus hospital plus $250,000 in cash for a
majority ownership stake in USPE. At December 31, 1998, USPI owned
approximately 86% of USPE. The remaining approximate 14% was held by
Hospital Management Team (HMT), a hospital management company incorporated
in Spain.
On July 29, 1998, USPI acquired 100% of the stock of Health Horizons, Inc.
(HHI), an unrelated Delaware corporation, for approximately $7.5 million
consisting of $3 million in cash, $2.7 million in USPI Series B preferred
stock and $1.8 million in USPI Class A common stock. As a result f the
acquisition, USPI acquired a 66% interest in an ambulatory surgery center
joint venture located in Decatur, Alabama and interests ranging from 35%
to 50% in three additional ambulatory surgery center joint ventures
located in Nashville, Tennessee, Kansas City, Missouri, and Murfreesboro,
Tennessee. The total purchase price was allocated to the purchased assets
and liabilities based on their estimated fair values and exceeded the fair
value of the net assets acquired by approximately $7.3 million.
On August 3, 1998, USPI and St. Rose Dominican Hospital, a not-for-profit
hospital located in Henderson, Nevada entered into an operating agreement
to organize a Nevada limited liability company, Parkway Surgery Center,
LLC. Each party contributed assets totaling approximately $1.9 million for
a 50% ownership interest in the Parkway Surgery Center.
On October 5, 1998, USPE purchased 80% of the issued and outstanding stock
of Clinica Maternal Nuestra Senora de la Esperanza, S.A., a Spanish
corporation, for approximately $2.4 million in cash. The total purchase
price was allocated to the purchased assets and liabilities based on their
estimated fair values and exceeded the fair value of the net assets
acquired by approximately $1.7 million (using the exchange rate in effect
at the date of purchase).
On October 15, 1998, USPI purchased a 70% interest in the assets used to
operate the University Surgical Center in Winter Park, Florida (Assets)
for approximately $5.7 million in cash and assumed approximately $200,000
of liabilities of University Surgical Center, Inc (Seller), an unrelated
Florida corporation. The Assets were then contributed to a newly formed
Florida limited partnership, University Surgery Center, Ltd (limited
partnership) in exchange for general and limited partnership interests.
The Seller contributed the remaining 30% of assets to the Limited
Partnership in exchange for its 30% limited partnership interest. The
total purchase price was allocated to the purchased assets and liabilities
based on their estimated fair values and exceeded the fair value of the
net assets acquired by approximately $5.2 million.
On October 16, 1998, USPI purchased, through USPE, 100% of the issued and
outstanding stock of Clinica Xxxxxxx Xxxxxxx, S.A., a hospital and Spanish
corporation, and interests ranging from 55% to 100% in ten related
companies providing a variety of medical services,
See accompanying notes consolidated financial statements
5
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
for approximately $27.5 million in cash. The total purchase price was
allocated to the purchased assets and liabilities based on their estimated
fair values and exceeded the fair value of the net assets acquired by
approximately $17.8 million (using the exchange rate in effect at the date
of purchase).
On November 5, 1998,USPI purchased, through USPE, 62% of the issued and
outstanding stock of Instituto Policlinico Santa Teresa, S.A., a hospital
and Spanish corporation, which also owns 60% of Resonancia Nuclear
Magnetica, S.A., a Spanish corporation that provides magnetic resonance
imaging services. The total purchase price of approximately $8.8 million
was allocated to the purchased assets and liabilities based on their
estimated fair values and exceeded the fair value of the net assets
acquired by approximately $5.3 million (using the exchange rate in effect
at the date of purchase).
On December 18, 1998, USPI entered into an asset purchase agreement to
purchase certain management agreements related to the operations of five
ambulatory surgery centers located in the Dallas and Ft. Worth, Texas
metropolitan area (HealthFirst Transaction). In addition. USPI acquired a
20% interest in two of the five ambulatory surgery centers (Equity
Centers). The total cost of $8.2 million, all paid to unrelated parties,
exceeded the fair value of the identifiable net assets acquired by $7.6
million of which $5.5 million was allocated to the management agreements
and $2.1 million was allocated to goodwill. USPI is also obligated to
offer (the Buyup) to purchase newly issued partnership units that would
increase USPI's ownership interest by 40% in each of the Equity Centers at
a price based upon the financial performance of the centers. Successful
completion of any or all of the Buyup further obligates USPI to make
additional payments to the parties who sold USPI the equity interests.
The terms of certain of USPI's acquisition agreements provide for
additional consideration to be paid to or received from the seller based
on certain financial targets for the acquired facilities. The potential
for additional consideration ranged from USPI receiving a return of $1
million of amounts previously paid to the sellers to a maximum of USPI
paying up to an additional $5.5 million. Additional consideration paid or
received, if any, will be paid or received in cash and will be recorded as
an increase or decrease to goodwill at the time of payment or receipt.
There were no payments made or received under the agreements during 1998.
The acquisitions of majority interests referred to above were accounted
for under the purchase method of accounting, and accordingly, the
accompanying statement of operations and comprehensive income (toss) does
not include any revenues or expenses related to these acquisitions prior
to the respective closing dates. The unconsolidated ownership interests
acquired are accounted for under the equity method of accounting.
Following are the
See accompanying notes consolidated financial statements
6
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
unaudited pro forma results for the year ended December 3l, 1998 as if the
consolidated acquisitions occurred on February 27, 1998 (inception):
Net operating revenues $43,629,439
Net loss, before income taxes (3,538,691)
These unaudited pro forma results have been prepared for comparative
purposes only. The pro forma results do not purport to be indicative of
the results of operations which would have actually resulted had the
acquisitions been in effect on February 27, 1998, nor are they necessarily
indicative of the results of operations that may be achieved in the
future.
(3) Intangible Assets
At December 31, 1998, intangible assets consisted of the following:
Estimated
useful lives
------------
Goodwill 25 years $ 40,388,455
Management contracts 5--17 years 5,471,107
Non-compete contracts 5 years 200,000
46,059,562
Less accumulated amortization (485.321)
------------
Net intangible assets $ 45,574.241
============
(4) Property and Equipment
At December31, 1998, property and equipment consisted of the following:
Estimated
useful lives
------------
Land and land improvements -- $ 738,000
Buildings and leasehold improvements 7--50 years 28.612.582
Equipment 3--12 years 9,071.272
Furniture and fixtures 4--20 years 3,666,121
------------
Construction in progress -- 23,138
------------
42,111,113
------------
Less accunmulated depreciation
(1,529,802)
------------
No property and equipment $ 40,581,311
============
See accompanying notes consolidated financial statements
7
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(5) Notes Receivable from Employees
Notes receivable from employees resulted from purchases of common stock
by employees. Accordingly, the notes are presented in the consolidated
balance sheet as a deduction from stockholders' equity. Interest of 7%
is due quarterly and principal payments are due May 1, 2002. Payment of
the principal shall accelerate in the event of termination of
employment, an initial public offering of common stock by the Company,
or a change in control of the Company, as defined.
(6) Long-term Debt
Long-term debt consisted of the following at December31:
1998
----
Lines of credit with banks, unsecured, variable rates
of interest ranging from MIBOR pIus 1% to M1BOR
plus 3%. $ 1,169,000
Credit facilities with banks, unsecured, interest on
fixed rate facilities ranging from 5.1% to 9.5% and
interest on variable rate facility at MIBOR plus 0.85%.
Substantially all principal due on September 30, 1999. 1,684,000
7% Senior subordinated notes, subordinated to all senior
indebtedness, due April 30, 2008, interest payable
annually beginning April 30, 2000. 1,493,337
Loans due to the former owners of two subsidiaries,
unsecured. Interest ranging from MIBOR plus 0.5% to
MIBOR plus 1.5%. interest and principal due at
maturity dates of October 2, 1999 and December
31. 2001, respectively 2,103,000
5.25% Mortgage note, payable in monthly installments
of $21,350, including principal and interest with
remaining principal due August 5, 2023, secured by
land and building. 1,660,001)
7.25% Mortgage note, payable in monthly installments
of $27,000, including principal and interest with
remaining principal due July 22, 200!. secured by
land and building. 636,000
Capital leases, secured by underlying equipment,
interest ranging from 4,45% to 11.75%. 1,889,851
Other 1,040,308
11,675,496
Less current portion (4,437,107)
-----------
Long-term debt, less current portion $ 7,238,389
===========
See accompanying notes consolidated financial statements
8
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The 7% senior subordinated notes are required to be repaid in the event of
a change in control, as defined, MIBOR was 8 65% at December 31, 1998
USPI has entered into a Securities Purchase Agreement which grants certain
stockholders and note holders the right to obtain a specified amount of
additional 7% senior subordinated notes aggregating not more than
$20,120,000 in principal of which $1,493,337 had been issued at December
31, 1993.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 are as follows: 1999, $4,437,107; 2000,
$3,079,219; 2001, $1,241,833; 2002, $619,000; 2003; $350,000; thereafter,
$1,950,337.
(7) Redeemable Preferred Stock, Series A and Series B
The Company has authorized 3 1.200 shares of Series A redeemable preferred
stock with a $.01 par value and authorized 2,716 shares of Series B
redeemable preferred stock with a $.01 par value (collectively Preferred
Stock). The Company may redeem some or all of the outstanding shares of
preferred stock at any time for $1 000 per share plus accrued dividends
The Company has a mandatory requirement to redeem all Preferred Stock on
April 30, 2008 or upon an initial public offering of its common stock
registered under the Securities Act of 1933, as amended, Additionally.
preferred stockholders may choose to have their shares redeemed in the
case of a change in control as defined. Shares of redeemed Preferred Stock
are deemed retired. Preferred Stock has a stated liquidation preference of
$1,000 plus accrued dividends and is senior to all common shares.
Dividends are cumulative and accrue at an annual rate of $50 per share
through April 30. 2000 and $75 per share thereafter. Accumulated dividends
are non-interest bearing and accrue whether or not declared and whether or
not funds are legally available for payment. As of December 31, 199$ the
Company had issued 31,200 shares of Series A redeemable preferred stock
for $31,200,000 and 2,716 shares of Series B redeemable preferred stock or
$2,716,000, with accrued dividend; of $371,465 and $56,585, respectively.
The holders of Series B redeemable preferred stock have the right at any
time after the second anniversary of issuance to convert any such shares
to Class A common stock. Each share of Series B redeemable preferred stock
is converted by multiplying by I 000 with the result divided by the.
greater of the base conversion price, currently $2 per share, or the fair
market value of the Class A common stock, as determined by the Board of
Directors.
(8) Stockholders Agreement
Employees and certain independent contractors holding common stock in the
Company are bound by a Stockholders Agreement (Agreement), which
restrict:; time to transfer or assign
See accompanying notes consolidated financial statements
9
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Company common stock under certain circumstances and also contains certain
repurchase rights,
The Agreement terminates at the earlier of April 30. 2008. an initial
public offering, the consummation of any salt. transfer or other
disposition of substantially all the capital stock or assets of the.
Company for cash, or with respect to any stockholder, the date on which
such stockholder no longer owns any shares of capital stock.
(9) Operating Leases
The Company leases various office equipment and office space under a
number of operating lease agreements, which expire at various times
through the year 2008 Such leases do not involve contingent rentals, nor
do they contain significant renewal or escalation clauses Office leases
generally require the Company to pay all executory costs (such as property
taxes, maintenance and insurance).
Minimum future rental payments under noncancelable operating leases, with
remaining terms in excess of one year as of December31, 1998, areas
follows:
Years ended Operating
December 31, Leases
------------ ------
1999 $ 1,260,007
2000 1,269,850
2001 1,239,420
2002 868,292
2003 872,092
Thereafter 2,201,771
-----------
$ 7,711,432
===========
Total rent expense under operating leases was $538,792 for the period from
February 27, 1998 (inception) through December31, 1998.
(10) Related Party Transactions
Several partners in a law firm that provides legal services to the Company
are also partners in an entity that owns shares of the Company's stock.
Legal 1~es related to those services were approximately $152,000 in 1998.
A minority interest owner of HMT provided financial advisory services to
USPE related to acquisitions. Fees related to these services were
approximately $413,000 in 1998.
See accompanying notes consolidated financial statements
10
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
USPI has entered into agreements with certain majority and minority owned
surgery center to provide management services. As compensation for these
services, USPI charges time surgery centers management fees ranging from
5% to 7% of net revenues, as defined. Amounts accrued under these
agreements totaled approximately $223,000 at December 31. 1998.
The Company held a note receivable at December 31. 1998 in the amount of
$903,000 from HMT. In May 1999 HMT settled the note. by (I) transferring
$510 000 in equity securities to the. Company and (2) paying $393,000 in
cash to USPE in exchange for USPE the remaining $393,000 obligation to
the. Company
USPI has an agreement with HMT to manage. its hospitals in Spain. Total
costs incurred by USPI under this arrangement were $2 180 87 4 in 1998.
(11) IncomeTaxes
Income tax benefit attributable to income consists of:
Current Deferred
------- --------
Year ended December 31, 1998:
U.S. Federal $ -- $ --
State and local $ -- $ --
Foreign $ -- $ (301,112)
-----------
Net tax benefit $ $ (301,112)
=========== ===========
Income tax benefit differed from the amount computed by applying the U.S.
federal income tax rate of 34 percent to pretax income in fiscal year ending
December 31, 1998 as follows:
See accompanying notes consolidated financial statements
11
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
1998
----
Computed "expected" tax benefit $(1,437,999)
Increased (reduction) in income taxes resulting from:
Net operating loss carryforwards 20,944
Removal of 1% tax rate differential between
Spain and US (17,022)
Capitalized professional fees 47,250
Goodwill 47,131
Increase in valuation allowance 362,166
Equity investment in foreign subsidiary 665,557
Other 10,861
-----------
Total $ (301,112)
===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 are presented below.
1998
----
Deferred tax assets:
Net operating loss carryforwards $540,458
Organization costs due to difference in 33,606
amortization lives
Basis difference in Start up Costs 155,383
Spanish Tax Credit 518,112
Total deferred tax assets 1,247,559
Less valuation allowance (576,390)
---------
Net deferred tax assets $671,169
========
Deferred tax liabilities:
Basis difference of acquisitions $3,886,000
Capital Leases 173,000
Unrealized gains 82,000
Other 17,057
------
Total deferred tax liabilities $4,158,057
==========
See accompanying notes consolidated financial statements
12
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making
this assessment. At December 31, 1998. USPI had net operating loss
carryforwards for federal income tax purposes of $1,019,294, which arc
available to offset Future federal taxable income, if' any, through 2018.
In addition, USPI has $570,289 of net operating loss carryforwards. which
are only available to reduce future federal taxable income related to the
Health Horizons. Inc. acquisition. The valuation allowance which primarily
reserves the net operating loss carryforwards. was increased by $362,166
during the period.
(12) Stock Option Plan
On April 30, 1998, USPI adopted a stock option plan (the Plan) pursuant to
which USP's Board of Directors may grant non-qualified or incentive stock
options to selected employees, officers, and directors of the Company. The
Plan authorizes grants of options to purchase up to 3.250.1)00 shares of
par value $01 common stock. The Board of Directors or a designated
committee shall have the sole authority to determine which employees
receive grants, the type of grant to be received,. vesting period and all
other option terms. Incentive stock options granted have an option price
no less than 100% of the fair market value of time common stock on the
date of grant with the term not to exceed ten years.
At December 31, 1998, there were 966,700 shares available for grant under
the Plan. The per share weighted-average fair value of stock options
granted during 1998 was $0.85 on the date of grant using the Black Scholes
option-pricing model, excluding a volatility assumption, with the
following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 6%, and an expected life of five years.
USPI applies APB Opinion No. 25 in accounting for its Plan whereby options
are granted at a price equal to the fair market value of the underlying
stock on the date of grant. Accordingly, no compensation cost has been
recognized for stock options granted in the accompanying financial
statements. Had USPI determined compensation cost based on the fair value
at the grant date for its stock options under SEAS No. 123, USPI's net
loss would have resulted in the pro forma amounts indicated below:
1998
----
Net loss As reported $(3,928,298)
Pro Forma (4129,306)
See accompanying notes consolidated financial statements
13
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Stock option activity during 1998 was as follows:
Weighted-
Average
Number of Exercise
Shares Price
------ -----
Balance at February 27, 1998 (inception) -- $ --
Granted 2,283,300 2.80
Exercised --
Forfeited --
Expired --
Balance at December 31, 1998 2.283,300 $ 2.80
--------- ------
At December 31. 1998, the range of exercise prices and the
weighted-average remaining contractual life of outstanding options were
$2.00 - 55,00 and 9.6 years. respectively.
At December 31, 1998, the number of exercisable options was 235,660 with a
weighted average exercise price of $2.00.
(13) Segment Disclosures
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
(SFAS 131). SEAS 131 establishes standards for reporting information about
operating segments in annual financial statements. The Company's business
is the operation of hospitals, outpatient surgical centers and related
businesses in the United State?'and Europe. The Company's chief operating
decision maker, as that term is defined in the accounting standard,
regularly reviews financial information about its hospitals and surgical
centers for assessing performance and allocating resources both
domestically and abroad. Accordingly, the Company's reportable segments
consist of (1) U.S. based facilities and (2) European facilities.
1998 U.S. Europe Total
---- ---- ------ -----
Total revenues 5$ 1.920.071 18,652,000 20,572,071
------------ ---------- ----------
Operating loss $ (1,849,844) (2,380,874) (4,230.718)
------------ ---------- ----------
Total assu.ts $ 43,142,402 81,650,000 124,792,402
------------ ---------- ----------
(14) Commitments and Contingencies
(a) Acquisition
See accompanying notes consolidated financial statements
14
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
On December 4. 199$. USPI entered into certain agreements with time
shareholders of Day-Op Center of Long Island. Inc. (Day-Op Center)
and Day-Op Management Company, Inc. (Day-Op Management), which arc
awaiting regulatory approval State of New York. These agreements
provide for the acquisition, by a newly created, wholly-owned
subsidiary of USPI. of 100% of the common stock of Day-Op Management
and certain tangible assets of Day-Op Center. in addition, USPI and
the shareholders of Day-Op Center entered into a Consulting and
Administrative Agreement by which the newly created subsidiary of
USPI would provide certain administrative services to Day-Op Center
in exchange for a monthly service 6e.
These agreements, upon approval by the State at' New York. would
become effective retroactive to December 1, 1998. No amounts or
activity with respect to these pending agreements have been
recognized in the accompanying financial statements. Approximately
$13.1 million is being held in escrow pending state approval and is
treated as restricted cash in the accompanying balance sheet.
(b) Financial Guarantees
As of December 31. 1998, USPI had issued guarantees aggregating 53.9
million on borrowings of unconsolidated affiliated companies. No
amount has been accrued USPI's obligation tinder these guaranty
arrangements.
As of December 31. 1998, USPE had issued guarantees on certain
acquisitions in the amount of $2.1 million. Short-term investments
of approximately $722,000 and other long-term investments of
approximately $1.1 million at December 31, 1998 have been pledged as
security for these guarantees. USPE has also received guarantees in
the amount of $2.9 million from the sellers of certain acquisitions
regarding potential liabilities at the date of acquisition.
(c) General and Professional Liability
In its normal course of business, the Company is subject to claims
and lawsuits relating to patient treatment. The Company believes
that its liability for damages resulting from such claims and
lawsuits is adequately covered by insurance or is adequately
provided for in its consolidated financial statements.
(15) Subsequent Events
On February 1, 1999, the Company acquired, for $400,000 in cash, a 50%
interest in Texas Health Ventures Group L.L.C. (THVG I) which held
ownership interests in ont operational surgery center and three surgery
centers under development in the Dallas I Fort Worth, Texas
See accompanying notes consolidated financial statements
15
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
metropolitan area. THVG is a limited liability company which facilitates
the joint management and development by the Company and Baylor Health
System (Baylor) of ambulatory surgery centers On April 5 1999 and June 30,
1999 the Company issued 7% senior subordinated notes totaling $9.0 million
and $9.6 million, respectively, bringing the total issued and outstanding
senior subordinated debt under the Securities Purchase Agreement to
approximately $20.1 million.
In May 1999, the Company acquired a 70% interest in USP Dermoestetica,
S.L. for $1.6 million in cash. During April 1999 and May 1999, the Company
made stock purchases totaling an additional 26% interest in Instituto
Policlinico Santa Teresa, S.A.
On June 1, 1999, the Company entered into an additional ambulatory surgery
joint venture with Baylor by contributing its equity investments and
management agreements acquired in the December 1998 HealthFirst
Transaction to a newly created limited liability company, THVG I
HealthFirst, L.L.C. (THVG 2). In exchange for its contribution to TFIVG 2,
the Company received a 51% ownership interest in THVG 2. Baylor
contributed 100% of the assets of two operational surgery centers to THVG
I, in exchange for receiving a 49% ownership in THVG 2 as well as
convertible subordinated notes payable from the Company in the amount of
$3.3 million. The joint venture agreements for THVG I and THVG 2 have
noncompete clauses and provide for shared management services and fees.
On June 29, 1999, the Company entered into a credit agreement with Chase
Bank of Texas. NA. which provides the Company with the ability to borrow
up to $25 million. The agreement and any borrowings thereunder mature June
30. 2001. Repayment of the loans is guaranteed by time Company s largest
shareholder As of September I 1999 $21 7 million of borrowings were
outstanding under the credit agreement.
On June 30, 1999, the Company acquired 100% of the stock of Texas
Outpatient Surgicare Center, Inc. (TOPS GP), a Texas corporation that is
the general partner with a 63% ownership interest in TOPS Specialty
Hospital. Ltd. (TOPS), a Limited Partnership that operates a surgical
hospital in Houston, Texas. Concurrent with its acquisition of TOPS OP.
USPI also facilitated the acquisition by TOPS OP of an additional 31%
interest in TOPS. In connection with the acquisition of the additional
limited partner interests, USPI issued warrants to purchase 45,000 shares
of its common stock at an exercise price of $4.00 per share in exchange
for noncompete agreements with the selling limited partners. Subsequent to
these transactions, TOPS borrowed $15 million, guaranteed by USPI. TOPS OP
subsequently sold limited partner interests representing approximately 25%
ownership of TOPS. Total net cash consideration paid by USPI for these
acquisition transactions was approximately $11 million. As a result of
these transactions, USPI owns 100% of TOPS GP, which in turn owns
approximately 69% of TOPS.
See accompanying notes consolidated financial statements
16
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
On July 1, 1999, the Company acquired 100% of time assets used to operate
Warner Park Surgery Center in Chandler. Arizona for approximately $5.1
million in cash.
On August I, 1999, the Company invested an additional $2.7 million in cash
in THVG 2, which acquired additional ownership in one of the two
operational surgery centers in which it had previously invested,
increasing THIVG 2's ownership interest in the center from 20% to 40%.
On September I, 1999, the Company acquired 100% of the assets used to
operate two ambulatory surgery centers in the Houston metropolitan area,
for approximately $12 million in cash.
See accompanying notes consolidated financial statements
17
United Surgical Partners International, Inc.
Consolidated Balance Sheet as of
December-99
Dec-99
Actual
ASSETS
Current assets
Cash and cash equivalents $ 16,905,194
Short-term investments 859,644
Accounts receivable, net 12,114,148
Due from affiliates 1,645,009
Other receivables 1729,406
Short-term notes receivable 4,757
lnventories 2,597,157
Prepaid expenses 1,571,621
-------------
Total current assets 37,426,937
Property, plant and equipment
Land 2,571,027
Buildings and improvements 28,678,318
Equipment 25,715,344
Furniture and fixtures 3,570,260
Construction in progress 1,648,891
Accumulated depreciation (11,631,310)
-------------
Total property, plant and equipment 50,552,529
Other noncurrent assets
Investment in subsidiaries 8,170,173
Financial long-term investment 1,034,774
Intangible assets 72,741,140
Long-term notes receivable 19,033
Other assets 1,060,392
-------------
Total other noncurrent assets 83,025,512
-------------
Total assets $ 171,004,978
=============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 9,140,642
Accrued salaries and benefits 1,438,822
Short-term debt 1,566,252
Current portion of long-term debt 5,424,842
Other current liabilities 9,486,092
-------------
Total current liabilities 27,056,649
Noncurrent liabilities
Long-term debt 40,971,776
Subordinated debt 23,407,232
Redeemable preferred stock 33,916,000
Deferred gain/revenue 1,258,334
Other noncurrent liabilities 1,906,661
-------------
Total noncurrent liabilities 101,460,002
Minority interests 6,040,863
Equity
Common stock & paid-in capital 56,057,536
Receivable from shareholders (1,103,887)
Treasury stock (343,750)
Retained earnings (10,981,395)
Translation (7,181,040)
-------------
Total equity 36,447,463
-------------
Total liabilities and equity $ 171,004,978
=============
See accompanying notes consolidated financial statements
2
United Surgical Partners International, Inc.
Consolidated Income Statement
December-99
(Variances are better/(worse))
Year-to-date
REVENUE
Hospital revenue, net of deductions $ 50,095,895
ASC revenue, net of deductions 12,591,556
Other patient service revenue, net of deductions 587,128
------------
Total patient revenue 63,274,579
Administrative revenue 3,607,500
Management fee income 1,494,514
Equity in earnings (loss) of affiliates (236,874)
Other revenue 1,946,251
Total other revenue 6,811,392
Total revenue 70,085,971
EXPENSES
Staffing and benefits 21,595,517
Supplies 14,102,125
Purchased services 3,061,969
Non-medical supplies and expenses 1,919,447
Professional fees 6,169,096
Other operating expenses 8,373,713
------------
Facility operating expenses 55,221,867
Facility EB1TDA 14,864,104
Corporate G&A 10,884,533
EBITDA 3,979,571
Depreciation and amortization 7,037,882
Interest expense (income) 2,426,349
Other expense (income) 177,931
Total non-operating expenses 9,642,162
Minority interest expense (benefit) (54,065)
Pretax income (5,608,527)
Income taxes 1,073,910
------------
Net income ($ 6,682,437)
EBITDA less minority interests 4,033,635
See accompanying notes consolidated financial statements
3
United Surgical Partners International
Consolidated Statement of Cash Flows
For the period ended December 31,1999
Current Year-to-date
Month ------------
-----
Cash flows from operating activities:
Net income (loss) $ (2,691,233) $ (6,682,436)
Adjustments to reconcile to cash provided by operating activities:
Depreciation expense 417,066 4,631,926
Amortization expense 341.694 2,401,686
(Gain) loss on sale of equipment 35,543 34,756
Equity in (earnings) loss of affiliates 10,326 236,874
(Increase) decrease in accounts receivable 943,531 (1,398,860)
(Increase) decrease in other receivables 1,164,789 (1,720,798)
(Increase) decrease in invent5Ttbs (203,154) 155,033
(Increase) decrease in prepaid expenses and other assets 319,231 (708,634)
Increase (decrease) in accounts payable 207,793 (778,048)
Increase (decrease) in accrued salaries & benefits (834,176) 395,684
Increase (decrease) in accrued expenses 402,680 1,777,318
Increase (decrease) in other liabilities 1487,783 2,997,538
Increase (decrease) in minority interest payable 125,414 (389,571)
============================
Total adjustments 4,418,520 7,228,838
============================
Net cash provided by (used in) operating activities 1,727,286 546,401
============================
Cash flows from investing activities
(Purchases) sales of fixed assets (2,190,398) (9,850,049)
(Increase) decrease in investment in subsidiaries net of cash acquired (1,900,580) (53,681,519)
(Increase) decrease in financial investments 43 750,593
(Increase) decrease in notes receivable 89,409 625,024
(Increase) decrease in short-term investments 47,309 720,687
Net cash used in investing activities (3,954,198) (61,435,284)
Cash flows from financing activities
Proceeds (repayments) of short and long-term borrowings (181,992) 56,966,644
Purchase of treasury stock -- (17,500)
Proceeds from issuance of common stock 58,609 (57,641)
Proceeds from distributions of capital 1,566,929 506,052
============================
Net cash provided by (used in) financing activities 1,443,547 57,397,554
============================
Effect of exchange rate changes on cash and intercompany debt 2,256 2,115,811
============================
Net increase (decrease) in cash (781,108) (1,375,497)
Cash balance, beginning of period $ 17,686,303 18,280,692
============================
Cash balance, end of period $ 16,905,194 16,905,195
============================
See accompanying notes consolidated financial statements
4
United Surgical Partners International, Inc.
Statement of Changes in Stockholders Equity
-----------------------------------------------------------------------------------------------------------
Common Stock Retained Cummulative
---------------------- Additional Receivable Earnings Effect
Changes in Stockholder Number of Treasury Paid From (Accum'd Foreign
Equity Shares Par Value Stock In Capital Shareholder Deficit) Curr Transl Totals
-----------------------------------------------------------------------------------------------------------
Balance as of
December 32, 1998 21,938,929 $219,390 $46,966,455 $(1,050,000) $ (4,298,958) $ (104,285) 51,732,602
Net Income (6,682,437) (7,056,755) (6,682,437)
Effect of foreign
currency translation (7,076,755)
Repurchase of common
stock (143,750)
Issuance of common
stock (162,500) (343,750) 200,000 268,606
Issuance of warrants 142,498 1,425 521,068 (253,887) 45,000
accrue portion of
dividend payable
April 30, 2000 45,000 (1,695,803)
Balance at
December 31, 1999 21,918,927 $220,815 $(343,750) $(1,695,803) $(1,103,887) $(10,981,395) $(7,181,040) $36,447,463
========================================================= =================================
Series A Redeemable Preferred Stock Series B Redeemable Prferred Stock
Classified as Debt WCAS Non-WCAS Non-WCAS
Number
of Carrying
Shares Value Number of Shares Carrying Value Number of Shares Carrying Value
========================================================= =================================
Carrying value at December 31, 1998 30,000 $30,341,465 1,200 $1,230,000 2,716 $ 2,772,583
Dividend Accrual 1,500,000 60,000 135,800
=========== ========== ===========
Carrying value at December 31, 1999 $31,841,465 $1,290,000 $ 2,908,383
=========== ========== ===========
=============
Stock Options Granted Total Options
Outstanding
=============
Outstanding at December 31, 1998 2,313,000
Year to date grants, net
of cancellations 398,000
============
Outstanding at December 31, 1999 2,711,300
============
Unaudited -- for internal use only
See accompanying notes consolidated financial statements
2
SCHEDULE 2.07
Events Subsequent to December 31, 1999
1. See Schedule 2.04(b), which is incorporated herein by this reference.
2. Effective February 1, 2000, Xxx Xxxxx'x salary was increased from
$235,000 to $300,000.
3. The Company has sold a total of 52,500 shares of its Common Stock, par
value $.01 per share, pursuant to the Company's Stock Option Plan since December
31, 1999 at $4.00 per share,
4. The Company has borrowed $1.5 million under its $25,000,000 Revolving
Credit Agreement with Chase Bank of Texas since December 31, 1999.
See accompanying notes consolidated financial statements
1
SCHEDULE 2.08
Actions Pending
None.
See accompanying notes consolidated financial statements
1
SCHEDULE 2,12
Title to Property
1. Dexeus has an outstanding mortgage debt of approximately $1.9 million.
2. Decatur Surgery Center, L.P. has granted a security interest in all of
its assets to Compass Bank.
3. TOPS Specialty Hospital, Ltd. has granted a security interest in
substantially all of its real estate and personal property assets to Chase Bank
of Texas.
4, Several subsidiaries have equipment financing facilities with Copeleo
Capital Corporation and other institutional lenders.
See accompanying notes consolidated financial statements
1
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes Accumulated
Common Stock Additional Receivable Other
------------ Par Paid-in from Comprehensive Accumulated
Shares Value Capital Employees Income Deficit Total
------ ----- ------- --------- ------ ------- -----
Balance, February 27, 1998
(inception) -- $ -- -- -- -- -- --
Issuance of common stock 21,938,929 219,389 57,394,504 (1,050,000) -- -- 56,563,893
Accrued dividends on
preferred stock -- -- (428,050) -- -- -- (428,050)
Net loss -- -- -- -- -- (3,928,298) (3,928,298)
Foreign currency translation
adjustments -- -- -- -- (104,285) -- (104,285)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 21,938,929 $ 219,389 56,966,454 (1,050,000) (104,285) (3,928,298) 52,103,260
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
1
SCHEDULE 2.14
Affiliated Transactions
None.
See accompanying notes consolidated financial statements
1
SCHEDULE 2.15
Brokers' or Finders' Fees
None.
See accompanying notes consolidated financial statements
1
SCHEDULE 3 03(d)
Certain Purchasers
None.
See accompanying notes consolidated financial statements
1
SCHEDULE 3.05
Brokers' or Finders' Fees
None.
See accompanying notes consolidated financial statements
1
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