-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OE1zOza2r2i8a6zXb2vWWu8HtncoRdUqVKxuNwyvIC11GUkqbFJiK79XaiC1U4Pb AgnlOm6I1tZBOaE5BqzXZg== 0001042910-98-001142.txt : 19981123 0001042910-98-001142.hdr.sgml : 19981123 ACCESSION NUMBER: 0001042910-98-001142 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BMJ MEDICAL MANAGEMENT INC CENTRAL INDEX KEY: 0001036296 STANDARD INDUSTRIAL CLASSIFICATION: 8093 IRS NUMBER: 650676079 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35759 FILM NUMBER: 98753299 BUSINESS ADDRESS: STREET 1: 4800 N FEDERAL HWY STREET 2: SUITE 104 D CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5613911311 MAIL ADDRESS: STREET 1: 4800 N FEDERAL HWY STREET 2: SUITE 104 D CITY: BOCA RATON STATE: FL ZIP: 33431 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _____________ Commission File Number 001-13785 BMJ MEDICAL MANAGEMENT, INC. (Exact name of registrant as specified in its charter) Delaware 65-0676079 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4800 North Federal Highway Suite 101E Boca Raton, Florida 33431 (Address of principal executive offices) (Zip Code) (561) 391-1311 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares outstanding of the registrant's Common Stock, $0.001 par value per share, as of November 4, 1998 was 17,790,557 shares. ================================================================================ BMJ MEDICAL MANAGEMENT, INC. INDEX Part I. FINANCIAL INFORMATION
PAGE NO. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998................................................................. 3 Condensed Consolidated Statements of Operations for the three and six months ended September 30, 1998 and 1997..................... 4 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 1998 and 1997............................... 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................................. 22 Item 2. Changes in Securities and Use of Proceeds.......................................... 22 Item 6. Exhibits and Reports on Form 8-K................................................... 23
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, March 31, 1998 1998 ------------- --------- ASSETS Current assets: Cash and cash equivalents..................................................... $ 613,000 $ 9,483,000 Accounts receivable........................................................... 27,002,000 25,794,000 Prepaid expenses and other current assets..................................... 875,000 539,000 Due from physician groups, net................................................ 8,043,000 2,250,000 ------------- ------------ Total current assets...................................................... 36,533,000 38,066,000 Furniture, fixtures and equipment, net.......................................... 13,432,000 7,948,000 Management services agreements and other intangible assets, net of accumulated amortization of $13,826,000 at September 30, 1998 and $11,362,000 at March 31, 1998.......................... 63,802,000 45,064,000 Other assets.................................................................. 3,555,000 2,142,000 ------------- ------------ Total assets.............................................................. $ 117,322,000 $ 93,220,000 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................................................. $ 1,967,000 $ 1,706,000 Accrued expenses.............................................................. 4,767,000 6,858,000 Accrued interest.............................................................. 263,000 520,000 Accrued salaries and benefits................................................. 3,336,000 2,159,000 Current portion of long-term debt............................................. 835,000 188,000 ------------- ------------ Total current liabilities................................................. 11,168,000 11,431,000 Long-term debt, less current portion............................................ 40,702,000 17,929,000 Convertible notes to affiliates................................................. 1,707,000 -- Short-term debt expected to be refinanced....................................... -- 7,125,000 Minority Interest............................................................... 812,000 648,000 Commitments and contingencies Series A Redeemable Convertible Preferred Stock, $.01 par value - 1,473,684 shares authorized, issued and outstanding (liquidation value $7,109,000), net of discount and issuance costs............................. 4,957,000 -- Stockholders' equity: Series B Convertible Preferred Stock.......................................... 2,839,000 -- Common Stock, $.001 par value - 35,000,000 shares authorized, 17,791,000 shares issued and outstanding at September 30, 1998; 17,384,000 shares issued and outstanding at March 31, 1998;................. 18,000 17,000 Additional paid-in capital.................................................... 101,904,000 97,801,000 Accumulated deficit........................................................... (46,785,000) (41,731,000) ------------- ------------ Total stockholders' equity................................................ 57,976,000 56,087,000 ------------- ------------ Total liabilities and stockholders' equity................................ $ 117,322,000 $ 93,220,000 ============= ============
See accompanying notes. 3 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended September 30 September 30 --------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Practice revenues, net.............................................. $33,291,000 $18,418,000 $67,686,000 $29,669,000 Less: amounts retained by physician groups.......................... (13,342,000) (8,369,000) (29,572,000) (13,690,000) ----------- ----------- ----------- ----------- Management fee revenue.............................................. 19,949,000 10,049,000 38,114,000 15,979,000 ----------- ----------- ----------- ----------- Operating expenses: Medical support services.......................................... 15,479,000 9,117,000 29,196,000 14,582,000 General and administrative........................................ 3,779,000 2,903,000 5,577,000 4,487,000 Depreciation and amortization..................................... 2,094,000 2,629,000 3,347,000 3,657,000 ----------- ----------- ----------- ----------- Total operating expenses............................................ 21,352,000 14,649,000 38,120,000 22,726,000 Operating loss...................................................... (1,403,000) (4,600,000) (6,000) (6,747,000) Other expenses: Interest ........................................... 907,000 628,000 2,010,000 922,000 ----------- ----------- ----------- ----------- Loss before extraordinary item...................................... (2,310,000) (5,228,000) (2,016,000) (7,669,000) Extraordinary item, loss on early extinguishment of debt............ - - (3,038,000) - ----------- ----------- ----------- ----------- Net loss............................................................ $(2,310,000) $(5,228,000) $(5,054,000) $(7,669,000) =========== =========== =========== =========== Net loss per common share: Basic: Loss before extraordinary item.................................. $ (0.14) $ (0.78) $ (0.12) $ (1.23) Extraordinary item.............................................. $ - $ - $ (0.17) $ - ----------- ----------- ----------- ----------- Net loss........................................................ $ (0.14) $ (0.78) $ (0.29) $ (1.23) =========== =========== =========== =========== Diluted: Loss before extraordinary item.................................. $ (0.14) $ (0.78) $ (0.12) $ (1.23) Extraordinary item.............................................. $ - $ - $ (0.17) $ - ----------- ----------- ----------- ----------- Net loss........................................................ $ (0.14) $ (0.78) $ (0.29) $ (1.23) =========== =========== =========== =========== Weighted average number of common shares outstanding: Basic........................................................... 17,716,000 6,727,000 17,674,000 6,224,000 =========== =========== =========== =========== Diluted......................................................... 17,716,000 6,727,000 17,674,000 6,224,000 =========== =========== =========== ===========
See accompanying notes. 4 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended September 30, ------------------------------------ 1998 1997 ---- ---- Operating activities: Net loss......................................................................$ (5,054,000) $(7,669,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................................................ 728,000 389,000 Amortization of management services agreements and other intangibles........ 2,534,000 3,389,000 Interest expense converted to preferred stock................................. - 34,000 Equity-based compensation expense............................................. 68,000 2,165,000 Changes in operating assets and liabilities: Accounts receivable......................................................... (904,000) (4,348,000) Due from physician groups................................................... (5,185,000) - Prepaid expenses and other current assets................................... (274,000) 4,000 Accounts payable............................................................ 261,000 232,000 Accrued expenses............................................................ (4,216,000) 2,448,000 Accrued salaries and benefits............................................... 1,196,000 681,000 Accrued interest............................................................ (257,000) - ------------ ----------- Net cash used in operating activities........................................... (11,103,000) (2,675,000) Investing activities: Purchases of furniture, fixtures and equipment................................ (5,676,000) (415,000) Payments for management services agreements and goodwill...................... (12,672,000) (8,149,000) Payments for deferred offering costs.......................................... - (1,924,000) Cash used for acquisition of non-cash assets of affiliated practices.......... (645,000) (10,492,000) Payments for deposits and other assets........................................ (1,528,000) (311,000) ------------ ----------- Net cash used in investing activities........................................... (20,521,000) (21,291,000) Financing activities: Proceeds from issuance of preferred stock..................................... 7,000,000 4,450,000 Proceeds from debt issuance................................................... 40,031,000 17,980,000 Amounts due physician groups.................................................. - 3,218,000 Proceeds from issuance of common stock........................................ 77,000 - Payments on borrowings........................................................ (24,519,000) - Minority interest............................................................. 165,000 - ------------ ----------- Net cash provided by financing activities....................................... 22,754,000 25,648,000 ------------ ----------- Net (decrease) increase in cash and cash equivalents............................ (8,870,000) 1,682,000 Cash and cash equivalents at beginning of period................................ 9,483,000 722,000 ------------ ----------- Cash and cash equivalents at end of period......................................$ 613,000 $ 2,404,000 ============ ===========
See accompanying notes. 5 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General In management's opinion, the accompanying unaudited condensed consolidated financial statements of BMJ Medical Management, Inc. and its subsidiaries (the "Company") contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 1998, and the results of its operations for the three and six months ended September 30, 1998 and 1997. The results of operations and cash flows for the six months ended September 30, 1998 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of the fiscal year. The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in the Company's Transition Report on Form 10-K for the three months ended March 31, 1998. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 2 of the Notes to Consolidated Financial Statements included in the Company's Transition Report on Form 10-K for the three months ended March 31, 1998. 2. Recent Developments On September 24, 1998, the Company announced a restructuring plan that included reducing corporate overhead through the elimination of approximately 20 corporate positions and the impairment of goodwill related to the Company's Independent Physician Association ("IPA") due to the bankruptcy of a significant payer. The Company also began assessing its current business model. On October 7, 1998 the Company's Board of Directors elected Donald J. Lothrop President and Chief Executive Officer. The Board of Directors has retained a consulting firm to assist in the process of evaluating alternative business models and has under consideration, among other things, an additional restructuring plan more fully described under "Management's Discussion and Analysis - Liquidity and Capital Resources-Outlook." The Company anticipates, that if implemented, this additional restructuring plan would result in the determination that certain intangible assets related to Management Services Agreements and other assets have been impaired and would result in the write-off of the impaired portion of such assets. The amount of such impairment loss, which cannot be determined at this time, would be recognized in the period that such determination is made, and the recognition of any such impairment loss could have a material adverse effect on the Company's business, results of operations and financial condition. 3. New Accounting Pronouncements The Emerging Issues Task Force ("EITF") of the FASB reached a consensus concerning certain matters relating to the physician practice management industry with respect to the requirements which must be met to consolidate a managed professional corporation and the accounting for business combinations involving professional corporations. In accordance with the EITF's guidance, the Company will discontinue the use of the display method to report revenues from management contracts in financial statements for periods ending after December 15, 1998. Thus, after December 15, 1998, fees from management contracts will be reported as a single line item in the Company's consolidated financial statements. 4. Asset Write-down and Restructuring Charge In September 1998, the Company implemented a restructuring plan which included a total charge of approximately $2,050,000 included in general and administrative ($1,500,000) and depreciation and amortization 6 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 4. Asset Write-down and Restructuring Charge--(continued) expense ($550,000) in the accompanying condensed consolidated statements of operations for the three and six months ended September 1998. The charges consist primarily of severance costs of approximately $1,100,000 and other asset write-offs of $400,000. Also included in the charge was $550,000 related to the write-off of goodwill due to the bankruptcy of a significant payor for the Company's Independent Physician Association ("IPA") acquired in 1997. 5. Earnings (Loss) Per Share In 1997, the FASB issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share" which applies to entities with publicly held common stock and simplifies the standards for computing earnings per share. SFAS No. 128 replaces the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods and accordingly, all earnings per share amounts for all periods presented have been conformed to SFAS No. 128 requirements. Basic and diluted net loss per share for the three and six months ended September 30, 1998 and 1997 were calculated using the weighted average number of shares of Common Stock outstanding during the respective periods. Common Stock equivalents are not included in the computation of diluted net loss per share for the three and six month periods ended September 30, 1998 and 1997, as their effect is antidilutive. The following table set forth the computation of loss per share atributable to common shareholders:
Three Months Ended Six Months Ended September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Loss before extraordinary item as reported..................................$(2,310,000) $(5,228,000) $(2,016,000) $(7,669,000) Dividends, Series A Preferred Stock....................................... (109,000) - (109,000) - Dividends, Series B Preferred Stock....................................... (49,000) - (49,000) - Accretion, Series A Preferred Stock....................................... (25,000) - (25,000) - ----------- ----------- ----------- ----------- Numerator for earnings per share - loss attributable to common shareholders.......................................$(2,493,000) $(5,228,000) $(2,199,000) $(7,669,000) =========== =========== =========== ===========
6. Practice Affiliations and Investment In Subsidiaries In April 1998, the Company entered into an Asset Purchase Agreement and a Management Services Agreement with Seaview Orthopaedic & Medical Associates, a New Jersey general partnership ("Seaview"), in exchange for $3,805,000 in cash and the issuance of convertible promissory notes for $1,543,000, bearing interest at 5% and convertible into shares of Common Stock at a conversion rate of $8.75 on the unpaid principal amounts. The aggregate consideration of $5,471,000, including transaction costs of $123,000, has been allocated as follows: $4,946,000 to Management Services Agreements with the remainder ($525,0000) allocated to furniture, fixtures and equipment. The total amount of consideration will be adjusted based on actual collections of the Practice for the twelve month period ended March 1999. The value of any additional consideration, which will consist entirely of the Company's Common Stock, will increase the cost of the Seaview Management Services Agreement. In April 1998, the Company entered into an Asset Purchase Agreement and a Management Services Agreement with Community Orthopedics and Pain Management, a Florida Corporation ("Community"), in exchange for $611,000 in cash and the issuance of a convertible promissory note for $604,000, bearing interest at 5% and convertible into shares of Common Stock at a conversion rate of $8.75 on the unpaid principal amount. The aggregate consideration of $1,235,000, including transaction costs of $20,000, has been allocated as follows: 7 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 6. Practice Affiliations and Investment in Subsidiaries--(continued) $1,227,000 to Management Services Agreement with the remainder ($8,000) allocated to furniture, fixtures and equipment. In April 1998, the Company entered into an Asset Purchase Agreement and a Management Services Agreement with Steven P. Hirsch, D.P.M., P.A., a Florida professional association ("Hirsch"), in exchange for $160,000 in cash and the issuance of a convertible promissory note for $130,000, bearing interest at 5% and convertible into shares of Common Stock at a conversion rate of $8.75 on the unpaid principal amount. The aggregate consideration of $303,000, including transaction costs of $13,000, has been allocated as follows: $231,000 to Management Services Agreement with the remainder ($72,000) allocated primarily to furniture, fixtures and equipment, and accounts receivable. In April 1998, the Company entered into a Management Services Agreement with Douglas A. Bobb, D.O., in exchange for the issuance of 157,071 shares of Common Stock recorded at $7.38 per share, representing consideration of $1,159,000. All of the consideration has been allocated to the Management Services Agreement. In April 1998, BMJ of Chandler, Inc., a wholly-owned subsidiary of the Company, purchased the assets of Warner Medical Park Outpatient Surgery, Inc., for $1,800,000. In April 1998, Surgical Associates of Bakersfield, Limited Partnership, a limited partnership controlled by the Company, acquired all of the assets of Kern Surgery Center, a California limited partnership, for $2,400,000. These transactions have been accounted for using the purchase method of accounting. Accordingly, the aggregate purchase price has been allocated as follows: accounts receivable- $177,000; furniture, fixtures and equipment-$261,000; goodwill and other intangibles-$3,531,000, with the remaining purchase price allocated primarily to other assets. The Company is depreciating the related assets acquired over their estimated useful lives, ranging from three to seven years. Goodwill is being amortized over its estimated remaining life of 25 years. In June 1998, the Company entered into a Stock Purchase Agreement and a Management Services Agreement with the Boca Raton Orthopaedic Group Inc., a Florida corporation, in exchange for $3,517,000 in cash, an obligation to issue $2,427,000 of Convertible Preferred Stock and the assumption of $1,000,000 in liabilities. The aggregate consideration of $7,668,000 including transaction costs has been allocated as follows: $6,685,000 to Management Services Agreement with the remainder ($983,000) allocated primarily to furniture, fixtures and equipment. In July and September 1998, the Company entered into two separate Asset Purchase Agreements and Management Services Agreements with Glen Miller, LTD., a Nevada Corporation ("Miller") and Community Foot Care, P.A. Mark Warren, D.D.M., a Florida Corporation ("Warren"), located in Reno, Nevada and Delray Beach, Florida, respectively. In exchange for an aggregate amount of $1,660,000 in cash, the issuance of 2,323 shares of Convertible Preferred Stock with a fair value of $232,000 and the obligation to issue $140,000 of Convertible Preferred Stock, $269,000 of accrued liabilities and the issuance of 104,404 shares of Common Stock recorded at $2.22 per share. The aggregate consideration of $2,533,000 including transaction costs has been allocated as follows: $2,340,000 to Management Services Agreements with the remainder ($193,000) allocated to accounts receivable and furniture, fixtures and equipment. The total number of shares to be issued to Miller will depend on among other factors, the amount of collections for the twelve month period ended September 1999. The value of any subsequently issued shares will increase the cost of the Miller Management Services Agreement. See footnote 2 above for a discussion of the Company's consideration of whether the intangibles associated with these transactions have been impaired and the anticipated consequences of such determination. 8 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 7. Debt and Preferred Stock Issuance In April 1998, the Company issued in the aggregate, $2,300,000 of convertible promissory notes (the "Convertible Notes") in conjunction with three practice affiliation transactions that mature in four equal annual installments. The Convertible Notes bear interest at 5% and are convertible into shares of Common Stock at a conversion rate of $8.75 on unpaid principal amounts at the option of the holder on the maturity dates. In June, July and September, 1998 the Company, in connection with three practice affiliation transactions, became obligated to issue $2,800,000 of Series B Convertible Preferred Stock ("Series B") par value, $.01 per share which is convertible into Common Stock. The Company has authorized the issuance of up to 500,000 Series B shares. There were 2,323 shares issued and outstanding as of September 30, 1998 and the Company has an obligation to issue an additional 25,664 Series B shares. The Series B carries a 7% cumulative dividend that is payable in additional shares of stock or cash. The Company is not obligated to issue any additional shares of Series B on account of these transactions until the first year anniversary of the practice affiliation. The Series B conversion to Common Stock is based on, in part, the Market Price (as defined in the Certificate of Designation for the Series B) into shares of Common Stock. As of September 30, 1998, the number of shares of Common Stock obligated to be issued if the Series B were converted would be 582,000 shares. On June 30, 1998 the Company refinanced substantially all of its existing debt with its previous lenders with proceeds from a $60,000,000 credit facility which consists of a $15,000,000 revolving line of credit ("Revolving Loans"), a $25,000,000 term note ("Tranche B Loan") and a $20,000,000 acquisition line of credit in which all amounts outstanding at September 30, 2000 will convert to a term loan (`Tranche A Loan") (collectively referred to as the "Credit Facility"). Under the Revolving Loans, the Company may borrow up to $15,000,000 for working capital and general corporate purposes and to finance start-up costs relating to certain Ancillary Service Facilities (as defined in the Credit Facility). The Revolving Loans are subject to a borrowing base equal to 80% of the product of Eligible Accounts Receivable multiplied by the Collection Rate (each as defined in the Credit Facility). The Revolving Loans mature on June 30, 2001 and interest is payable quarterly and, at the option of the Company, will equal (a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime lending rate plus a margin ranging from 0.00%-1.25% based on the Company's Leverage Ratio or (b) the LIBOR rate plus a margin ranging from 1.75%-3.00% based on the Company's Leverage Ratio (as defined in the Credit Facility). Under the Tranche A Loans, the Company may borrow up to $20,000,000 through June 30, 2000 for Qualified Acquisitions (as defined in the Credit Facility). The Tranche A Loans are payable in quarterly installments (assuming the entire amount is borrowed) of (a) $1,250,000 beginning September 30, 2000 through June 30, 2001; (b) $1,875,000 from September 30, 2001 through June 30, 2002 and (c) $3,125,000 from September 30, 2002 through March 31, 2003 with the remaining unpaid balance due and payable on June 30, 2003. Interest is payable quarterly and at rates equal to the Revolving Loans. Under the Tranche B Loan, the Company borrowed $25,000,000 for the sole purpose of refinancing certain existing indebtedness. The Tranche B Loan is payable $62,500 quarterly through June 30, 2001; $312,000 quarterly from September 30, 2001 through June 30, 2003; $5,438,000 quarterly through March 31, 2004 with any unpaid balance due on June 30, 2004. Interest on the Tranche B Loan is payable quarterly and at the option of the Company will equal (a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime lending rate plus a margin ranging from .75%-l.50%, based on the Company's Leverage Ratio or (b) the LIBOR rate plus a margin ranging from 2.50%-3.25% based on the Company's Leverage Ratio. Under the terms of the Credit Facility, the Company may be required to make mandatory annual prepayments beginning in 2001 in an amount equal to 50% of Excess Cash Flow (as defined in the Credit Facility). The Company is also required to meet certain covenants, including (a) the maintenance of certain fixed charge, interest coverage, maximum funded indebtedness and leverage ratios, (b) the maintenance of a minimum level of EBITDA and Tangible Net Worth (as defined in the Credit Facility) and (c) limitation on capital 9 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 7. Debt and Preferred Stock Issuance--(Continued) expenditures. The Credit Facility also prohibits, with certain exceptions, the Company from paying cash dividends. Additionally, under the terms of the Credit Facility the Company is subject to certain restrictions with respect to issuing subordinated debt, sales of Company assets, and changes in control of the Company. Failure by the Company to satisfy the covenants in the Credit Facility may result in a Default or Event of Default which could have a material adverse effect on the Company's financial position. As of November 15, 1998 no additional borrowing capacity exists under the Credit Facility as currently structured. From July through November 1998, the Company entered into a series of amendments relating to its Credit Facility that provided for, among other things, revisions to certain financial covenants and a reduction in the Tranche A loan total availability to $8,500,000 of which $5,600,000 was outstanding at September 30, 1998. Under the terms of the Credit Facility, the Company has the right to request letters of credit in an aggregate amount not to exceed $2,000,000 with a term not to exceed one year from the date of issuance. The Credit Facility is secured by substantially all of the assets of the Company and is supported by guarantees of the subsidiaries of the Company. In connection with the Credit Facility, the Company issued pursuant to a Securities Purchase Agreement (the "Purchase Agreement") a new Series A Redeemable Convertible Preferred Stock, par value, $.01 per share (the "Series A"), to an affiliate of its agent bank in exchange for cash of $7,000,000. This Series A is convertible into 1,473,684 shares of Common Stock. The Series A carries a 6% cumulative dividend that is payable in cash. In addition, pursuant to the Purchase Agreement, the investor obtained the right to nominate one member to the Board of Directors of the Company and certain other rights. In connection with the Credit Facility and the Purchase Agreement, the Company issued in June 1998, an aggregate of 446,451 warrants to purchase Common Stock with exercise prices ranging from $0.01-$9.00 per share with a weighted average exercise price of $3.53 per share. The fair values per warrant based on the Black-Scholes valuation method range from $3.26-$4.75 per share and the related debt discount for certain of the warrants will be amortized over the life of the Credit Facility. Certain of the warrants contain put rights, which become effective upon the earlier of: (1) a change of control or (2) June 30, 2005. In addition, certain of the warrants are subject to anti-dilution provisions which may ultimately increase the number of shares of Common Stock issuable upon exercise of such warrants to 2% of the Company's fully-diluted Common Stock, resulting in additional financing expense. In accordance with the provisions of the Purchase Agreement, the Company became obligated to issue in September 1998, 959,000 warrants with an exercise price of $.01 to purchase Common Stock. Accordingly $959,000 was recorded as a discount to the Series A Preferred Stock in the accompanying condensed consolidated balance sheet at September 30, 1998. The warrants were issued in November. If the Company does not complete an effective registration statement to cover the underlying shares of its Common Stock issued pursuant to the Purchase Agreement by an agreed upon date (as defined in the Purchase Agreement) the Company will be required to issue additional nominally priced warrants to purchase Common Stock. The parties have agreed to indefinitely postpone this deadline. The Series A are subject to redemption upon certain events including, but not limited to, a change in control of the Company or seven years from the date of the original issuance. However, as long as the Credit Facility is in place, the redemption by the holder of the Series A is prohibited. If the Series A has not been converted five years subsequent to the date of issuance, the holder will receive increased Board of Directors' participation, the dividend rate will increase to 12%, and the Company may be required to issue additional warrants to purchase Common Stock. The Series A is subject to anti-dilution provisions, which may ultimately decrease the conversion price resulting in the issuance of additional shares of Common Stock upon the conversion of the Series A. 10 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 8. Income Taxes Income taxes are accounted for in accordance with Statement of Financial Accounting Standards SFAS No. 109 ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At September 30, 1998, net operating loss carryovers of approximately $18,000,000 were available to reduce future federal income taxes, subject to certain annual limitations. SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $15,094,000 and $16,300,000 valuation allowance at March 31, 1998, and September 30, 1998 respectively, was necessary to reduce the deferred tax assets to the amount that will more than likely be realized. 9. Commitments and Contingencies The Company is subject to legal proceedings in the ordinary course of its business including certain claims resulting from successor liability in connection with the assumption of certain liabilities of the physician practices. The Company does not believe that any of such legal proceedings, after consideration of professional and other liability insurance and amounts provided in the accompanying consolidated balance sheet as of September 30, 1998, will have a material adverse effect on the Company's financial position, results of operations or cash flows. On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v. Bone, Muscle & Joint, Inc., et al. was filed. In this action, in the United States District Court for the Southern District of Texas, plaintiffs asserted claims for breach of contract, common law fraud and promissory estoppel arising out of an alleged restricted stock purchase agreement between plaintiffs and the Company. Plaintiffs amended complaint seeks unspecified compensatory and exemplary damages as well as specific performance for the delivery of 117,860 shares of the Company's Common Stock. On September 22, 1998, a Stipulation and Order of Dismissal with Prejudice was entered in the United States District Court for the Southern District of Texas pursuant to a Settlement Agreement dated as of September 15, 1998. At September 1998, the Company had commitments totaling $2,750,000 for construction of two ambulatory surgery centers of which $2,300,000 had been funded. On October 23, 1998, an action entitled Tri-City Orthopaedics, et al vs. Bone, Muscle & Joint, Inc. was filed. In this action, which is currently pending in the United States District Court for the Southern District of California, plaintiffs have asserted claims for breach of contract, common law fraud and securities fraud arising out of the Management Services Agreement between plaintiffs and the Company. Plaintiff's complaint seeks unspecified compensatory and punitive damages as well as rescission of the Management Services Agreement. The Company intends to defend against the action vigorously. 11 BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 10. Supplemental Cash Flow Information Significant non-cash financing and investing activities for the six months ended September 30, 1998 are summarized as follows: o The value of stock issued upon execution of Management Services Agreements was $1,426,000. o Notes issued upon execution of Management Services Agreements were $2,466,000. o Non-cash transactions from practice affiliations including accounts receivable, furniture, fixtures and equipment, Management Services Agreements, Goodwill, due to/from physicians, Convertible Preferred Stock and accrued expenses amounted to $8,119,000. o Deferred financing costs related to the issuance of warrants amounted to $784,000. o Deferred financing costs related to the issuance of preferred stock and warrants amounted to $1,743,000. o Interest paid amounted to $2,179,000. Significant non-cash financing and investing activities for the six months ended September 30, 1997 are summarized as follows: o The value of stock issued upon execution of Management Services Agreements was $13,800,000. o Short-term loans converted to preferred stock amounted to $1,000,000. o Common stock issued for payment of accrued salaries amounted to $292,000. o Non-cash transactions from practice affiliations including Management Services Agreements and due to/from physicians amounted to $631,000. o Deferred financing costs related to the issuance of warrants amount to $714,000. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Transition Report on Form 10-K for the period ended March 31, 1998 and the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. The Company wishes to caution readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements included herein and made from time to time by representatives of the Company. Except for historical information, matters discussed below and in other oral and written communications such as press releases are forward-looking statements that involve risks and uncertainties. Whenever possible, the Company has identified these forward-looking statements by words such as "believes," "estimates," "expects," and similar expressions. The risks and uncertainties that these forward-looking statements are subject to include, without limitation, the successful implementation of any further restructuring plans that the Company may adopt, the potential inability of the Company to meet its short term and long term liquidity needs, the potential termination of contractual relationships, the potential inability of the Company to establish ancillary service facilities, fluctuations in the volume of procedures performed by the practices' physicians, changes in the reimbursement rates for those services, uncertainty about the ability to collect the appropriate fees for services provided or ordered by the practices' physicians, taxes, and governmental regulations and the factors described below under the caption "Impact of the Year 2000". OVERVIEW AND RECENT DEVELOPMENTS The Company is principally a Physician Practice Management Company ("PPM") that provides management services to its affiliated practices and ancillary service facilities, and also operates an Independent Physician Association ("IPA"). The Company focuses on musculoskeletal care, which involves the medical and surgical treatment of conditions related to bones, muscles, joints and related connective tissues. The broad spectrum of musculoskeletal care offered by the Physician Practices ranges from acute procedures, such as spine or other complex surgeries, to the treatment of chronic conditions, such as arthritis and back pain. As of September 30, 1998, the Company had affiliated with physician practices operating in Arizona, California, Florida, Pennsylvania, New Jersey, Nevada, and Texas by entering into Management Services Agreements. The Company was incorporated in Delaware in January 1996 and affiliated with its first Practice in July 1996. At December 31, 1996, the Company had entered into Management Services Agreements with three Practices comprising 34 physicians. During the year ended December 31, 1997, the Company acquired an IPA with 42 physicians in Arizona and had entered into 22 additional Management Service Agreements with 80 physicians. During the three months ended March 31, 1998, the Company entered into Management Services Agreements with two Practices comprising four physicians. During the six months ended September 30, 1998, the Company entered into Management Services Agreements with seven Practices comprising 22 physicians. During the three months ended September 30, 1998 the Company entered into Management Services Agreements with 2 practices comprising 5 physicians. Additionally, the Company has assisted with several affiliated practices in adding new physicians to the existing practice. The Company has also facilitated the combination, where appropriate, of certain solo practices into larger existing practices. On September 24, 1998, the Company announced a restructuring plan that included reducing corporate overhead through the elimination of approximately 20 corporate positions and assessing its current business model. On October 7, 1998 the Company's Board of Directors elected Donald J. Lothrop President and Chief Executive Officer. The Board of Directors has retained a consulting firm to assist in the process of evaluating alternative business models and has under consideration, among other things, an additional restructuring plan more fully described below under "Liquidity and Capital Resources - Outlook". The Company anticipates that, if implemented, this additional restructuring plan would result in the determination that certain intangible assets related to management services agreements and other assets have been impaired and would result in the write-off of the impaired portion of the assets. The amount of such impairment loss, which cannot be determined at this time, would be recognized in the period that such determination is made, 13 and the recognition of any such impairment loss could have a material adverse effect on the Company's business, results of operations and financial condition. Practice revenues, net represents the gross revenues of the affiliated Practices, the IPA, and the ancillary service facilities reported at the estimated realizable amounts from patients, third party payors and others for services rendered, net of contractual and other adjustments. Contractual adjustments typically result from the differences between the Practices' established rates for services and the amounts paid by government sponsored health care programs and other insurers. The Company estimates that approximately 17% of practice revenues, net were received under government sponsored health care programs (principally, the Medicare and Medicaid programs) during the six months ended September 30, 1998 and 1997. The Practices have numerous agreements with managed care and other organizations to provide physician services based on negotiated fee schedules. Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs. Management fee revenue primarily represents practice revenues, net less amounts retained by Practices (consisting of amounts retained by the Practices, principally compensation and fees paid to physicians and other health care providers) which are paid to the physicians pursuant to the Management Services Agreements. Under each Management Services Agreement, the Company assumes responsibility for the management of the non-medical operations of the Practice, employs substantially all of the non-professional personnel utilized by the Practice and may provide the Practice with the facilities and equipment used in its medical practice. The Company's management fee revenue consists of four components: (i) percentage of the Practices' net collected revenues (generally ranging from 10% to 15%), plus (ii) 100% of the non-physician affiliated practice expenses (generally expected to range from 45% to 55% of the Practices' net collected revenue), plus (iii) 66 2/3% of the cost savings the Company is able to achieve through its purchasing power (generally related to medical malpractice insurance, property and liability insurance, group benefits and certain major medical supplies) plus (iv) a percentage of the profits from new ancillary services at the Practices. The portion of the management fee revenue that represents a percentage of net collected revenue is dependent upon the Practices' revenues which must be billed and collected. As part of the restructuring plan under consideration, the Company would seek to modify several of its existing management services agreement to reduce the services provided by the Company in consideration for a reduction of the management fees payable by the Practices. See "Liquidity and Capital Resources - Outlook." The Company's operating expenses consist primarily of the expenses incurred in fulfilling its obligations under the Management Services Agreements. These expenses include medical support services (principally clinic overhead expenses that would have been incurred by the Practices, including non-professional employee salaries, employee benefits, medical supplies, malpractice insurance premiums, building and equipment rental and other expenses related to clinic operations) and general and administrative expenses (personnel and administrative expenses in connection with maintaining a corporate office function that provides management, contracting, administrative, marketing and development services to the Practices). Subject to the cash flow constraints and other considerations described below in "Liquidity and Capital Resources - Outlook," the Company anticipates that its business model will continue to include acquiring and operating additional Ancillary Service Facilities such as ambulatory surgery centers, MRI diagnostic imaging centers and rehabilitative therapy units. Accordingly, the Company expects that the mix and relationship of Practice and Ancillary Service revenues and operating expenses will differ from historical trends through September 30, 1998. The impact of these activities on the mix of revenues and expenses cannot be determined at this time. To date, the Company's operating costs have exceeded management fee revenues. The Company's ability to increase future management fee revenues, reduce operating costs and achieve positive cash flow will largely depend upon whether the Company is able to successfully implement a further restructuring plan that allows it to access additional capital resources and whether the Company is then able to continue to develop Ancillary Service Facilities. See "Liquidity and Capital Resources - Outlook." 14 On November 20, 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus concerning certain matters relating to the physician practice management industry with respect to the requirements which must be met to consolidate a managed professional corporation and the accounting for business combinations involving professional corporations. In accordance with the EITF's guidance, the Company will discontinue use of the display method to report revenues from management contracts in financial statements for periods ending after December 15, 1998. Thus, after December 15, 1998, fees from management contracts will be reported as a single line item in the Company's consolidated financial statements. RESULTS OF OPERATIONS Three Months Ended September 30, 1998 Compared to the Three Months Ended September 30, 1997 The following table sets forth the percentages of the Practices' revenue represented by certain items reflected in the Company's condensed consolidated statements of operations. As a result of the Company's limited period of existence and affiliation with the Practices, the Company does not believe that comparisons between periods and percentage relationships within the periods set forth below are meaningful.
Three Months Ended September 30, ------------------------- 1998 1997 ---- ---- Practice revenues, net.................................................. 100.0% 100.0% Less: amounts retained by physician groups.............................. (40.1) (45.4) ----- ----- Management fee revenue.................................................. 59.9 54.6 Operating expenses and other expenses: Medical support services.............................................. 46.4 49.4 General and administrative............................................ 11.4 15.8 Depreciation and amortization......................................... 6.3 14.3 ----- ----- Total operating expenses............................................ 64.1 79.5 ----- ----- Interest Expense 2.7 3.4 Net loss................................................................ (6.9)% (28.3)% ===== =====
Practices revenues, net. For the three months ended September 30, 1998, practice revenues, net was $33.3 million compared to $18.4 million for the three months ended September 30, 1997. The significant increase was the result of the Company reflecting revenues from 35 practice affiliation transactions for the three months ended September 30, 1998 compared to the Company reflecting revenues from a total of 21 practice affiliation transactions for the three months ended September 30, 1997. Additionally, the Company also reflected revenues from its three additional surgery centers, the expansion of other ancillary services, in particular, physical and rehabilitative therapy and its IPA for the three months ending September 30, 1998. Amounts retained by physician groups. For the three months ended September 30, 1998, amounts retained by physician groups was $13.3 million compared to $8.4 million for the three months ended September 30, 1997. The significant increase was the result of the Company having had an additional 14 practice affiliation transactions for the three months ended September 30, 1998 compared to the Company having only 21 practice affiliation transactions for the three months ended September 30, 1997. Management fee revenue. For the three months ended September 30, 1998, management fee revenue was $19.9 million compared to $10.0 million for the three months ended September 30, 1997. The $9.9 million increase was a result of the factors set forth above. Medical Support services. For the three months ended September 30, 1998, medical support services, principally clinic overhead expenses, was $15.5 million compared to $9.1 million for the three months ended September 30, 1997. The $6.4 million increase was a result of the factors set forth above. 15 General and administrative. General and administrative expenses for the three months ended September 30, 1998 were $3.8 million, as compared to $2.9 million for the three months ended September 30, 1997. The increase primarily relates to the Company's increased development of infrastructure to support additional practice affiliations. Additionally, for the three months ended September 30, 1998, the Company incurred approximately $1.5 million of expenses, related primarily to severance pay as a result of a restructuring plan management implemented in September 1998. Depreciation and amortization. Depreciation and amortization for the three months ended September 30, 1998 was $2.1 million, as compared to $2.6 million for the three months ended September 30, 1997. The depreciation expense related to acquired furniture, fixtures and equipment and the amortization expense related primarily to Management Services Agreements. The decrease related primarily to the lengthed amortization period related to the Management Service Agreements. The intangible assets related to the Management Services Agreements were being amortized over 4 years during the three months ended September 30, 1997 as a result of the vesting provisions contained in the restricted stock agreements relating to Common Stock which was issued by the Company to physicians in connection with the practice affiliation transactions. As of April 1, 1998, the Company amended and restated substantially all of its restricted stock agreements to eliminate the vesting provisions related to these shares of Common Stock. Accordingly, in April 1998 the Company revised the estimated useful lives of its assets related to the Management Services Agreements and is amortizing the remaining balances over periods ranging from 4 to 25 years. Consequently, the monthly per practice amortization expense related to the practice affiliation transactions decreased beginning April 1998. Additionally, included in depreciation and amortization expense for the three months ended September 30, 1998, was a charge of approximately $550,000 related to the write-off of goodwill for the Company's IPA as a result of the bankruptcy of a significant payer. The Company is exploring several alternatives to obtain additional working capital and cash for operations. One of the alternatives under consideration is a plan to restructure the Company's arrangements with its affiliated practices and physicians. The Company anticipates that, if implemented, this restructuring plan will likely result in the determination that certain intangible assets related to Management Service Agreements and other assets have been impaired, which will result in the write-off of the impaired portion of the assets. The amount of such impairment loss, which cannot be determined at this time, will be recognized in the period that such determination is made. The recognition of any such impairment loss could have a material adverse effect on the Company's business, results of operations and financial condition. Interest expense. Interest expense for the three months ended September 30, 1998, was $907,000 compared to $628,000 for the three months ended September 30, 1997. This increase related to borrowings related to practice affiliation transactions and ancillary service facilities acquisitions. Net loss. The net loss for the three months ended September 30, 1998 was $2.3 million, or $0.14 per share of Common Stock, as a result of the factors set forth above. The net loss for the three months ended September 30, 1997 was $5.2 million, or $0.78 per share of Common Stock as a result of the factors set forth above. 16 RESULTS OF OPERATIONS Six Months Ended September 30, 1998 Compared to the Six Months Ended September 30, 1997 The following table sets forth the percentages of the Practices' revenue represented by certain items reflected in the Company's condensed consolidated statements of operations. As a result of the Company's limited period of existence and affiliation with the Practices, the Company does not believe that comparisons between periods and percentage relationships within the periods set forth below are meaningful.
Six Months Ended September 30, --------------------- 1998 1997 ---- ---- Practice revenues, net.................................................. 100.0% 100.0% Less: amounts retained by physician groups.............................. (43.7) (46.1) ------- ------ Management fee revenue.................................................. 56.3 53.9 Operating expenses and other expenses: Medical support services............................................... 43.1 49.1 General and administrative............................................. 8.2 15.1 Depreciation and amortization.......................................... 4.9 12.3 ------- ------ Total operating expenses............................................. 56.2 76.5 ======= ====== Interest Expense 3.0 3.1 Extraordinary item 4.5 0.0 Net loss................................................................ (7.4)% (25.7)% ======= ======
Practices revenues, net. For the six months ended September 30, 1998, practice revenues, net was $67.7 million compared to $29.7 million for the six months ended September 30, 1997. The significant increase was the result of the Company reflecting revenues from 35 practice affiliation transactions for the six months ended September 30, 1998 compared to the Company reflecting revenues from a total of 21 practice affiliation transactions for the six months ended September 30, 1997. Additionally, the Company also reflected revenues from its three additional surgery centers, the expansion of other ancillary services, in particular, physical and rehabilitative therapy and its IPA for the six months ending September 30, 1998. Amounts retained by physician groups. For the six months ended September 30, 1998, amounts retained by physician groups was $29.6 million compared to $13.7 million for the six months ended September 30, 1997. The significant increase was the result of the Company having had an additional 14 practice affiliation transactions for the six months ended September 30, 1998 compared to the Company having only 21 practice affiliation transactions for the six months ended September 30, 1997. Management fee revenue. For the six months ended September 30, 1998, management fee revenue was $38.1 million compared to $16.0 million for the six months ended September 30, 1997. The $22.1 million increase was a result of the factors set forth above. Medical Support services. For the six months ended September 30, 1998, medical support services, principally clinic overhead expenses, was $29.2 million compared to $14.6 million for the six months ended September 30, 1997. The $14.6 million increase was a result of the factors set forth above. General and administrative. General and administrative expenses for the six months ended September 30, 1998 were $5.6 million, as compared to $4.5 million for the six months ended September 30, 1997. The increase primarily relates to the Company's increased development of infrastructure to support the additional practice affiliations. Additionally, for the six months ended September 30, 1998, the Company incurred approximately $1.5 million of expenses, related primarily to severance pay as a result of a restructuring plan management implemented in September 1998. Depreciation and amortization. Depreciation and amortization for the six months ended September 30, 1998 was $3.3 million, as compared to $3.7 million for the six months ended September 30, 1997. 17 The depreciation expense related to acquired furniture, fixtures and equipment and the amortization expense related primarily to Management Services Agreements. The decrease related primarily to the lengthed amortization period related to the Management Service Agreements. The intangible assets related to the Management Services Agreements were being amortized over 4 years during the six months ended September 30, 1997 as a result of the vesting provisions contained in the restricted stock agreements relating to Common Stock which was issued by the Company to physicians in connection with the practice affiliation transactions. As of April 1, 1998, the Company amended and restated substantially all of its restricted stock agreements to eliminate the vesting provisions related to these shares of Common Stock. Accordingly, in April 1998 the Company revised the estimated useful lives of its assets related to the Management Services Agreements and is amortizing the remaining balances over periods ranging from 4 to 25 years. Additionally, for the six months ended September 30, 1998, there was a charge of approximately $550,000 related to the write-off of goodwill for the Company's IPA as a result of the bankruptcy of a significant payor. The Company is exploring several alternatives to obtain additional working capital and cash for operations. One of the alternatives under consideration is a plan to restructure the Company's arrangements with its affiliated practices and physicians. The Company anticipates that, if implemented, this restructuring plan will likely result in the determination that certain intangible assets related to Management Service Agreements and other assets have been impaired, which will result in the write off of the impaired portion of the assets. The amount of such impairment loss, which cannot be determined at this time, will be recognized in the period that such determination is made. The recognition of any such impairment loss could have a material adverse effect on the Company's business, results of operations and financial condition. Interest expense. Interest expense for the six months ended September 30, 1998, was $2.0 million compared to $922,000 for the six months ended September 30, 1997. This increase related to borrowings related to practice affiliation transactions and ancillary service facilities acquisitions. Extraordinary item. The Company incurred an extraordinary loss of $3.0 million related to the write-off of deferred financing costs as a result of refinancing its existing debt in June 1998. See-"Liquidity and Capital Resources" for further discussion. Net loss. The net loss for the six months ended September 30, 1998 was $5.1 million, or $0.29 per share of Common Stock, as a result of the factors set forth above. The net loss for the six months ended September 30, 1997 was $7.7 million, or $1.23 per share of Common Stock as a result of the factors set forth above. Liquidity and Capital Resources At September 30, 1998 and March 31, 1998, the Company had $25.4 million and $26.6 million, respectively, in working capital and $613,000, and $9.5 million, respectively, in cash and cash equivalents. The Company's principal sources of liquidity as of September 30, 1998 and March 31, 1998 consisted of cash and cash equivalents of $613,000 and $9.5 million, respectively, and $27.0 million and $25.8 million of accounts receivable, respectively. Cash used in operating activities for the six months ended September 30, 1998 and 1997, was $11.1 million and $2.7 million, respectively. The increase in cash used in operating activities as compared to the six months ended September 30, 1997 was primarily related to the increase in amounts due from physician groups and decrease in accrued expenses. Cash used in investing activities for the six months ended September 30, 1998 and 1997 was $20.5 million and $21.3 million, respectively, a decrease of $800,000, primarily related to fewer practice affiliation transactions in the six months ended September 30, 1998. This was mostly offset by acquisitions of ancillary service facilities. Cash provided by financing activities for the six months ended September 30, 1998 and 1997 was $22.8 million and $25.6 million, respectively. The decrease was primarily attributable to fewer debt borrowings due to less practice affiliation transactions. In April 1998, the Company issued in the aggregate, $2.3 million of convertible promissory notes (the "Convertible Notes") in conjunction with three practice affiliation transactions that mature in four equal annual installments. The Convertible Notes bear interest at 5% and are convertible into shares of Common Stock at a conversion rate of $8.75 on unpaid principal 18 amounts at the option of the holder on the maturity dates. In June, July and September 1998, the Company, in connection with three practice affiliation transactions, became obligated to issue $2.8 million of Series B Convertible Preferred Stock ("Series B") which is convertible only into Common Stock. The Company has authorized the issuance of up to 500,000 Series B shares. There were 2,323 shares issued and outstanding as of September 30, 1998 and the Company has an obligation to issue an additional 25,664 shares of Series B. The Series B carries a 7% cumulative dividend that is payable in additional shares of stock or cash. The Company is not obligated to issue any additional shares of Series B, on account of these transactions until the first year anniversary of the practice affiliation. The Series B conversion to Common Stock is based on, in part, the Market Price (as defined in the Certificate of Designation for the Series B) into shares of Common Stock. On June 30, 1998 the Company refinanced substantially all of its debt with its senior lender and other lenders with proceeds from a $60.0 million credit facility consisting of $15.0 million revolving line of credit (the "Revolving Loans"), $25.0 million term note (the "Tranche B Loan") and a $20.0 million acquisition line of credit in which all amounts outstanding at June 30, 2000 will convert to a term loan (the "Tranche A Loan") (collectively referred to as the "Credit Facility"). The Credit Facility is secured by substantially all of the assets of the Company and is supported by guarantees of the subsidiaries of the Company. Under the Revolving Loans, the Company may borrow up to $15.0 million subject to a borrowing base equal to 80% of the product of Eligible Accounts Receivable multiplied by the Collection Rate (each as defined in the Credit Facility). The Revolving Loans have a maturity of June 30, 2001 (the Revolving Loans may be extended for two one-year terms at the discretion of the lender) and interest is payable quarterly and, at the option of the Company, will equal (a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime lending rate plus a margin ranging from .0%-1.25% based on the Company's leverage ration or (b) the LIBOR rate plus a margin ranging from 1.75%--3.00% based on the Company's Leverage Ratio (as defined in the Credit Facility) (each such rate the "Interest Rate"). Under the Tranche A Loans, the Company may borrow up to $20.0 million through June 30, 2000 for Qualified Acquisitions (as defined in the Credit Facility). The Tranche A Loans are payable in quarterly installments (assuming the entire amount is borrowed) of (a) $1.25 million beginning September 30, 2000 through June 30, 2001; (b) $1.88 million from September 30, 2001 through June 30, 2002 and (c) $3.1 Million from September 30, 2002 through March 31, 2003 with the remaining unpaid balance due and payable on June 30, 2003. Interest is payable quarterly at rates equal to the Interest Rate. The Tranche B Loan is payable $62,500 quarterly through June 30, 2001; $312,000 quarterly from September 30, 2001 through June 30, 2003; $5.4 million quarterly through March 31, 2004 with any unpaid balance due on June 30, 2004. Interest on the Tranche B Loan is payable quarterly, varies, and at the option of the Company will equal (a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime lending rate (8.5% at June 24, 1998) plus a margin ranging from .75%-1.50%, based on the Company's Leverage Ratio or (b) the LIBOR rate approximately 5.5% at June 24, 1998) plus a margin ranging from 2.5%-3.25% based on the Company's Leverage Ratio. Under the terms of the Credit Facility, the Company may be required to make mandatory annual prepayments beginning in 2002 in an amount equal to 50% of Excess Cash Flow (as defined in the Credit Facility). The Company is also required to meet certain covenants, including (a) the maintenance of certain fixed charge, interest coverage and leverage ratios, (b) the maintenance of a minimum level of EBITDA and Tangible Net Worth (as defined in the Credit Facility) and (c) limitations on capital expenditures. The Credit Facility also prohibits, with certain exceptions, the Company from paying cash dividends. Failure by the Company to satisfy the covenants in the Credit Facility may result in a Default or Event of Default which could have a material adverse effect on the Company's financial position, cash flows and results of operations. Additionally, under the terms of the Credit Facility the Company has the right to request letters of credit in an aggregate amount not to exceed $2.0 million and with a term not to exceed one year from the date of issuance. As of November 15, 1998, no additional borrowing capacity exists under the Credit Facility as currently structured. From July through November 1998, the Company entered into a series of amendments relating to its Credit Facility that provided 19 for, among other things, revisions to certain financial covenants and a reduction in the Tranche A total availability to $8.5 million of which $5.6 million was outstanding at September 30, 1998. In connection the with Credit Facility, the Company issued pursuant to a Securities Purchase Agreement (the "Purchase Agreement") a new Series A Redeemable Convertible Preferred Stock, par value, $.01 per share, (the "Series A") to an affiliate of its agent bank in exchange for cash of $7.0 million. This Series A is convertible into 1,473,684 shares of Common Stock. The Series A carries a 6% cumulative dividend that is payable in cash. The number of shares of Common Stock to be issued upon conversion is subject to certain future factors and, accordingly, cannot be determined at this time. In addition, pursuant to the Purchase Agreement, the investor obtained the right to nominate one member to the Board of Directors of the Company and certain other rights. In accordance with the provisions of the Purchase Agreement, the Company became obligated to issue in September 1998, 959,000 warrants with an exercise price of $.01 to purchase Common Stock. Accordingly $959,000 was recorded as a discount to the Series A Preferred Stock in the accompanying condensed consolidated balance sheet at September 30, 1998. The warrants were issued in November. If the Company does not complete an effective registration statement to cover the underlying shares of its Common Stock issued pursuant to the Purchase Agreement by an agreed upon date (as defined in the Purchase Agreement) the Company will be required to issue additional nominally priced warrants to purchase Common Stock. Such agreed upon date deadline for filing the effective registration statement has been mutually agreed upon by both parties to be postponed indefinitely. The Series A are subject to redemption upon certain events including, but not limited to, a change in control of the Company or seven years from the date of the original issuance. However, as long as the Credit Facility is in place, the redemption by the holder of the Series A is prohibited. If the Series A has not been converted five years subsequent to the date of issuance, the holder will receive increased participation on the Board of Directors, the dividend rate will increase to 12% and the Company may be required to issue additional warrants to purchase Common Stock. The Series A, are subject to anti-dilution provisions which may ultimately decrease the conversion price resulting in the issuance of additional shares of Common Stock upon the conversion of the Series A. In connection with the Credit Facility and the Purchase Agreement, the Company in June 1998, issued an aggregate of 446,451 warrants to purchase Common Stock with exercise prices ranging from $0.01-$9.00 per share with a weighted average exercise price of $3.53 per share. The fair values per warrant based on the Black-Scholes valuation method range from $3.26-$4.75 per share. Certain of the warrants contain put rights. Outlook Historically, available cash has been generated from cash flow from operations, borrowings under the Credit Facility and other debt, and the proceeds of equity securities. The Company will not be able to borrow any further funds under the Credit Facility without amending certain of its terms. The operations and planned expansion of existing practice affiliations, including the addition of certain ancillary service facilities will require ongoing capital expenditures. In addition, the Company's short-term liquidity is affected by the amounts and timing of collections received on accounts receivable balances. No assurance can be given that the collections will be received on a timely basis or in amounts sufficient to meet the short-term liquidity needs of the Company. The financing of ongoing operations and certain business expansion is anticipated to be provided by a combination of certain lease agreements, other financing vehicles, and cash flows from operations. The Company believes that the combination of these sources will be sufficient to meet its currently anticipated operating and capital expenditure requirements and working capital needs through December 31, 1998. The Company is exploring several alternatives to obtain additional working capital and cash for operations and has retained a consulting firm to assist in addressing these issues. One of the alternatives under consideration is a plan to restructure the Company's arrangements with its affiliated practices and physicians. The restructuring as currently contemplated would: (a) allow the affiliated physicians to repurchase, for cash, the tangible practice 20 assets and re-employ the practice personnel, thereby allowing the Company to retire a substantial amount of its outstanding indebtedness; (b) shorten the terms of the Company Management Services Agreements with the affiliated practices and physicians; and, (c) lower the management service fees charged to the affiliated practices. The restructuring would be contingent upon approval of the Company's Board of Directors and its lenders as well as negotiation of definitive agreements between the Company and the affiliated physicians. No assurances can be given that the Company will be able to obtain these approvals or negotiate these agreements in a timely manner, if at all. If the Company is not able to timely and successfully implement such a plan as well as satisfactorily resolve certain disputes with its physician groups, its operating business, financial condition, cash flows and results of operations will be materially and adversely affected. Impact of the Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs having time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions in a timely manner. As part of the Company's organization and development, the software purchased and installed to date, as well as the software under evaluation for future purchase and installation, has been represented as Year 2000 compliant. Consequently, the Company does not expect to incur any significant additional costs related to Year 2000 compliance. The Company is in the process of initiating formal communication with all of the significant payors, affiliated physicians and third-party insurers of its affiliated practices and ancillary service facilities to determine the extent to which the interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. It is the Company's belief that a significant number of its affiliated practices currently are not Year 2000 compliant.There is no assurance the systems of other companies, or the Company's affiliated practices on which the Company's systems rely or interface, will be timely converted. Consequently, there is no assurance that a material adverse effect on the Company's operations and cash flows will not occur. Reimbursement Rates The health care industry is experiencing a trend toward cost containment as payors seek to improve lower reimbursement and utilization rates with providers. Further reductions in payments to health care providers or other changes in reimbursement for health care services could adversely affect the practices with which the Company is affiliated and adversely affect the Company's results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v. Bone, Muscle & Joint, Inc., et al. was filed. In this action, in the United States District Court for the Southern District of Texas, plaintiffs asserted claims for breach of contract, common law fraud and promissory estoppel arising out of an alleged restricted stock purchase agreement between plaintiffs and the Company. Plaintiffs amended complaint seeks unspecified compensatory and exemplary damages as well as specific performance for the delivery of 117,860 shares of the Company's Common Stock. On September 22, 1998, a Stipulation and Order of Dismissal with Prejudice was entered in the United States District Court for the Southern District of Texas pursuant to a settlement agreement dated as of September 15, 1998. On October 23, 1998, an action entitled Tri-City Orthopaedics, et al vs. Bone, Muscle & Joint, Inc. was filed. In this action, which is currently pending in the United States District Court for the South District of California, plaintiffs have asserted claims for breach of contract, common law fraud and securities fraud arising out of the Management Services Agreement between plaintiffs and the Company. Plaintiffs' complaint seeks unspecified compensatory and punitive damages as well as rescission of the Management Services Agreement. The Company intends to defend against this action vigorously. The Company is subject to legal proceedings in the ordinary course of its business. The Company does not believe that any such legal proceedings will have a material adverse effect on the Company, although there can be no assurance to this effect. In addition, the Company may become subject to certain pending claims as the result of successor liability in connection with the assumption of certain liabilities of the Practices; nevertheless, the Company believes that the ultimate resolution of such additional claims resulting from successor liability will not have a material adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company has issued certain of its securities in transactions exempt from registration under the Securities Act of 1933 (the "Act") as follows: In reliance upon Section 4(2) of the Act, in July 1998 the Company entered into a Management Services Agreement with Warren whereby the Company is obligated to issue $140,000 of Series B which is convertible into Common Stock. The Company did not issue any of these shares of Series B during the period covered by this Quarterly Report on Form 10-Q. In reliance upon Section 4(2) of the Act, in July 1998 the Company entered into a Management Services Agreement with Miller, whereby the Company has issued 2,323 shares of Series B which is convertible into Common Stock. In reliance upon Section 4(2) of the Act, in September 1998 the Company issued 104,404 shares of Common Stock to Miller at a value of $2.22 per share in connection with a Management Services Agreement. See Note 6 to the Condensed Consolidated Financial Statements. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 First Amendment to Credit Agreement, dated as of July 20, 1998 entered into by and among the Company, the lenders names therein and Paribas, as agent. 10.2 Second Amendment to Credit Agreement, dated as of September 3, 1998 entered into by and among the Company, the lenders names therein and Paribas, as agent. 10.3 Third Amendment to Credit Agreement, dated as of October 14, 1998 entered into by and among the Company, the lenders names therein and Paribas, as agent. 10.4 Forth Amendment to Credit Agreement, dated as of November 2, 1998 entered into by and among the Company, the lenders names therein and Paribas, as agent. 27.1 Financial data schedule 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BMJ MEDICAL MANAGEMENT, INC. By: /s/ Donald J. Lothrop --------------------------------------- President and Chief Executive Officer By: /s/ David H. Fater --------------------------------------- David H. Fater Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 1998 24 EX-10.1 2 FIRST AMENDMENT to CREDIT AGREEMENT between BMJ MEDICAL MANAGEMENT, INC. THE LENDERS NAMED HEREIN and PARIBAS, as Agent Dated as of July 20, 1998 FIRST AMENDMENT to CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment"), dated as of July 20, 1998, is executed and entered into by and among BMJ Medical Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth on the signature pages hereof, and Paribas, in its capacity as agent for the Lender's (the "Agent"). RECITALS: A. The Borrower, the Lenders and the Agent are parties to that certain Credit Agreement dated June 30, 1998 (hereinafter called the "Agreement"; terms defined by the Agreement where used in this Amendment shall have the same meanings herein as are prescribed by the Agreement.) B. The Borrower, the Lenders and the Agent have agreed to amend the Agreement as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Agreement. Section 2. Amendment to Definition of "Consolidated Interest Expense". The definition of "Consolidated Interest Expense" contained in Section 1.1 is hereby amended to read in its entirety as follows: "Consolidated Interest Expense" shall mean, for any fiscal period of the Borrower, the total interest expense (including, without limitation, interest expense attributable to Capitalized Leases in accordance with GAAP, amortization or write-off of debt discount and debt issuance costs and commissions, other discounts and other fees associated with Indebtedness (including the Loans) and the net amount payable (or plus the net amount receivable) under interest rate protection agreements) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that (i) Consolidated Interest Expense for each of the fiscal quarters 2 ending June 30, 1998, September 30, 1998, December 31, 1998, March 3 1, 1999 and June 30, 1999 shall be calculated by multiplying the actual Consolidated Interest Expense for such fiscal quarter by four (4); (ii) Consolidated Interest Expense for the fiscal quarter ending September 30, 1999 shall be calculated by multiplying the actual Consolidated Interest Expense for the fiscal quarters ending June 30 and September 30, 1999 by two (2); (iii) Consolidated Interest Expense for the fiscal quarter ending December 3 1, 1999 shall be calculated by multiplying the actual Consolidated Interest Expense for the fiscal quarters ending June 30, September 30 and December 31, 1999 by four-thirds (4/3); and (iv) Consolidated Interest Expense for each fiscal quarter thereafter shall be the actual Consolidated Interest Expense for the last four fiscal quarters then ended. Section 3. Amendment to Definition of "Pro Forma Consolidated EBITDA". The definition of "Pro Forma Consolidated EBITDA" contained in Section 1.1 is hereby amended to read in its entirety as follows: "Pro Forma Consolidated EBITDA" for any period shall mean Consolidated EBITDA for such period, calculated in accordance with the following: (A) (i) Pro Forma Consolidated EBITDA for each of the fiscal quarters ending June 30, 1998, September 30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999 shall be calculated by multiplying the actual Consolidated EBITDA for such fiscal quarter by four (4); (ii) Pro Forma Consolidated EBITDA for the fiscal quarter ending September 30, 1999 shall be calculated by multiplying the actual Consolidated EBITDA for the fiscal quarters ending June 30 and September 30, 1999 by two (2); (iii) Pro Forma Consolidated EBITDA for the fiscal quarter, ending December 3 1, 1999 shall be calculated by multiplying the actual Consolidated EBITDA for the fiscal quarters ending June 30, September 30 and December 31, 1999 by four-thirds (4/3); and (iv) Pro Forma Consolidated EBITDA for each fiscal quarter thereafter shall be the actual Consolidated EBITDA for the last four fiscal quarters then ended; and (B) Pro Forma Consolidated EBITDA for any Affiliated Medical Entity acquired prior to the last day of any of the fiscal periods which form the basis of the calculation pursuant to clause (A) above shall be calculated as set forth on Schedule B. The amount so determined shall be added to the 3 annualized Consolidated EBITDA determined in accordance with clause (A) above. Section 4. Amendment of Schedule B. Schedule B is hereby deleted in its entirety and replaced with Schedule B attached hereto. Section 5. Amendment to Section 6. 1 (a) ("Leverage Ratio"), Section 6. 1 (a) is hereby amended to read in its entirety as follows: (a) Leverage Ratio. The Borrower shall not permit the ratio of Consolidated Total Indebtedness to Pro Forma Consolidated EBITDA (the "Leverage Ratio") to exceed, at the end of any fiscal quarter ending during any period listed below, the ratio set forth opposite such period: Period Ratio ------ ----- Closing Date to and including June 30, 2000 4.00:1.0 July 1, 2000 to and including June 30, 2001 3.50:1.0 At any time after June 30, 2001 3.00:1.0 Section 6. Amendment to Section 6. 1 (b) ("Interest Coverage Ratio"). Section 6. 1 (b) is hereby amended to read in its entirety as follows: (b) Interest Coverage Ratio. The Borrower shall not permit the ratio of Pro Forma Consolidated EBITDA to Consolidated Interest Expense for any fiscal quarter ending during any period listed below, to be less than the ratio set forth opposite such period: Period Ratio ------ ----- Closing Date to and including March 31, 1999 2.50:1.0 April 1, 1999 to and including March 31, 2000 2.75:1.0 At any time after March 31, 2000 3.00:1.0 Section 7. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 4 (a) The Agent shall have received all of the following, each dated the date of this Amendment (unless otherwise indicated), in form and substance satisfactory to the Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Resolutions. Resolutions of the board of directors of the Borrower, certified by its Secretary or Assistant Secretary, which authorize the execution, delivery and performance by the Borrower of this Amendment and the other Amendment Documents to which the Borrower is or is to be a party hereunder; (iii) Consent of Required Lenders. The written consent of the Required Lenders to this Amendment; and (iv) Additional Information. The Agent shall have received such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) The representations and warranties contained herein and in the Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to a different date). (c) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Agent. (d) No Default or Event of Default shall have occurred and be continuing. Section 8. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Lenders that as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this 5 Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 9. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or the Lenders, or any closing, shall affect the representations and warranties or the fight of the Agent and the Lenders to rely upon them. Section 1O. Reference to Agreement. Each of the Loan Documents, including the Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement, whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Section 11. Governing Law. This Amendment shall be deemed to be a contract made under and governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. Section 12. Execution. This Amendment may be executed in counterparts, each of which shall be an original and all of which, collectively, shall constitute one instrument. Although for convenience this Amendment is dated as of the date first above written, the actual date of execution hereof by the parties hereto is the date set forth on the signature page hereto, and this Amendment shall be effective on, and shall not be binding upon the Borrower, the Lenders or the Agent until, the delivery of this Amendment. 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their officers hereunder duly authorized as of the date first above written. BMJ MEDICAL MANAGEMENT, INC., as the Borrower By: /s/ David H. Fater ----------------------------------- Name: David H. Fater Title: Executive Vice President and CFO 7 PARIBAS, as Agent and as Lender By: /s/ CLARE BAILHE ----------------------------------- Name: CLARE BAILHE Title: Director By: /s/ DON UNRUH ----------------------------------- Name: DON UNRUH Title: Vice President 8 FLEET CAPITAL CORPORATION, as a Lender By: /s/ JAMES J. KARVOWSKY ----------------------------------- Name: JAMES J. KARVOWSKY Title: VICE PRESIDENT 9 THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P., as a Lender By: ING Capital Advisors, Inc., as Investment Advisor By: /S/ Michael D. Hatley ----------------------------------- Name: Michael D. Hatley Title: Senior Vice President 10 SILICON VALLEY BANK, as a Lender By: /S/ Kittridge Chamberlain ----------------------------------- Name: Kittridge Chamberlain Title: Senior Vice President 11 Schedule B Partial Period Pro Forma EBITDA Quarters ending 6/30/98, 9/30/98, 12/31/98, 3/31/99 and 6/30/99 CR * 1/12 * NQ * 0.85 * Relevant Management Fee Percentage* 4 CR = collected revenues during the 12-month period prior to acquisition NQ = number of months in relevant quarter during which the Medical Group was not affiliated Relevant Management Fee Percentage = the management fee percentage payable to the Borrower pursuant to the Management Services Agreement applicable to the Affiliated Medical Group Quarter ending 9/30/99 CR * 1/12 * N6 * 0.85 * Relevant Management Fee Percentage * 2 N6 = number of months in six month period ending 9/30/99 during which the Medical Group was not affiliated Quarter ending 12/31/99 CR * 1/12 * N9 * 0.85 * Relevant Management Fee Percentage * 4/3 N9 = number of months in nine month period ending 12/31/99 during which the Medical Group was not affiliated All quarters after 12/31/99 CR * 1/12 * N12 * 0.85 * Relevant Management Fee Percentage N12 = number of months in twelve month period ending on the last day of each quarter during which the Medical Group was not affiliated EX-10.2 3 SECOND AMENDMENT to CREDIT AGREEMENT among BMJ MEDICAL MANAGEMENT, INC. as Borrower THE LENDERS NAMED HEREIN and PARIBAS, as Agent for the Lenders Dated as of September 3, 1998 SECOND AMENDMENT to CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of September 3, 1998, is executed and entered into by and among BMJ Medical Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth on the signature pages hereof, and Paribas, in its capacity as agent for the Lenders (the "Agent"). RECITALS: A. The Borrower, the Lenders and the Agent are parties to that certain Credit Agreement dated June 30, 1998 as amended as of July 20, 1998. (hereinafter called the "Agreement"; terms defined by the Agreement, where used in this Amendment, shall have the same meanings herein as are prescribed by the Agreement), B. The Borrower, the Lenders and the Agent have agreed to amend the Agreement as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Agreement. Section 2. Amendment to Section 2.1 ("Tranche A Loans"). Section 2.1 is hereby amended to replace "$25,000,000" with "$20,000,000 in the first sentence of such section. Section 3. Amendment to Section 2.3 ("Revolving Loans"). Section 2.3 is hereby amended to replace "$10,000,000" with "$15,000,000" in the second sentence of such section. Section 4. Amendment to Section 5.13 ("Use of Proceeds"). Clause (iii) of the third sentence of Section 5.13 is hereby amended to add the words "and/or finance" after "to acquire", with the remainder of such section remaining unchanged. 2 Section 5. Amendment to Schedule 1. Schedule 1 is hereby deleted in its entirety and replaced with Schedule 1 attached hereto. Section 6. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Agent shall have received all of the following, each dated the date of this Amendment (unless otherwise indicated), in form and substance satisfactory to the Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Resolutions. Resolutions of the board of directors of the Borrower, certified by its Secretary or Assistant Secretary, which authorize the execution, delivery and performance by the Borrower of this Amendment and the other Amendment Documents to which the Borrower is or is to be a party hereunder; (iii) Consent of Required Lenders. The written consent of the Required Lenders to this Amendment; and (iv) Additional Information. The Agent shall have received such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) The representations and warranties contained herein and in the Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to a different date). (c) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Agent. 3 (d) No Default or Event of Default shall have occurred and be continuing. Section 7. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Lenders that as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 8. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Agent and the Lenders to rely upon them. Section 9. Reference to Agreement. Each of the Loan Documents, including the Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement, whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Section 10. Governing Law. This Amendment shall be deemed to be a contract made under and governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. Section 11. Execution. This Amendment may be executed in counterparts, each of which shall be an original and all of which, collectively, shall constitute one instrument. Although for convenience this Amendment is dated as of 4 the date first above written, the actual date of execution hereof by the parties hereto is the date set forth on the signature page hereto, and this Amendment shall be effective on, and shall not be binding upon the Borrower, the Lenders or the Agent until, the delivery of this Amendment. [signature pages follow] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their officers hereunder duly authorized as of the date first above written. BMJ MEDICAL MANAGEMENT, INC., as the Borrower By: /s/ DAVID H. FATER ----------------------------------- Name: DAVID H. FATER Title: Executive Vice President and CFO S-1 PARIBAS, as Agent and as Lender By: /s/ CLARE BAILHE ----------------------------------- Name: CLARE BAILHE Title: DIRECTOR By: /s/ SEAN T. CONION ----------------------------------- Name: SEAN T. CONION Title: DIRECTOR S-2 FLEET CAPITAL CORPORATION, as a Lender By: /s/ JAMES J. KARVOWSKY ----------------------------------- Name: JAMES J. KARVOWSKY Title: VICE PRESIDENT S-3 THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P. as a Lender By: ING Capital Advisors, Inc. as Investment Advisor By: /s/ Helen Y. Rhee ----------------------------------- Name: Helen Y. Rhee Title: Vice President & Portfolio Manager S-4 SILICON VALLEY BANK, as a Lender By: /s/ Kittridge Chamberlain ----------------------------------- Name: Kittridge Chamberlain Title: Senior Vice President S-5 Schedule 1 to Credit Agreement ---------------- Lenders and Commitments -----------------------
Revolving Tranche A Tranche B Name of Lender Commitment Commitment Commitment - - -------------- ---------- ---------- ---------- Paribas $5,565,000 $7,435,000 $5,000,000 Fleet Capital Corporation $5,145,000 $6,855,000 $3,000,000 The ING Capital Senior Secured High Income Fund, L.P. $ 0 $ 0 $10,000,000 Silicon Valley Bank $4,290,000 $5,710,000 $2,000,000 Paribas Capital Funding LLC $ 0 $ 0 $5,000,000
EX-10.3 4 THIRD AMENDMENT to CREDIT AGREEMENT among BMJ MEDICAL MANAGEMENT, INC. as Borrower THE LENDERS NAMED HEREIN and PARIBAS, as Agent for the lenders Dated as of October 14, 1998 THIRD AMENDMENT to CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of October 14, 1998, is executed and entered into by and among BMJ Medical Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth on the signature pages hereof, and Paribas, in its capacity as agent for the Lenders (the "Agent"). RECITALS: A. The Borrower, the Lenders and the Agent are parties to that certain Credit Agreement dated June 30, 1998 as amended as of July 20, 1998 and as of September 3, 1998 (hereinafter called the "Agreement"; terms defined by the Agreement where used in this Amendment, shall have the same meanings herein as are prescribed by the Agreement). B. By letter dated September 22, 1998, the Borrower reduced the Lenders' Tranche A Commitments pursuant to Section 2.12 of the Agreement effective September 24, 1998. C. The Borrower, the Lenders and the Agent have agreed to amend the Agreement as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Agreement. Section 2. Amendment to Section 5.1 ("Information Covenants"). Section 5.1 is hereby amended to add a new subsection (a) as setforth below, with the existing subsections of such Section 5.1 being renumbered as appropriate: (a) Monthly Financial Statements. Beginning with October 1998, within 45 days after the close of each of month, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such month and the related consolidated statements of income, cash flow and retained earnings 1 for such month and for the elapsed portion of the fiscal year ended with the last day of such month, and in each case setting forth comparative figures for the related periods in the prior fiscal year. Section 3. Amendment to Section 6. 1 (a) ("Leverage Ratio"). Section 6. 1 (a) is hereby amended to state that the Leverage Ratio for the fiscal quarter ending September 30, 1998 may not exceed 5.0:1.O. The maximum Leverage Ratio for each fiscal quarter ending after September 30, 1998 shall remain unchanged. Section 4. Amendment to Section 6. 1 (b) ("Interest Coverage Ratio"). Section6.1(b)isherebyamendedtostatethattheratioofProForma Consolidated EBITDA to Consolidated Interest Expense for the fiscal quarter ending September 30, 1998 may not be less than 2.0:1.O. The minimum ratio of Pro Forma Consolidated EBITDA to Consolidated Interest Expense for each fiscal quarter ending after September 30, 1998 shall remain unchanged. Section 5. Amendment to Section 6.8 ("Capital Expenditures"). Section 6.8 is hereby amended to read in its entirety as follows: The Borrower shall not make or incur (or commit to make or incur) and shall not permit any of its Subsidiaries to make or incur (or commit to make or incur) Capital Expenditures in fiscal year 1999 which exceed, in the aggregate, $5,000,000, and for any fiscal year thereafter, $3,000,000; provided that Qualified Acquisitions shall not be treated as Capital Expenditures for purposes of this Section 6.8; and provided further that if the maximum amount set forth above for any period exceeds the aggregate amount of Capital Expenditures made or incurred (or committed to be made or incurred) during such period, then the maximum amount set forth above for the following period (but not any subsequent periods) shall be increased by the amount of such excess. Section 6. Amendment to Schedule 1. Schedule 1 is hereby deleted in its entirety and replaced with Schedule 1 attached hereto. Section 7. Amendment Fee. The Borrower hereby agrees to pay to the Agent for the account of the Lenders an amendment fee of ten (10) basis points on each Lender's Commitment. Such fee shall be due and payable on the effective date of this Amendment. 2 Section 8. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Agent shall have received all of the following, each dated the date of this Amendment (unless otherwise indicated), in form and substance satisfactory to the Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (11) Resolutions. Resolutions of the board of directors of the Borrower, certified by its Secretary or Assistant Secretary, which authorize the execution, delivery and performance by the Borrower of this Amendment and the other Amendment Documents to which the Borrower is or is to be a party hereunder; (iii) Consent of the Required Lenders. The written consent of the Required Lenders to this Amendment; and (iv) Additional Information. The Agent shall have received such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) The representations and warranties contained herein and in the Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to a different date). (c) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Agent. (d) No Default or Event of Default shall have occurred and be continuing. 3 Section 9. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Lenders that as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof Section 1O. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Agent and the Lenders to rely upon them. Section 11. Reference to Agreement. Each of the Loan Documents, including the Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Section 12. Governing Law. This Amendment shall be deemed to be a contract made under and governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. Section 13. Execution. This Amendment may be executed in counterparts, each of which shall be an original and all of which, collectively, shall constitute one instrument. Section 14. Limited Effect. This Amendment relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights 4 any Lender may have under the Agreement, and shall not be considered to create a course of dealing or to otherwise obligate any Lender to execute similar amendments or grant any waivers under the same or similar circumstances in the future. Section 15. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment and acknowledges that such Guarantor's Guarantee shall remain in full force and effect without modification thereto. [signature pages follow] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their officers hereunder duly authorized as of the date first above written. BMJ MEDICAL MANAGEMENT, INC., as the Borrower BY: /s/ DAVID H. FATER ------------------------------ Name: DAVID H. FATER Title: CFO GUARANTORS: BMJ of Bakersfield Inc. BMJ of Bethlehem, Inc. BMJ BROG. Inc. BMJ Capital Corp. BMJ of Chandler, Inc. BMJ of Glendale, Inc. BMJ IPA of Florida, Inc. BMJ of Lake Tahoe, Inc. BMJ of Nevada, Inc. BMJ of North Broward, Inc. BMJ of San Antonio, Inc. BMJ of Santa Barbara, Inc. Orthopaedic Management Network, Inc. Valley Sports Surgeons, Inc. All By: /s/ DAVID H. FATER ------------------------------ Name: CFO Title: S-1 BMJ Surgical Associates of Bakers- field, Limited Partnership By: BMJ of Bakersfield, Inc. its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: Surgical Associates of Lake Tahoe, Limited Partnership By: BMJ of Lake Tahoe, Inc., its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: Surgical Associates of North Broward, Limited Partnership BY: BMJ of North Broward, Inc., its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: S-2 PARIBAS, as Agent and as a Lender By: /s/ CLARE BAILHE ----------------------- Name: Title: By: /s/ DON L. UNRUH ----------------------- Name: VICE PRESIDENT Title: S-3 FLEET CAPITAL CORPORATION, as a Lender By: /s/ JAMES J. KARVOWSKI ----------------------- Name: JAMES J. KARVOWSKI Title: VICE PRESIDENT S-4 THE ING CAPITAL SENIOR SE- CURED HIGH INCOME FUND, L.P. as a Lender By: ING Capital Advisors, Inc., as in- vestment Advisor By: /s/ HELEN Y. RHEE ---------------------------------- Name: HELEN Y. RHEE Title: VICE PRESIDENT & PORTFOLIO MANAGER S-5 SILICON VALLEY BANK, as a Lender By: /s/ KITTRIDGE CHAMBERLAIN ---------------------------------- Name: KITTRIDGE CHAMBERLAIN Title: SVP (3rd Amendment) S-6 PARIBAS CAPITAL FUNDING LLC, as a Lender By: /s/ JEFFREY J. YOULE ---------------------------------- Name: JEFFREY J. YOULE Title: DIRECTOR S-7 Schedule 1 to Credit Agreement ----------------
Lenders and Commitments ----------------------- Revolving Tranche A Tranche B Name of Lender Commitment Commitment Commitment - - -------------- ---------- ---------- ---------- Paribas $5,565,000 $3,158,600 $5,000,000 Fleet Capital Corporation $5,145,000 $2,913,800 $3,000,000 The ING Capital Senior Secured High Income Fund, L.P. $0 $0 $10,000,000 Silicon Valley Bank $4,290,000 $2,427,600 $2,000,000 Paribas Capital Funding LLC $0 $0 $5,000,000
EX-10.4 5 FOURTH AMENDMENT to CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of November 2, 1998, is executed and entered into by and among BMJ Medical Management, Inc., a Delaware corporation (the "Borrower"), the Lenders set forth on the signature pages hereof, and Paribas, in its capacity as agent for the Lenders (the "Agent"). RECITALS: A. The Borrower, the Lenders and the Agent are parties to that certain Credit Agreement dated June 20, 1998 as amended as of July 20, 1998, September 3, 1998 and October 14, 1998 (hereinafter called the "Agreement"; terms defined by the Agreement, where used in this Amendment, shall have the same meanings herein as are prescribed by the Agreement). B. The Borrower has received a financing proposal from Copelco Capital for a non-recourse credit facility in an amount not to exceed $2 million (the "Copelco Financing") to provide for improvements to an Ancillary Service Facility located in Bakersfield, California (the "Bakersfield ASF") and owned by BMJ Surgical Associates of Bakersfield, Limited Partnership ("BMJ Bakersfield LP"). C. BMJ of Bakersfield, Inc., a subsidiary of the Borrower ("BMJ Bakersfield"), is the general partner and 50% owner of BMJ Bakersfield LP. D. In connection with the Copelco Financing, the Borrower has requested that the Lenders release their security interest in the Collateral consisting of the assets located at the Bakersfield ASF and consent to the taking of a lien by Copelco Capital on the general partnership interest of BMJ Bakersfield in BMJ Bakersfield LP (the "GP Interest"). E. The Borrower has informed the Lenders that pursuant to a, resolution of the Borrower's Board of Directors, the Borrower will be initiating a restructure plan which may involve, among other things, reducing the number of its acquisitions, terminating a portion of its Management Services Agreements or otherwise changing the Borrower's business focus (the "Restructure"). 1 F. The Borrower, the Lenders and the Agent have agreed to amend the Agreement as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Agreement. Section 2. Amendment to Definition of "Indebtedness". The definition of Indebtedness is hereby amended by striking the parenthetical contained in clause (i) of such definition and replacing it with the following: (other than the Copelco Financing and trade payables incurred in the ordinary course of business of such Person) Section 3. Release of Collateral, Consent to Lien. Each of the Lenders hereby agrees that, upon the closing of the Copelco Financing pursuant to documentation satisfactory in form and substance to the Lenders, all of the assets located at the Bakersfield ASF shall be released as Collateral for the Obligations under the Agreement. Each of the Lenders further agrees to instruct the Agent to take all necessary action to effect such release of Collateral. In addition, each of the Lenders hereby consents to the taking of a lien by Copelco Capital on the GP Interest pursuant to documentation satisfactory in form and substance to the Lenders. Section 4. Required Consent for Restructure. The Borrower acknowledges that the Restructure may materially impact the future financial condition of the Borrower and hereby agrees that, notwithstanding anything to the contrary which may be contained in Section 9.5 of the Agreement, the Restructure shall not be initiated without the prior written consent of all of the Lenders. This requirement may only be modified by the written consent of all of the Lenders. Section 5. Consent for Additional Tranche A Loans. The parties hereto agree that from and after the effective date of this Amendment, the Borrower may not borrow Tranche A Loans without the prior written consent of all of the Lenders. This requirement may only be modified by the written consent of all of the Lenders. 2 Section 6. Consent for Changes to Section 6.8 ("Capital Expendi- tures"). Notwithstanding anything to the contrary which may be contained in Section 9.5 of the Agreement, the parties hereto agree that from and after the effective date of this Amendment, Section 6.8 of the Agreement may not be amended, modified or waived without the prior written consent of all of the Lenders. Section 7. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Agent shall have received all of the following, each dated the date of this Amendment (unless otherwise indicated), in form and substance satisfactory to the Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Resolutions. Resolutions of the board of directors of the Borrower, certified by its Secretary or Assistant Secretary, which authorize the execution, delivery and performance by the Borrower of this Amendment and the other Amendment Documents to which the Borrower is or is to be a party hereunder; (iii) Consent of the Lenders. The written consent of the Lenders to this Amendment; and (iv) Additional Information. The Agent shall have received such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) Other than as heretofore disclosed to the Lenders, the representations and warranties contained herein and in the Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to a different date). 3 (c) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Agent. (d) No Default or Event of Default shall have occurred and be continuing. Section 8. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) other than as heretofore disclosed to the Lenders, all representations and warranties set forth in the Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to a different date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 9. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Agent and the Lenders to rely upon them. Section 10. Reference to Agreement. Each of the Loan Documents, including the Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement, whether direct or indirect, shall mean a reference to the Agreement as amended hereby. Section 11. Governing Law. This Amendment shall be deemed to be a contract made under and governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. 4 Section 12. Execution. This Amendment may be executed in counterparts, each of which shall be an original and all of which, collectively, shall constitute one instrument. Section 13. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment and acknowledges that such Guarantor's Guarantee shall remain in full force and effect without modification thereto. [signature pages follow] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their officers hereunder duly authorized as of the date first above written. BMJ MEDICAL MANAGEMENT, INC., as the Borrower BY: /s/ DAVID H. FATER ------------------------------ Name: Title: GUARANTORS: BMJ of Bakersfield Inc. BMJ of Bethlehem, Inc. BMJ BROG. Inc. BMJ Capital Corp. BMJ of Chandler, Inc. BMJ of Glendale, Inc. BMJ IPA of Florida, Inc. BMJ of Lake Tahoe, Inc. BMJ of Nevada, Inc. BMJ of North Broward, Inc. BMJ of San Antonio, Inc. BMJ of Santa Barbara, Inc. Orthopaedic Management Network, Inc. Valley Sports Surgeons, Inc. All By: /s/ DAVID H. FATER ------------------------------ Name: Title: S-1 BMJ Surgical Associates of Bakers- field, Limited Partnership By: BMJ of Bakersfield, Inc. its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: Surgical Associates of Lake Tahoe, Limited Partnership By: BMJ of Lake Tahoe, Inc., its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: Surgical Associates of North Broward, Limited Partnership BY: BMJ of North Broward, Inc., its general partner By: /s/ DAVID H. FATER ----------------------- Name: Title: S-2 PARIBAS, as Agent and as a Lender By: /s/ CLARE BAILHE ----------------------- Name: CLARE BAILHE Title: DIRECTOR By: /s/ SEAN T. CONION ----------------------- Name: SEAN T. CONION Title: DIRECTOR (4th Amendment) BMJ MEDICAL MGT. NOV. 2, 1998 S-3 FLEET CAPITAL CORPORATION, as a Lender By: /s/ JAMES J. KARVOWSKI ----------------------- Name: JAMES J. KARVOWSKI Title: VICE PRESIDENT S-4 THE ING CAPITAL SENIOR SE- CURED HIGH INCOME FUND, L.P, as a Lender By: ING Capital Advisors, Inc., as In- vestment Advisor By: /s/ HELEN Y. RHEE ----------------------- Name: HELEN Y. RHEE Title: VICE PRESIDENT & PORTFOLIO MANAGER S-5 SILICON VALLEY BANK, as a Lender By: /s/ KITTRIDGE CHAMBERLAIN ---------------------------- Name: KITTRIDGE CHAMBERLAIN Title: SVP BMJ Medical Management (4th Amendment) S-6 PARIBAS CAPITAL FUNDING LLC, as a Lender By: /s/ JEFFREY J. YOULE ---------------------------- Name: JEFFREY J. YOULE Title: DIRECTOR S-7 EX-27 6 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS MAR-31-1998 APR-01-1998 SEP-30-1998 613,000 0 54,981,000 (27,979,000) 0 36,533,000 15,230,000 1,798,000 117,322,000 11,168,000 0 0 4,957,000 18,000 57,958,000 117,322,000 0 38,114,000 0 38,120,000 0 0 2,010,000 (2,016,000) 0 (2,016,000) 0 (3,038,000) 0 (5,054,000) (.28) 0 AMOUNT IS ANTI-DILUTIVE
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