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ANNEX A
SHERIDAN HEALTHCARE, INC.
4651 SHERIDAN STREET, SUITE 400
HOLLYWOOD, FLORIDA 33021
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about April 9, 1999 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Sheridan Healthcare, Inc., a Delaware corporation (the
"Company"), to the holders of record of shares of Common Stock, par value $0.01
per share (the "Common Stock"), and Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock", and, together with the Common Stock, the
"Shares"), of the Company on March 24, 1999. You are receiving this Information
Statement in connection with the designation by Vestar/Sheridan, Inc., a
Delaware corporation (formerly known as Vestar/Calvary, Inc.) (the "Purchaser"),
of certain individuals to the Company's Board of Directors (the "Company
Board"), in connection with the Merger Agreement (defined below).
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule l4f-1 promulgated thereunder. The information set forth herein
supplements certain information set forth in the Schedule 14D-9. You are urged
to read this Information Statement carefully. You are not, however, required to
take any action hereunder. Capitalized terms used herein and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
On March 24, 1999, the Company, Vestar/Sheridan Holdings, Inc., a Delaware
corporation ("Parent") and the sole stockholder of Purchaser, and Purchaser
entered into an Agreement and Plan of Merger (the "Merger Agreement") in
accordance with the terms and subject to the conditions of which (i) Purchaser
will commence a tender offer (the "Offer") for all outstanding Shares at a price
of $9.25 per Share, net to the seller in cash, without interest thereon, and
(ii) Purchaser will be merged into the Company (the "Merger"). Six officers of
the Company (the "Executives") who own, as of the date hereof, approximately
7.2% (11.4% after giving effect to the exercise of their options to purchase
Common Stock at prices less than $9.25 per share) of the outstanding shares of
Common Stock of the Company have agreed with Parent in Subscription and Tender
Agreements and a Tender Agreement (the "Subscription and Tender Agreements" and
the "Tender Agreement", respectively), among other things, to tender their
Shares into the Offer and vote their Shares in favor of the adoption of the
Merger Agreement and against any action or agreement that would impede,
interfere with, delay or prevent the purchase of Shares pursuant to the Offer or
the consummation of the Merger or would result in a breach of any covenant,
representation or warranty contained in the Merger Agreement and five of the
Executives also have agreed to purchase shares of common stock of Parent
("Parent Common Stock") following the purchase of Shares pursuant to the Offer
and have executed a Stockholders Agreement with Parent (the "Stockholders
Agreement"). Four of the Executives also have entered into new employment
agreements with the Company which shall become effective upon the purchase of
Shares pursuant to the Offer (the "Employment Agreements" and, together with the
Tender Agreement, the Subscription and Tender Agreements and the Stockholders
Agreement, the "Stockholder Documents"). Parent has agreed in the Tender
Agreement and in the Subscription and Tender Agreements to grant each of the
Executives time and performance options upon the consummation of the Merger.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on March
31, 1999. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on April 27, 1999 unless the Offer is extended.
The information contained in this Information Statement concerning
Purchaser has been furnished to the Company by Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
The Offer, the Merger, the Merger Agreement and the Stockholder Documents
referred to herein are more fully described in the Schedule 14D-9 to which this
Information Statement is attached as Annex A.
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GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The total authorized capital stock of the Company consists of: (i)
5,000,000 shares of Convertible Preferred Stock, par value $.01 per share, no
shares of which are issued and outstanding as of the date hereof; and (ii)
21,000,000 shares of common stock, of which 296,638 shares of Class A Common
Stock and 6,290,178 shares of Common Stock are issued and outstanding as of the
date hereof.
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted on by stockholders. Holders of Class A Common Stock are not
entitled to vote, except as required by law, and then are entitled to one vote
per share.
MANAGEMENT
PURCHASER DIRECTORS
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of Shares pursuant to the Offer, and from time to time thereafter, Purchaser
shall be entitled to designate up to such number of directors (the "Purchaser
Directors"), rounded up to the next whole number, to serve on the Company Board
as shall give Purchaser representation on the Company Board equal to the product
of the total number of directors on the Company Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Purchaser or any affiliate
of Purchaser bears to the total number of Shares then outstanding, and the
Company shall, at such time, promptly take all action necessary to cause
Purchaser's designees to be so elected, including either increasing the size of
the Company Board or securing the resignations of incumbent directors or both.
The Merger Agreement further provides that (i) the directors serving on the
board of directors of Purchaser immediately prior to the consummation of the
Merger will be the initial directors of the Company following the Merger, each
to hold office in accordance with the Certificate of Incorporation and By-laws
of the Company following the Merger, and (ii) the officers of the Company
immediately prior to the consummation of the Merger shall be the officers of the
Company following the Merger. In addition, until Purchaser acquires a majority
of the outstanding Shares on a fully diluted basis, the Company shall use its
reasonable best efforts to ensure that all members of the Company Board and its
committees who are not employees of the Company or its Controlled Entities (as
defined in the Merger Agreement) shall remain members of the Company Board and
such committees.
Pursuant to the Merger Agreement, James L. Elrod, Jr., David M. Hooper and
Robert L. Rosner have been designated by Purchaser as the Purchaser Directors of
the Company Board. Purchaser has informed the Company that each of the Purchaser
Directors has consented to act as a director of the Company. Except as disclosed
herein or in the Schedule 14D-9, none of such persons (i) is currently a
director of, or holds any position with, the Company, (ii) has a familial
relationship with any of the directors or executive officers of the Company or
(iii) to the best knowledge of Purchaser, beneficially owns any equity
securities (or rights to acquire any such securities) of the Company. The
Company has been advised by Purchaser that, to the best of Purchaser's
knowledge, none of such persons has been involved in any transaction with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission"), except as disclosed herein or in the
Schedule 14D-9 or in Purchaser's Schedule 14D-1.
The name, age, present principal occupation or employment and five year
employment history of each of the Purchaser Directors are set forth below.
Unless otherwise indicated, each such individual has held his present position
as set forth below for the last five years. Except for David M. Hooper, who is a
citizen of the Republic of Ireland, each such person is a citizen of the United
States. The business address of each person listed below is c/o Vestar/Sheridan
Investors, LLC, 245 Park Avenue, 41st Floor, New York, New York 10167.
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James L. Elrod, Jr. (43) Mr. Elrod is currently Vice President of Vestar
Associates Corporation III ("VAC III"). Mr. Elrod is a director and President of
both Parent and Purchaser and President of Vestar/Sheridan Investors, LLC, a
Delaware Limited Liability Company ("Holdings"). Mr. Elrod joined an affiliate
of VAC III in 1998. From 1994 through 1997, he served as the Chief Financial
Officer and Chief Operating Officer of Physicians Health Services. From 1980 to
1994, he served as Managing Director of Dillon, Read & Co. Mr. Elrod is a
director of Pinnacle Automation, Inc. and Alvey Systems, Inc., both companies in
which an affiliate of VAC III has a significant equity interest, and D.D.S.
Partners, a dental practice management company.
Robert L. Rosner. (39) Mr. Rosner is currently Vice President of VAC III
and was a founding partner of an affiliate of VAC III at its inception in 1988.
Mr. Rosner is a director and Vice President, Treasurer and Assistant Secretary
of both Parent and Purchaser and Vice President, Treasurer and Assistant
Secretary of Holdings. Mr. Rosner is Chairman of Russell-Stanley Holdings, Inc.
and a director of Remington Products Company, L.L.C., both companies in which an
affiliate of VAC III has a significant equity interest.
David M. Hooper. (31) Mr. Hooper is currently Vice President of Vestar
Capital Partners, which he joined in 1994. Mr. Hooper is a director and Vice
President, Secretary and Assistant Treasurer of both Parent and Purchaser and
Vice President, Secretary and Assistant Treasurer of Holdings. Mr. Hooper is a
director of Advanced Organics Holdings, Inc., a company in which an affiliate of
VAC III has a significant equity interest.
THE COMPANY'S CURRENT DIRECTORS AND OFFICERS
The name, age, present principal occupation or employment and five year
employment history of the current directors and executive officers of the
Company are set forth below. Unless otherwise noted, each person is a citizen of
the United States and the business address of such person is c/o Sheridan
Healthcare, Inc., 4651 Sheridan Street, Suite 400, Hollywood, Florida 33021.
Some of the current directors will resign effective immediately following the
consummation of the Offer by Purchaser.
Mitchell Eisenberg, M.D. (48) Dr. Eisenberg joined the Company in 1982,
has been a director of the Company since 1985, has been President since 1989,
and has been Chairman of the Board and Chief Executive Officer since 1994. Prior
to joining the Company, Dr. Eisenberg was in private practice.
Lewis D. Gold, M.D. (43) Dr. Gold joined the Company in 1985 as an
anesthesiologist and has been a director of the Company since 1988. He has
served as Executive Vice President -- Business Development since 1994. Dr. Gold
was also Chief of the Department of Anesthesia of Parkway Regional Medical
Center from 1990 to 1994.
Neil A. Natkow, D.O. (52) Dr. Natkow was appointed to the Company Board in
July 1996. Dr. Natkow served as Senior Vice President -- Health Care for
Precision Response Corporation, a publicly traded company, from February 1997
until October 1997, and is currently a member of Precision Response
Corporation's Board of Directors. Upon leaving Precision Response Corporation,
Dr. Natkow became President of NAN II, Inc., a Florida Corporation which is the
general partner of PhyTrust, Ltd., a Florida management services organization.
From December 1993 until October 1995, Dr. Natkow served as an executive officer
of PCA Health Plans of Florida, a health maintenance organization, most recently
as its Chief Executive Officer. From July 1992 to December 1993, Dr. Natkow was
the President and Chief Executive Officer of Family Health Plan, a health
maintenance organization, and from June 1987 to July 1992, Dr. Natkow was the
Vice President for Professional Affairs at Southeastern University for Health
Sciences.
Jamie E. Hopping (45) Mrs. Hopping has been a director of the Company
since February 1998. Mrs. Hopping is currently President and Chief Executive
Officer of Benchark Oncology, Inc. Prior to that, she served as an independent
health care consultant from September 1997 to December 1998. From January 1996
to August 1997, Mrs. Hopping served as a Group President of Columbia/HCA
Healthcare Corporation and from February 1994 to January 1996 served as its
Division President. Prior to that, Mrs. Hopping served as the Chief Executive
Officer of Deering Hospital and Grant Center, an acute care hospital and
psychiatric facility, from September 1990 to January 1993.
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Henry E. Golembesky, M.D. (53) Dr. Golembesky has been a director of the
Company since November 1995. Dr. Golembesky is currently a health care
consultant to Cejka & Company. Prior to that, Dr. Golembesky served as a health
care consultant to CSC Healthcare, Inc. from January 1993 to October 1998. From
1990 to 1992, Dr. Golembesky served as President and Chief Executive Officer of
UniMed America, a physician services division of Unihealth.
Michael F. Schundler (43) Mr. Schundler joined the Company in July 1996 as
Chief Operating Officer and currently serves as both Chief Operating Officer and
Chief Financial Officer. Previously, Mr. Schundler served as Vice
President -- Operations at American Health Network from 1994 to 1996 and as
Chief Financial Officer of AdminiStar, Inc. from 1991 to 1994. Prior to that,
Mr. Schundler was Senior Vice President -- Finance of Merrill Lynch Life
Insurance Co. and Family Life Insurance Co.
Gilbert L. Drozdow, M.D., M.B.A. (41) Dr. Drozdow joined the Company in
1987 as an anesthesiologist and was a director of the Company from 1990 to 1994.
He served the Company as Vice President -- Medical Affairs from 1994 to February
1996 and has served as Vice President Hospital-Based Services since February
1996. He was also Chairman of the Department of Anesthesia at Westside Regional
Medical Center in 1994.
Jay A. Martus, Esq. (43) Mr. Martus joined the Company in 1994 as Vice
President, Secretary and General Counsel. Prior to joining the Company, he was a
partner with the law firm of Levey & Martus, P.A. Mr. Martus represented the
Company as outside general counsel from 1989 to 1994.
Robert J. Coward (34) Mr. Coward joined the Company in March of 1994 as
Controller and served in such capacity through June of 1997. From July 1997 to
the present, he has served the Company as Vice President of Finance.
BOARD OF DIRECTORS AND COMMITTEES
The Company Board currently consists of five members and is divided into
three classes. The members of each class of directors serve for staggered
three-year terms. The Company Board is comprised of one Class I Director (Mrs.
Hopping), two Class II directors (Drs. Gold and Golembesky), and two Class III
directors (Drs. Eisenberg and Natkow). At each annual meeting of stockholders,
directors will be reelected or elected for a full term of three years to succeed
those directors whose terms are expiring.
During 1998, the Company Board met five times. The Company Board also
signed eleven unanimous written consents in lieu of meetings. Each director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Company Board (held during the period for which such director served on the
Company Board) and (ii) the total number of meetings of all committees of the
Company Board on which the director served (during the periods for which the
director served on such committee or committees).
There are four standing committees of the Company Board: Audit,
Compensation, Option and Indemnification, as more fully described below:
AUDIT COMMITTEE. The Company Board has established an audit committee
consisting of Mrs. Hopping and Dr. Golembesky (the "Audit Committee"). The Audit
Committee is responsible for making recommendations concerning the engagement of
independent public accountants, reviewing with the independent public
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants, reviewing
the independence of the independent public accountants, considering the range of
audit and non-audit fees and reviewing the adequacy of the Company's internal
accounting controls. The Audit Committee met once during 1998.
COMPENSATION COMMITTEE. The Company Board has also established a
compensation committee consisting of Drs. Eisenberg and Natkow and Mrs. Hopping
(the "Compensation Committee"). The Compensation Committee, described in greater
detail below, reviews and recommends the compensation arrangements for all
directors and officers and approves such arrangements for other senior level
employees. The Compensation Committee also administers and takes such other
action as may be required in connection with the Company's Executive Incentive
Plan (described below). The Compensation Committee met four times during 1998.
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OPTION COMMITTEE. The Company Board has also established an option
committee consisting of Drs. Golembesky and Natkow and Mrs. Hopping (the "Option
Committee"). The Option Committee administers and takes such other action as may
be required in connection with the Company's 1995 Stock Option Plan, as amended
(the "Option Plan"). The Option Committee met once during 1998 and signed one
unanimous written consent in lieu of a meeting.
INDEMNIFICATION COMMITTEE. The Company Board has also established an
indemnification committee consisting of Drs. Golembesky and Natkow and Mrs.
Hopping (the "Indemnification Committee"). The Indemnification Committee reviews
and recommends actions as may be required in connection with indemnification
issues arising out of litigation filed against the Company and certain of its
executive officers and directors by former stockholders of the Company's
predecessor. The Indemnification Committee did not meet during 1998.
The Company Board does not have a standing nominating committee. The full
Company Board performs the function of such a committee.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional
compensation for their services as a director. Non-employee directors receive an
annual director's fee of $5,000 for their service as directors. Each
non-employee director also receives $1,000 for personal attendance at any
meeting of the Company Board and $500 for each committee meeting attended and
each meeting of the full Company Board attended by telephone conference. All
directors of the Company are reimbursed for travel related expenses incurred in
attending meetings of the Company Board and its committees.
The Option Plan provides that each new non-employee director of the Company
will receive, on the date he or she first becomes a director, an option not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") (a "Non-Qualified
Option"), to purchase up to 7,500 Shares. In addition, the Option Plan provides
that each non-employee director serving in such capacity on the fifth business
day after each annual meeting of stockholders will also receive, on such date, a
Non-Qualified Option to purchase up to 2,500 Shares. Pursuant to this provision,
Drs. Golembesky and Natkow and Mrs. Hopping received grants of such
Non-Qualified Options on July 1, 1998. All options granted to directors under
the Option Plan vest in three equal installments, with one-third vesting on the
date of grant and an additional one-third vesting on each of the two successive
anniversaries thereof. All such options are granted with an exercise price per
Share equal to the fair market value per Share of Common Stock on the date of
grant and expire on the tenth anniversary of such date of grant.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT. In connection with the Company's initial
public offering in November 1995, the Company Board established a Compensation
Committee, which currently consists of Drs. Eisenberg and Natkow and Mrs.
Hopping. Prior to the establishment of the Compensation Committee, decisions
with respect to compensation of executive officers were made by the full Company
Board. The Compensation Committee is responsible for setting base salaries for
executive officers and awarding bonuses under the Company's Executive Incentive
Plan. In addition to administering executive compensation, the Compensation
Committee also reviews from time to time succession planning for senior
management. The overall objectives of the Company's executive compensation
program, as established by the Company Board and confirmed by the Compensation
Committee, are to:
- attract, retain and reward experienced, highly motivated executives
who
contribute to the Company's growth;
- reward executives based on individual and corporate performance; and
to
- align executives' goals with those of the stockholders through
grants of stock options.
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In order to implement this philosophy for fiscal year ended December 31,
1998, the Compensation Committee reviewed the individual elements of executive
compensation, including salaries, incentive compensation awards and the terms of
employment agreements with a view towards enhancing the profitability of the
Company and closely aligning the financial interests of the Company's officers
with those of its stockholders.
BASE SALARY. To date, the Compensation Committee has not established a
formal policy for determining base salary ranges for executive positions, as the
vast majority of the Company's executive officers are now compensated in
accordance with the terms of employment agreements approved by the Company Board
and entered into prior to the establishment of the Compensation Committee.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. In determining the compensation
of the Chief Executive Officer, the Compensation Committee applies the same
philosophy and procedures as are applied to other executive officers. As with
the other executive officers, the Chief Executive Officer is currently
compensated in accordance with the terms of an employment agreement approved by
the Company Board and entered into prior to the establishment of the
Compensation Committee.
The Company's Chairman, President and Chief Executive Officer, Mitchell
Eisenberg, M.D., received a base salary for fiscal 1998 of $304,808 and a bonus
of $6,375, to be awarded pursuant to the Company's Executive Incentive Plan
described below. In addition, in fiscal 1998 Dr. Eisenberg received stock option
grants of 37,500 shares and 62,500 Shares under the Company's Option Plan
described below.
The Compensation Committee believes that Dr. Eisenberg's total compensation
is appropriate in light of the Company's performance in fiscal 1998 and the
other factors described above.
EXECUTIVE INCENTIVE PLAN. The Company has established an Executive
Incentive Plan (the "Incentive Plan") pursuant to which the Compensation
Committee has the discretion to determine those officers and key employees of
the Company who will be eligible for bonuses if certain financial and business
objectives are achieved. The formula for determining bonuses under the Incentive
Plan is established annually by the Compensation Committee. The Compensation
Committee bases these formulas upon the achievement of financial goals (such as
earnings per share, specified revenue levels, maintenance of positive cash flow
or addition of economic value) and business objectives. The Compensation
Committee may change formulas during a particular year and may, from time to
time, designate additional employees as participants in the Incentive Plan. The
terms of the Incentive Plan may be amended by the Company Board at any time.
For the fiscal year ending December 31, 1998, the Compensation Committee
declared Drs. Eisenberg, Gold and Drozdow and Messrs. Martus and Schundler and
Dennis L. Gates and Robert Coward eligible for bonuses under the Incentive Plan.
In order to provide incentives for these individuals to focus their efforts on
the Company's financial performance, the Compensation Committee established a
bonus formula for 1998 (the "1998 Formula") based on the Company's 1998 earnings
per share, as reported in the Company's 1998 audited financial statements ("1998
EPS"). The 1998 Formula provides that in the event 1998 EPS is equal to or
exceeds $0.76, the eligible employees will receive, in the aggregate, bonuses in
an amount equal to 20% of the product of the excess of 1998 EPS over $0.76
multiplied by the number of Shares used in determining 1998 EPS. Of the
aggregate amount of bonuses determined by the 1998 Formula, 25% will be awarded
to Dr. Eisenberg, 5% will be be awarded to each of Drs. Gold and Drozdow and
Messrs. Martus and Schundler, 2.5% will be awarded to each of Messrs. Coward and
Gates and the remaining 50% will be distributed to officers and key employees at
the discretion of Dr. Eisenberg. The 1998 Formula provides that no bonuses will
be awarded pursuant to the Incentive Plan for the 1998 fiscal year if 1998 EPS
is less than $0.76. The 1998 Formula has, based on 1998 results, yielded an
aggregate amount of $25,500, of which Dr. Eisenberg is eligible to receive
$6,375, Drs. Gold and Drozdow and Messrs. Martus and Schundler are eligible to
receive $1,275, Mr. Coward is eligible to receive $637.50, and $13,387.50 may be
distributed at the discretion of Dr. Eisenberg. Mr. Gates is no longer employed
by the Company and will not receive a bonus.
Mitchell Eisenberg, M.D.
Jamie E. Hopping
Neil A. Natkow, D.O.
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EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company for the last three fiscal years, who were serving as
executive officers at the end of 1998, each of whose total salary and bonus
exceeded $100,000 during 1998 (collectively, the "Named Executive Officers").
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
SALARY BONUS OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (#) COMPENSATION($)(3)
--------------------------- ---- -------- -------- ------------ ------------------
Mitchell Eisenberg, M.D............. 1998 $304,808 $ 6,375 100,000(2) $ 0
Chairman of the Board of 1997 274,999 0 170,000 950
Directors, President and 1996 275,712 0 30,000 0
Chief Executive Officer
Lewis D. Gold, M.D.................. 1998 278,846 1,275 70,000(2) 0
Executive Vice President-Business 1997 249,999 0 122,500 950
Development and Director 1996 251,712 0 20,000 0
Gilbert L. Drozdow, M.D., M.B.A..... 1998 259,615 1,275 30,000(2) 0
Vice President-Hospital Based 1997 249,999 0 55,000 950
Services 1996 250,512 0 20,000 0
Jay A. Martus, Esq.................. 1998 221,152 1,275 30,000(2) 0
Vice President, Secretary and 1997 200,000 0 55,000 0
General Counsel 1996 199,677 0 20,000 0
Michael F. Schundler................ 1998 226,923 1,275 70,000(2) 0
Chief Financial Officer and 1997 199,999 0 122,500 0
Chief Operating Officer 1996 84,615(4) 0 50,000 0
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(1) Bonus amounts for the fiscal year ended 1998 were awarded pursuant to the
Company's Incentive Plan.
(2) Includes 75,000 options that were granted in February 1998 in lieu of 1997
executive bonuses under the Company's 1997 Executive Incentive Plan as
follows: Dr. Eisenberg -- 20,000; Dr. Gold -- 17,500; Mr.
Schundler -- 17,500; Dr. Drozdow -- 10,000; and Mr. Martus -- 10,000. These
options were reflected in the Company's 1998 proxy statement as 1997 option
grants.
(3) Represents contributions by the Company under its 401(k) Plan on behalf of
each of Drs. Eisenberg, Gold and Drozdow during 1997.
(4) Represents salary paid to Mr. Schundler from July 1996, when he began
employment with the Company, to December 31, 1996.
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OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth certain information containing grants of
stock options made during fiscal year ended December 31, 1998.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------- ANNUAL RATE OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION
UNDERLYING OPTIONS GRANTED OR BASE FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- -------------- ---------------- -------- ---------- -------- ----------
Mitchell Eisenberg, M.D....... 37,500(3) 8.4% $ 14.25 2/4/08 $336,066 $ 861,656
Chairman of the Board of 62,500(4) 14.0% 11.75 6/24/08 461,844 1,170,405
Directors, President and
Chief Executive Officer
Lewis D. Gold, M.D............ 26,250(3) 5.9% 14.25 2/4/08 235,246 596,159
Executive Vice President- 43,750(4) 9.8% 11.75 6/24/08 323,291 819,283
Business Development
and Director
Gilbert L. Drozdow, M.D.,..... 11,250(3) 2.5% 14.25 2/4/08 100,820 255,497
M.B.A Vice President-Hospital 18,750(4) 4.2% 11.75 6/24/08 138,553 351,121
Based Services
Jay A. Martus, Esq............ 11,250(3) 2.5% 14.25 2/4/08 100,820 255,497
Vice President, Secretary 18,750(4) 4.2% 11.75 6/24/08 138,553 351,121
and General Counsel
Michael F. Schundler.......... 26,250(3) 5.9% 14.25 2/4/08 235,246 596,159
Chief Financial Officer and 43,750(4) 9.8% 11.75 6/24/08 323,291 819,283
Chief Operating Officer
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(1) Excludes 75,000 options that were granted in February 1998 in lieu of 1997
executive bonuses. These options were reflected in the Company's 1998 proxy
statement as 1997 option grants.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of stock price appreciation set by the
Commission of five percent and ten percent compounded annually from the date
the respective options were granted. Actual gains, if any, are dependent on
the performance of the Common Stock. There can be no assurance that the
amounts reflected will be achieved.
(3) These options vest in full on February 4, 2008, provided the applicable
option holder is employed by the Company or one of its subsidiaries as of
that date. The vesting of such options will be accelerated upon a change in
control of the Company (as defined in the Option Plan) or in accordance with
the following schedule in the event that the last reported sale price of the
Common Stock on the Nasdaq National Market (the "Closing Price") reaches the
following thresholds and remains at or above the thresholds each day for a
period of one calendar month: (i) 25% of the options will vest at a Closing
Price of $33.00 per share; (ii) 50% of the options will vest at a Closing
Price of $36.00 per share; (iii) 75% of the options will vest at a Closing
Price of $39.00 per share; and (iv) 100% of the options will vest at a
Closing Price of $42.00 per share.
(4) These options will vest in full on June 24, 2008 provided the applicable
option holder is employed by the Company or one of its subsidiaries as of
that respective date. The vesting of such options will be accelerated in the
same manner as the options which are described in footnote (3) above.
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AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR-END 1998 OPTION VALUES
The following table sets forth the aggregate number of options exercised in
1998 and the value of options held at December 31, 1998 by the Named Executive
Officers.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS AT MONEY OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Mitchell Eisenberg, M.D................... 0 $ 0 40,000 260,000 $ 0 $ 0
Chairman of the Board of
Directors, President and
Chief Executive Officer
Lewis D. Gold, M.D........................ 0 0 30,833 181,667 0 0
Executive Vice President-Business
Development and Director
Gilbert L. Drozdow, M.D., M.B.A........... 1,078 7,864(2) 30,000 75,000 17,500 0
Vice President-Hospital Based Services
Jay A. Martus, Esq........................ 0 0 46,174 75,000 143,576 0
Vice President, Secretary and
General Counsel
Michael F. Schundler...................... 0 0 37,500 205,000 52,500 78,750
Chief Financial Officer and
Chief Operating Officer
- ---------------
(1) Based on $8.375 per share, the price of the last reported trade of the
Common Stock on the Nasdaq National Market on December 31, 1998.
(2) Based on $7.875 per share, the price of the last reported trade of the
Common Stock on the Nasdaq National Market on December 14, 1998 and an
exercise price of $0.58 per share.
DESCRIPTION OF STOCK OPTION PLAN
The Option Plan, administered by the Compensation Committee, is intended as
a performance incentive for officers, employees, consultants, directors and
other key persons of the Company, its subsidiaries or their affiliates to enable
the persons to whom options are granted (the "Optionees") to acquire or increase
a proprietary interest in the success of the Company. The Company intends that
this purpose will be effected by the granting of "incentive stock options"
("Incentive Options") as defined in Section 422 of the Code and Non-Qualified
Options.
Pursuant to the Option Plan, options to acquire a maximum of 1,750,000
shares of Common Stock may be granted to employees, directors (including
employee and non-employee directors) and certain independent contractors and
consultants of the Company. As of December 31, 1998, there were outstanding
options to purchase 1,402,179 Shares at exercise prices ranging from $0.58 per
share to $14.25 per Share granted under the Option Plan, 397,223 of which were
immediately exercisable at that time. Options granted under the Option Plan
become immediately exercisable upon the "Change of Control" of the Company, as
defined in the Option Plan.
401(K) PROFIT SHARING PLANS
The Company maintains 401(k) Profit Sharing Plans (the "401(k) Plans"),
which are defined contribution plans covering substantially all employees who
meet certain age and service requirements. The 401(k) Plans are intended to be
tax-qualified plans under Section 401(k) of the Code.
9
10
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
EMPLOYMENT AGREEMENTS. The Company has entered into employment agreements
with each of Drs. Eisenberg, Gold, and Drozdow and Messrs. Martus and Schundler
(the "Employment Agreements"), certain of which, in August 1998, were amended as
described below. See "-- 1998 Amendments to Employment Agreements." The term of
each of the Employment Agreements with Drs. Eisenberg, Gold and Drozdow and Mr.
Martus ends on December 31, 1999. The term of the Employment Agreement with Mr.
Schundler ends on June 30, 2001. Thereafter each Employment Agreement is
renewable for a one-year term.
The Employment Agreements with Drs. Eisenberg and Gold may be terminated
(i) by the Company without cause (as defined in the agreements) upon 30 days
written notice, (ii) upon the death or permanent disability of the executive,
and (iii) by the executive upon the occurrence of certain events, including the
failure of the Company to pay the executive's salary or provide certain benefits
to which the executive is entitled, certain relocations of the Company's
offices, and a material breach of the Employment Agreement by the Company. The
Employment Agreements provide for a continuation of base salary and certain
benefits for a period of one year following any such termination or in the event
of a change in control of the Company, as well as the pro rata portion of any
bonus to which the executive would otherwise have been entitled if such
executive had remained employed by the Company for the remainder of the calendar
year of his termination. Each Employment Agreement also provides for termination
upon mutual consent, for cause, and by the executive upon 90 days' written
notice (60 days' notice following certain reductions in medical malpractice
liability insurance), in which event the Company has no further obligation to
the executive other than the obligations to pay accrued but unpaid salary,
provide certain continuing medical malpractice insurance coverage and make
salary payments pursuant to a non-competition provision in the Employment
Agreement, as described below. Each Employment Agreement also requires the
Company to continue to provide each of Drs. Eisenberg and Gold with medical
malpractice insurance coverage for claims arising during the term of the
Employment Agreement, to the extent the executive was covered prior to his
termination, for a period of two years from the date of termination for any
reason other than by the executive following specified reductions in insurance
coverage by the Company. Each of Drs. Eisenberg and Gold are subject to certain
restrictions on competition with the Company for a period of three years
following termination of such executive's employment for any reason, provided
that the Company continues to pay such executives their salaries during such
three-year period.
The Employment Agreements with Dr. Drozdow and Messrs. Schundler and Martus
may be terminated (i) by the Company without cause (as defined in the
agreements) upon 30 days written notice, (ii) upon the death or permanent
disability of the executive, and (iii) by the executive upon the occurrence of
certain events, including the failure of the Company to pay the executive's
salary or to provide certain benefits to which the executive is entitled,
certain relocations of the Company's offices, and material breach of the
Employment Agreement by the Company. The Employment Agreements provide for a
continuation of base salary and certain benefits for a period of six months
following any such termination or in the event of a change in control of the
Company. Each Employment Agreement also provides for termination upon mutual
consent, for cause and by the executive upon 90 days' written notice (60 days'
notice following certain reductions in medical malpractice liability insurance
in the case of Dr. Drozdow), in which event the Company has no further
obligation to the executive other than the payment of accrued but unpaid salary.
The Employment Agreement with Dr. Drozdow also requires the Company to continue
to provide Dr. Drozdow with medical malpractice insurance coverage for claims
arising during the term of the Employment Agreement, to the extent Dr. Drozdow
was covered prior to his termination, for a period of two years from the date of
termination for any reason other than by Dr. Drozdow following specified
reductions in insurance coverage by the Company. Each of Dr. Drozdow and Messrs.
Martus and Schundler are subject to certain restrictions on competition with the
Company for a period of one year following termination of such Executive's
employment for any reason.
1998 AMENDMENTS TO EMPLOYMENT AGREEMENTS. In August 1998, the Company
amended the Employment Agreements (the "1998 Amendments") with Drs. Eisenberg
and Gold and Messrs. Schundler and Martus (the "Applicable Executives"). The
1998 Amendments generally continue the provisions described
10
11
above, but instituted the following modifications, several of which have been
subsequently modified by the New Employment Agreements (as defined below) which
will become effective upon the purchase of Shares pursuant to the Offer. The
modifications effected by the 1998 Amendments are summarized below:
- The term of each applicable Employment Agreement was extended until
July 31, 2003.
- A provision was added to each applicable Employment Agreement such
that it could be terminated by the Applicable Executive in the event
the Company's executive offices were relocated from Broward County,
Florida or to a location more than 15 miles from their current
executive offices.
- The Applicable Executives' compensation was increased to $325,000,
in the case of Dr. Eisenberg; $300,000, in the case of Dr. Gold;
$250,000, in the case of Mr. Schundler; and $245,000 in the case of
Mr. Martus.
- A bonus pool was established for the benefit of the Applicable
Executives and others equal to 30% of the Company's annual earnings
in excess of targeted earnings established by the Company Board.
Under this bonus arrangement Drs. Eisenberg and Gold and Mr.
Schundler are entitled to receive up to 30% of their annual base
salary and Mr. Martus is entitled to receive up to 15% of his annual
base salary. At the discretion of Dr. Eisenberg, Dr. Drozdow and Mr.
Coward and Ms. Mary Kittle, the Company's Vice President of
Operations of a subsidiary, are entitled to receive up to 15% of
their respective annual base salary through the bonus pool.
- Severance payments due to the Applicable Executive upon the
occurence of certain conditions, including a change of control of
the Company, were increased from one year's salary (plus a pro rata
portion of any bonus) to two years' salary (plus a pro rata portion
of any bonus) in the case of Drs. Eisenberg and Gold and from six
months' salary (plus a pro rata portion of any bonus) to one year's
salary (plus pro rata portion of any bonus) in the case of Messrs.
Schundler and Martus.
- Annual salary increases for the Applicable Executives of not less
than a cost of living adjustment.
- A reduction in the period required for the termination of the
Employment Agreement by the Applicable Executive from 90 to 30 days.
- Reimbursement by the Company of the amount of any excise tax owed by
the Applicable Executive, pursuant to Section 4999 of the Code in
connection with a change of control of the Company, as well as any
interest and penalties thereon.
- In the event that the Company were to fail to renew the Applicable
Executive's compensation, the Applicable Executive would be entitled
to a severance payment in the amount described above, and his
unvested options would vest immediately.
- In the event of a change of control of the Company, the Applicable
Executive could terminate his Employment Agreement upon 90 days'
notice to the Company.
- In the event of a change of control of the Company, the Applicable
Executive's noncompete agreement would prohibit the Applicable
Executive only from employment with those competing enterprises that
were doing business with the Company immediately prior to the change
of control.
- The noncompete agreements of Drs. Eisenberg and Gold were
eliminated.
NEW EMPLOYMENT AGREEMENTS. Concurrently with the execution and delivery of
the Merger Agreement, the Company entered into new employment agreements (the
"New Employment Agreements") with each of the Applicable Executives. The
following is a summary of the New Employment Agreements, which summary is
qualified in its entirety by reference to the New Employment Agreements, which
are filed as exhibits to Schedule 14D-9 and are incorporated herein by
reference.
The New Employment Agreements become effective upon the purchase of Shares
pursuant to the Offer. Each New Employment Agreement has a five-year term with
automatic one year renewals thereafter, unless either party gives the other six
months' written notice prior to the end of the applicable term. The New
11
12
Employment Agreements supersede all prior agreements and understandings between
each Applicable Executive and the Company and its affiliates; provided that they
do not supersede the Applicable Executives' rights under the Company's employee
benefit plans.
The New Employment Agreements provide for a one-time cash bonus at the
Effective Time (as defined in the Merger Agreement) in the amounts of $650,000,
$600,000, $250,000, and $245,000 for Dr. Eisenberg, Dr. Gold, Mr. Schundler and
Mr. Martus, respectively. In addition, the New Employment Agreements provide for
annual base salaries of $375,000, $350,000, $275,000 and $275,000 for Dr.
Eisenberg, Dr. Gold, Mr. Schundler and Mr. Martus, respectively. The Company has
also agreed to establish an annual incentive compensation plan pursuant to which
the Applicable Executives shall be eligible to receive bonuses equal to 50%, in
the case of Dr. Eisenberg and Dr. Gold, or 25%, in the case of Mr. Schundler and
Mr. Martus, of their annual salaries based upon satisfaction of performance
targets established by the Company Board.
If an Applicable Executive's employment pursuant to his New Employment
Agreement is terminated (i) by the Company without cause (as defined in the New
Employment Agreements), (ii) upon the death or permanent disability of the
Applicable Executive or (iii) by the Applicable Executive upon the occurrence of
certain events, including the failure of the Company to pay the Applicable
Executive's salary or provide certain benefits to which the Applicable Executive
is entitled, certain relocations of the Company's offices or a material breach
of the New Employment Agreement by the Company, the Company shall make cash
severance payments over a one-year period following any such termination in an
aggregate amount equal to the relevant Applicable Executive's base salary (twice
the base salary in the case of Dr. Eisenberg and Dr. Gold) plus the pro rata
portion of the annual bonus to which the Applicable Executive would otherwise
have been entitled for the fiscal year in which such termination occurs as if
such Applicable Executive had remained employed by the Company for the entire
fiscal year. In addition, Dr. Eisenberg's and Dr. Gold's New Employment
Agreements provide that if their employment terminates due to any of the
foregoing events within one year following a Change of Control (as defined),
such Applicable Executive shall receive in addition to the severance amounts
described above the excess of (A) the greater of (i) $1 million and (ii) twice
the amount of such Applicable Executive's current base salary and bonus he
received the prior year less (B) twice his base salary. Payment of all severance
amounts is subject to the Applicable Executive's continued compliance with his
covenant not to compete with the Company.
Each New Employment Agreement also provides for termination upon mutual
consent, for cause, and by the Applicable Executive upon 90 days' written notice
or upon due notice not to renew at the end of his term of employment, in which
event the Company has no further obligation to the Applicable Executive other
than the obligations to pay accrued but unpaid salary, to provide certain
continuing medical malpractice insurance coverage and to pay the Applicable
Executive his accrued and unpaid bonus in respect of prior completed fiscal
years. If an Applicable Executive's employment is terminated because the Company
decides not to renew at the end of his term of employment, such Applicable
Executive shall be entitled to his accrued and unpaid salary and bonus and,
provided he complies with his covenant not to compete with the Company, an
amount equal to his base salary (twice the base salary in the case of Dr.
Eisenberg and Dr. Gold).
Each of the Applicable Executives is subject to certain non-competition,
non-solicitation and confidentiality provisions with respect to the Company and
its Controlled Entities (as defined in the Merger Agreement).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive compensation is determined by the Compensation
Committee of the Company Board, which consists of Drs. Eisenberg and Natkow and
Mrs. Hopping. Other than Dr. Eisenberg, who serves as Chief Executive Officer of
the Company, the Compensation Committee is comprised of directors who are not
and have never been Company employees. No Company executive officer serves on
the compensation committee of another company for which any member of the
Company's Compensation Committee serves as an executive officer. There were no
Compensation Committee interlocks during fiscal year ended December 31, 1998.
12
13
STOCK PERFORMANCE GRAPH
The following graph provides a comparison of cumulative total stockholder
return on the Common Stock for the period from October 31, 1995 (the date on
which the Common Stock was first publicly traded) through December 31, 1998
among the Company, the Nasdaq Stock Market-US Companies Index (the "Nasdaq-US
Index") and the Center for Research in Security Prices ("CRSP") Nasdaq Stock
Market-Health Services Index (the "CRSP-Health Services Index"). The Stock
Performance Graph assumes an investment of $100 in each of the Company and the
two indices, and the reinvestment of any dividends. The historical information
set forth below is not necessarily indicative of future performance. Data for
the Nasdaq-US Index and the CRSP-Health Services Index was provided to the
Company by CRSP.
COMPARISON OF CUMULATIVE TOTAL RETURNS
PERFORMANCE REPORT FOR
SHERIDAN HEALTHCARE, INC. [GRAPH]
MEASUREMENT PERIOD SHERIDAN NASDAQ NASDAQ
(FISCAL YEAR COVERED) HLTHCARE INC US HEALTH
- -------------------- ------------ ------ ------
10/31/95 100 100 100
DEC 95 95.10 101.80 117.73
DEC 96 46.08 125.19 117.54
DEC 97 117.65 153.59 119.79
DEC 98 65.69 215.90 102.72
13
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHERIDAN MEDICAL HEALTHCORP, P.C.
As a result of certain prohibitions on the practice of medicine by business
corporations in New York, Sheridan Medical Healthcorp, P.C. ("Sheridan-NY") was
organized under the laws of the State of New York on October 28, 1993. Dr.
Drozdow is the only stockholder of Sheridan-NY. The Company has maintained an
affiliation with Sheridan-NY through a management services agreement pursuant to
which the Company provides all physician management services to the physicians
affiliated with Sheridan-NY in exchange for a management fee. During 1998, the
Company received approximately $1.87 million in fees from Sheridan-NY under this
agreement.
SHERIDAN HEALTHCARE OF TEXAS, P.A.
As a result of certain prohibitions on the practice of medicine by business
corporations in Texas, Sheridan Healthcare of Texas, P.A. ("Sheridan-Texas") was
organized under the laws of the State of Texas on August 18, 1995. Dr. Drozdow
is the only stockholder of Sheridan-Texas. The Company has entered into a
management services agreement with Sheridan-Texas pursuant to which the Company
provides all physician management services to the physicians affiliated with
Sheridan-Texas in exchange for a management fee. During 1998, the Company
received approximately $85,000 in fees from Sheridan-Texas under this agreement.
SHERIDAN HEALTHCARE OF CALIFORNIA MEDICAL GROUP, INC.
As a result of certain prohibitions on the practice of medicine by business
corporations in California, Sheridan Healthcare of California Medical Group,
Inc. ("Sheridan-California") was organized under the laws of the state of
California on August 18, 1995. Dr. Drozdow is the only stockholder of
Sheridan-California. No management fees were paid by Sheridan-California to the
Company during 1998.
SHERIDAN CHILDREN'S HEALTHCARE SERVICES OF PENNSYLVANIA, P.C.
The Company also maintains an affiliation with Sheridan Children's
Healthcare Services of Pennsylvania, P.C. ("Sheridan Children's"), under which
Sheridan Children's provides certain physician management services to the
Company. Sheridan Children's is also wholly-owned by Dr. Drozdow. The Company
provided management services to Sheridan Children's in exchange for management
fees. During 1998, the Company received approximately $80,000 in such fees.
The Company believes that, with respect to the transactions discussed above
in this Section, the terms of each such transaction were on terms at least as
favorable as the Company could have obtained from an unaffiliated third party.
CERTAIN ARRANGEMENTS WITH MANAGEMENT
In addition to the Employment Agreements described above, concurrently with
the execution and delivery of the Merger Agreement, Parent entered into
Subscription and Tender Agreements and a Stockholders Agreement with each of
Drs. Mitchell Eisenberg, Lewis D. Gold, and Gilbert L. Drozdow and Messrs.
Michael F. Schundler and Jay A. Martus, and a Tender Agreement with Mr. Robert
J. Coward. Such Agreements are described in, and filed as exhibits to the
Schedule 14D-9 and are incorporated herein by reference.
The Subscription and Tender Agreements and the Tender Agreement provide
that each Executive will validly tender the Shares of Common Stock he owns in
the Offer and will not withdraw any Shares so tendered; provided that the Merger
Agreement has not been terminated. Each Executive also agrees, so long as such
Executive is required to tender his Shares, to vote his Shares (a) in favor of
the adoption of the Merger Agreement and the approval of the transactions
contemplated thereby and (b) against any action or agreement that would result
in a breach of any covenant, representation or warranty in the Merger Agreement
14
15
or would impede, interfere with, delay or prevent the consummation of the Merger
or the purchase of Shares of Common Stock or Class A Common Stock pursuant to
the Offer. Each Executive has agreed not to, so long as he is required to tender
his Shares, purport to vote (or execute a consent with respect to) such Shares
(other than in accordance with the requirements of the Subscription and Tender
Agreement or the Tender Agreement) or grant any proxy or power of attorney with
respect to any Shares of Common Stock, deposit any such Shares into a voting
trust or enter into any agreement, arrangement or understanding with any person
(other than the Subscription and Tender Agreements and the Tender Agreement),
directly or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of such Shares, or agree to do any of the foregoing. The
Subscription and Tender Agreements and the Tender Agreement also provide that no
Executive shall, so long as he is required to tender Shares pursuant to the
Subscription and Tender Agreement or the Tender Agreement, sell, transfer or
otherwise dispose of, pledge or otherwise encumber any Shares after the date of
such agreement (except to tender Shares to Purchaser pursuant to the Offer), or
agree to do any of the foregoing.
Pursuant to the Subscription and Tender Agreements, each Executive party
thereto has agreed to subscribe for and purchase, and Parent has agreed to issue
and sell to such Executive, on the date Purchaser purchases Shares pursuant to
the Offer (the "Closing Date") a specific number of shares of Parent Common
Stock at a price equal to the price per Share paid pursuant to the Offer. The
Executives (other than Mr. Coward) have agreed to purchase an aggregate number
of shares of Parent Common Stock that are expected to constitute approximately
4.8% of the shares of Parent Common Stock expected to be outstanding upon
consummation of the Merger. Notwithstanding any other provision of the
Subscription and Tender Agreements, Parent shall have no obligation to issue,
sell or deliver any of its shares to any Executive (i) who is not a full-time
employee of, or consultant to, Parent or any of its subsidiaries on the Closing
Date, (ii) whose representations and warranties contained in the Subscription
and Tender Agreement are not true and correct as of the Closing Date in all
material respects or (iii) who has breached his obligations under his
Subscription and Tender Agreement.
The Subscription and Tender Agreements and the Tender Agreement also
provide that upon the consummation of the Merger (a) Parent shall adopt the
Vestar/Sheridan Holdings, Inc. 1999 Stock Option Plan (the "Parent Option Plan")
in substantially the form attached to the Subscription and Tender Agreements and
the Tender Agreement and (b) Parent shall enter into stock option agreements
with each Executive in substantially the forms attached to the Subscription and
Tender Agreements and the Tender Agreement pursuant to which the Executives will
be granted options to purchase an aggregate of 950,000 shares of Parent Common
Stock, at an exercise price per share equal to the price per share of Common
Stock and Class A Common Stock paid pursuant to the Offer, subject to the
satisfaction of certain time vesting requirements or targets relating to the
financial performance of the Company which are described in the option
agreements.
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Holdings, the Company and the Executives party to Subscription and
Tender Agreements entered into a Stockholders Agreement (the "Stockholders
Agreement"). Mr. Coward will enter into the Stockholders Agreement upon the
consummation of the Merger. The following is a summary of the Stockholders
Agreement, which summary is qualified in its entirety by reference to the
Stockholders Agreement, a copy of which is filed as an exhibit to the 14D-9 and
is incorporated herein by reference.
Pursuant to the Stockholders Agreement, the shares of Parent Common Stock
beneficially owned by the Executives and any other employees of Parent and its
subsidiaries who become beneficial owners of Parent Common Stock (collectively,
the "Management Investors") are subject to restrictions on transfer, as well as
the other provisions described below.
The Stockholders Agreement provides that Holdings and the Management
Investors will vote all of their shares of Parent Common Stock to elect and
continue in office a Board of Directors of Parent and each subsidiary of Parent
(other than subsidiaries of the the Company) consisting solely of the following:
(a) three designees of Holdings;
15
16
(b) two designees of the Management Investors (who shall be Dr.
Eisenberg and Dr. Gold so long as each of them is an executive officer of
the Issuer); and
(c) two persons to be designated by Holdings in its sole discretion
after consultation with the representative of the Management Investors.
In addition, each Management Investor has agreed that until the Lapse Date (as
defined in the Stockholders Agreement), he will vote all of his shares of Parent
Common Stock (i) consistent with the vote of Holdings with respect to its shares
of Parent Common Stock and (ii) to ratify, approve and adopt any and all actions
adopted or approved by the Board of Directors of Parent.
The Stockholders Agreement provides for customary "tag-along" and
"drag-along" rights with respect to shares of Parent Common Stock beneficially
owned by the Management Investors. In addition, Holdings has certain rights to
require Parent to register shares of Parent Common Stock held by it under the
Securities Act of 1933, and Holdings and the Management Investors have certain
rights to participate in publicly registered offerings of Parent Common Stock
initiated by Parent or other third parties.
The Stockholders Agreement provides that upon termination of a Management
Investor's employment with Parent and its subsidiaries, (a) Parent, Holdings and
the Issuer will have call rights with respect to shares of Parent Common Stock
owned by such Management Investor and certain transferees and (b) such
Management Investor and certain transferees in certain limited circumstances
will have a right to put shares of Parent Common Stock to the Company. The
amount paid for shares of Parent Common Stock upon a put or a call will vary
depending on the reason for the termination of such Management Investor's
employment. The Stockholders Agreement also contains non-competition,
non-solicitation and confidentiality provisions agreed to by each Management
Investor who is not party to a written employment agreement with Parent or one
of its subsidiaries which contains such provisions.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 24, 1999 (except as noted below)
certain information regarding the beneficial ownership of Common Stock by (i)
each person or "group" (as that term is defined in Section 13(d)(3) of the
Exchange Act) known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) the named executive officers, (iii) each
director and director designee of the Company and (iv) all directors, designated
directors and executive officers of the Company as a group (twelve (12)
persons). Except as otherwise indicated, each person listed below has sole
voting and investment power over the shares of Common Stock shown as
beneficially owned.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK(1)
---- ------------------ ---------------
Vestar/Sheridan Holdings, Inc............................... 698,759(2) 10.7%
245 Park Avenue, 41st Floor
New York, NY 10167
TA Associates, Inc.......................................... 1,890,882(3) 28.7%
125 High Street
Boston, MA 02110
Chestnut Investors.......................................... 213,439(4) 3.2
c/o MVP Ventures
45 Milk Street
Boston, MA 02109
NationsBank Investment Corporation.......................... 438,695(5) 6.7%
c/o NationsBank Leveraged Capital
NationsBank Corporate Center, 10th Floor
100 North Tryon Street
Charlotte, North Carolina 28202-4006
16
17
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK(1)
---- ------------------ ---------------
Kaufmann Fund, Inc.......................................... 900,000(6) 13.7%
140 E. 45th Street, 43rd Floor
New York, New York 10017
Mitchell Eisenberg.......................................... 258,041(7)(8) 3.9
Lewis D. Gold............................................... 206,325(7)(9) 3.1
Gilbert L. Drozdow.......................................... 78,537(7)(10) 1.2
Jay A. Martus............................................... 56,956(7)(11) *
Michael F. Schundler........................................ 73,700(7)(12) 1.1
Robert J. Coward............................................ 25,200(7)(16) *
Henry E. Golembesky......................................... 13,333(13) *
Neil A. Natkow.............................................. 33,833(14) *
Jamie Hopping............................................... 5,833(15) *
James L. Elrod, Jr.......................................... 0(17) *
Robert L. Rosner............................................ 0(17) *
David M. Hooper............................................. 0(17) *
All directors, director designees and executive officers as
a group (12 persons)...................................... 751,758 11.4
- ---------------
* Less than one percent
(1) The number of Shares outstanding used in calculating the percentage for
each listed person includes the Shares underlying the options held by such
person or entity that are exercisable within 60 days of March 24, 1999, but
excludes Shares underlying options held by any other person.
(2) Beneficial ownership is based solely on the provisions of the Tender
Agreement described in "Certain Relationships and Related
Transactions -- Certain Arrangements with Management" pursuant to which
among, other things, these officers have agreed with Parent to (1) vote the
Shares shown here as beneficially owned in favor of the adoption of the
Merger Agreement and against any action or agreement that would impede,
interfere with, delay or prevent the purchase of Shares pursuant to the
Offer or the consummation of the Merger or would result in a breach of any
covenant, representation or warranty contained in the Merger Agreement and
(2) tender such Shares into the Offer.
(3) Includes 1,031,130 Shares owned by Advent VII L.P., 526,099 Shares owned by
Advent Atlantic and Pacific II L.P., 103,105 Shares owned by Advent New
York L.P., 210,456 Shares owned by Advent Industrial II Limited
Partnership, and 20,092 Shares owned by TA Venture Investors Limited
Partnership.
(4) Includes 105,189 Shares owned by Chestnut III Limited Partnership and
108,250 Shares owned by Chestnut Capital International III Limited
Partnership.
(5) Includes 296,638 Shares of Class A Common Stock which are convertible into
Common Stock at the option of NationsBank Investment Corporation upon the
occurrence of certain events. As a result, NationsBank Investment
Corporation may be deemed to beneficially own the number of Shares of
Common Stock into which the Shares of Class A Common Stock so held are
convertible.
(6) The indicated ownership is as of February 18, 1998 and is based solely on a
Schedule 13G provided by this entity to the Company.
(7) On March 24, 1999, Mitchell Eisenberg, Lewis D. Gold, Michael F. Schundler,
Gilbert L. Drozdow and Jay A. Martus each entered into Subscription and
Tender Agreements with Parent and Robert J. Coward entered into a Tender
Agreement with Parent in which they agreed, among other things, to (1) vote
all of their Shares in favor of the adoption of the Merger Agreement and
against any action or agreement that would impede, interfere with, delay or
prevent the purchase of Shares pursuant to the Offer or the consummation of
the Merger or would result in a breach of any covenant, representation or
warranty contained in the Merger Agreement and (2) tender such Shares in
the Offer. Pursuant to the Subscription and Tender Agreements and the
Tender Agreement, each of the aforementioned individuals may be deemed to
beneficially own approximately 10.7% of the outstanding Shares.
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(8) Includes 151,015 Shares owned by the Eisenberg Family Limited Partnership,
a Florida limited partnership. Dr. Eisenberg acts as the sole general
partner of this limited partnership and exercises sole voting and
investment power with respect to such Shares. Also includes 26,956 Shares
owned by Dr. Eisenberg's wife and 570 Shares owned by his wife's retirement
plan, of which Shares, in each case, Dr. Eisenberg disclaims beneficial
ownership. Also includes 40,000 currently vested options and 10,000 options
which vest within 60 days of March 31, 1999.
(9) Includes 107,870 Shares owned by the Gold Family Limited Partnership, Ltd.,
a Florida limited partnership. Dr. Gold acts as the sole general partner of
this limited partnership and exercises sole voting and investment power
with respect to such Shares. Also includes 58,956 Shares owned by Dr.
Gold's wife, of which Shares Dr. Gold disclaims beneficial ownership. Also
includes 30,833 currently vested options and 6,666 options which vest
within 60 days of March 31, 1999.
(10) Includes 43,145 Shares owned by the Drozdow Family Limited Partnership, a
Florida limited partnership. Drozdow Family GP Corp., a Florida corporation
owned by Dr. Drozdow and his wife as tenants by the entireties, is the
general partner of this limited partnership. Dr. Drozdow, in his capacity
as the sole director and officer of the general partner of the limited
partnership, exercises sole voting and investment power with respect to
such Shares. Includes 30,000 currently vested options.
(11) Includes 46,174 currently vested options.
(12) Includes 37,500 currently vested options.
(13) Includes 12,500 currently vested options and 833 options which vest within
60 days of March 24, 1999.
(14) Includes 10,000 currently vested options and 833 options which vest within
60 days of March 24, 1999.
(15) Represents 5,833 currently vested options.
(16) Represents 25,200 currently vested options.
(17) Messrs. Elrod, Rosner and Hooper are each directors and officers of Parent
and Purchaser. Based solely on the provisions of the Tender Agreement and
the Subscription and Tender Agreements, Parent is deemed to beneficially
own 698,759 Shares.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes of
ownership with the Commission and each exchange on which the Company's
securities are registered. Officers, directors and greater than ten percent
stockholders are required by Commission regulations to furnish the Company with
copies of all ownership forms they file.
Based solely upon a review of (1) Forms 3 and 4 and amendments to each form
furnished to the Company pursuant to Rule 16a-3(e) under the Exchange Act during
the Company's fiscal year ended December 31, 1998, (2) any Forms 5 and
amendments to the form furnished to the Company with respect to the Company's
fiscal year ended December 31, 1998, and (3) any written representations
referred to the Company in subparagraph (b)(2)(i) of Item 405 of Regulation S-K
under the Exchange Act, no person who at any time during the fiscal year ended
December 31, 1998 was a director, officer or, to our knowledge, a beneficial
owner of more than 10% of the Company's Common Stock failed to file on a timely
basis reports required by Section 16(a) of the Exchange Act during the fiscal
year ended December 31, 1998 or prior fiscal years.
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